Germany’s cabinet on Wednesday launched the bill for the Act on Corporate Due Diligence in Supply Chains (or Supply Chain Act) aimed at strengthening the protection of human rights, health and the environment in German companies’ global supply chains.
The bill mandates German companies with at least 3,000 employees to comply with supply chain standards throughout the manufacturing process by analyzing human rights-related risks, taking measures to prevent and mitigate human rights violations, setting up grievance mechanisms and reporting on their activities. It also covers environmental risks that can lead to human rights violations. Penalties for non-compliance include a fine of up to two percent of average annual sales for companies with an annual revenue of at least 400 million euros, and exclusion from public tenders for up to three years.
Olaf Scholz, the German Minister of Finance, tweeted after the launch of the bill, “With the #Supply Chains Act, we protect workers around the world from exploitation. ‘Made in Germany’ no longer only stands for quality. But also for respect for human rights, worldwide.”
German companies have expressed concerns over the bill, stating that it would place them at a competitive disadvantage, citing difficulties in enforcement, and have called for an EU-wide approach.
Human rights groups have also expressed disappointment at the bill, stating that the provisions on companies’ financial liability resulting from violations have been weakened, and that a provision that would have allowed victims to take civil action against companies has been removed. They also expressed displeasure that the law will apply exclusively to large companies, and, with regard to indirect suppliers, does not require the conduct of specific due diligence unless companies have “substantiated knowledge” of human rights violations at that level. Environmentalists argue that violations are most likely to occur during the initial stage of resource extraction.
The bill is expected to be passed by the parliament before the summer break. It would bring under its ambit up to 2,500 companies and will expand its reach in 2024 to companies with 1,000 or more employees.