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German Supply Chain Act to Ensure Human Rights and Environmental Obligations across global suppliers

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The German government has come to an agreement on the supply chain law, which aims to ensure human rights and the protection of the environment in production along global supply chains. The initiative will be monitored by The Federal Office of Economics and Export Control ("Bundesamt für Wirtschaft und Ausfuhrkontrolle”).

On March 3, 2021, the draft law "Act on Corporate Due Diligence in Supply Chains" ("Supply Chain Act") was adopted by the cabinet and then submitted to the Bundestag. The draft law introduces an urgently needed paradigm shift in Germany: away from purely voluntary corporate social responsibility to binding human rights and environmental requirements. The central element of this legislation is the performance of risk analysis, by which the risk of a violation of human rights or environmental obligations must be analyzed. In the future, large German companies will be responsible for ensuring that their suppliers comply with sustainability and human rights standards or face fines and exclusion from public projects. The German parliament will vote on the bill in June.

In March 2020 in their statement on key elements for a due diligence law, Economics Minister Altmaier was able to push through that initially, from January 1, 2023, only around 600 companies with over 3,000 employees will fall within the scope of the draft bill. From 2024, it will apply to all companies with more than 1,000 employees, currently 2,891 companies, according to the BMAS.

Gerd Müller, Federal Minister for Economic Cooperation and Development said in an interview that the law is “an important first step” to control supply chains and argued these standards need to be extended globally. “We need to move from free trade to fair trade worldwide,” he said, adding that “climate protection will be decided in the developing and emerging countries.” It is expected that full due diligence obligations not only for the company's own business operations and direct suppliers but also extend to indirect suppliers.

According to Addleshaw Goddard LLP, the risk analysis required under the latest Lieferkettengesetz covers all of a company’s sites, all business processes in the supply chain from raw material extraction to the end product, and contextual factors such as political framework conditions. The next step is to take appropriate preventive measures or if the risk has already materialized remedial measures based on the risk analysis result.


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