Germany Passes Supply Chain Due Diligence Act

In a significant move towards promoting ethical business practices, the German parliament has recently passed a ground-breaking law that will revolutionise supply chain due diligence activities. The new legislation, known as the Supply Chain Due Diligence Act, mandates large companies to prioritise human rights and environmental considerations within their own operations and those of their direct suppliers. This development is set to reinforce the importance of social and environmental standards in global supply chains. 

Commencing in 2023, the law will initially apply to companies based in Germany with over 3,000 employees or German-registered branches of foreign companies with a similar employee count. By 2024, the scope of the law will expand to include companies with over 1,000 employees. The Act necessitates these companies to establish robust processes for identifying, assessing, preventing, and addressing human rights and environmental risks and impacts in their supply chains. Additionally, they must create avenues for employees of indirect suppliers to raise concerns regarding human rights or environmental violations. 

The risks that companies are required to tackle include forced labour, child labour, discrimination, violations of freedom of association, unethical employment practices, unsafe working conditions, and environmental degradation. Furthermore, these companies must publish an annual report detailing the steps to identify and mitigate these risks. 

Non-compliance with due diligence laws can result in severe consequences, such as fines of up to €800,000 or 2% of the average annual global turnover. In addition, companies failing to meet the requirements may face exclusion from winning public contracts in Germany for up to three years. 

To ensure compliance, businesses should take specific measures. The first crucial step is to comprehensively map all direct suppliers, including their locations, business nature, worker profiles, and contact details. Collaborating with procurement and buying teams can facilitate the compilation of a complete supplier list. A primary risk assessment considering supplier locations and worker types, particularly vulnerable groups like migrant workers, is also recommended. 

Suppliers of companies falling under the purview of this law should anticipate an increase in information requests from their customers. Familiarising yourself with the law’s requirements and ensuring compliance with labour, health, safety, and environmental legislation will enable you to respond effectively to such inquiries. 

While Germany’s supply chain law is a commendable step forward, it joins a growing array of national regulations, including the French Corporate Duty of Vigilance Law, the UK Modern Slavery Act, and the Californian Transparency in Supply Chains law. Businesses must also anticipate the European Union’s proposed law for corporate due diligence, which carries significant implications. By adhering to the principles of the proposed EU legislation, businesses can proactively address human rights abuses and environmental damage, aligning with global best practices. 

Please contact us to learn more about these laws and how Ten Intelligence can assist your business. Navigating the evolving regulatory landscape can be challenging, but adopting a proactive approach will ensure compliance and contribute to a sustainable and responsible business ecosystem. Let’s work together to build a better future for all.