Current Political & Legal Developments
German companies of all sizes are increasingly involved in complex and global business relationships. With greater leverage to influence comes increased responsibility to act in a sustainable and socially responsible manner.
Frameworks such as the UN Guiding Principles on Business and Human Rights emphasise all companies’ responsibility to implement human rights due diligence processes, regardless of their size, sector, location, ownership or structure. However, certain companies are particularly in scope of current legislative processes.
The German Supply Chain Due Diligence Act
In Germany, the longstanding debate on the Supply Chain Due Diligence Act is coming to an end. On 3 March 2021, the German government agreed in cabinet on a "Law on Corporate Due Diligence in Supply Chains". The aim of the law is to create legal clarity for companies as they implement human rights due diligence processes and to strengthen the rights of potentially affected parties. The law is expected to be passed in the Bundestag by the summer of 2021.
What is the new law about? And which companies are affected? In a nutshell: the law will initially apply to companies with 3,000 or more employees and will take effect on 1 January 2023. Temporary workers will also be taken into account. As of 1 January 2024, the scope of application will be extended to companies with a workforce of at least 1,000 employees. This means that the law will initially apply to about 600 enterprises, and later to about 2,900 enterprises.
This development raises questions for companies about the implementation of human rights due diligence processes. The Helpdesk on Business & Human Rights is pleased to support you in preparing for new laws and regulations.
The issue of human rights due diligence is coming to the fore not only on the national agenda but also at the international level.
EU Justice Commissioner Reynders, for example, announced a draft for binding regulation of corporate due diligence at the European level for 2021. The draft legislative initiative was adopted by the Legal Affairs Committee of the European Parliament (with 21 votes in favour, one against and one abstention). On 10 March 2021, the European Parliament agreed by a large majority on the proposed directive on human rights in supply chains. The Commission is to present a corresponding legislative text by autumn.
A European directive is aimed at creating a level playing field for all EU market participants. Companies would be obliged to implement due diligence processes along their entire value chain in order to identify, address and remedy negative impacts on human rights and the environment - including in their supply chains. A ban on products associated with forced or child labour has also been requested. The rules are to apply to all companies operating in the EU domestic market.
Some countries such as the UK, France and the Netherlands have already passed corresponding laws. In the Netherlands, for example, companies face fines if they permit child labour in their supply chains. The Dutch law was passed in May 2019 and also affects German companies that export to the Netherlands.
In January 2021, the EU Conflict Minerals Regulation entered into force. This regulation applies to all companies that import certain raw materials, such as tin or gold, into the EU. Companies are obliged to take a close look at the entire supply chain in order to make a contribution, as there are significant human rights risks especially in the mining of these minerals.
The German National Action Plan on Business and Human Rights (NAP)
The Supply Chain Due Diligence Act is closely aligned with the German National Action Plan on Business and Human Rights (NAP), which in turn reflects the requirements of the UN Guiding Principles.
The German NAP thus provides a good basis for the actions of German companies in their value chains. In order to integrate human rights due diligence processes systematically into core business processes, the German NAP contains five central requirements (core elements):
- A policy commitment by company management regarding respect for human rights
- A risk assessment of potential and actual adverse impacts of business activities on people
- Measures to address identified risks and monitoring of their effectiveness
- Grievance mechanisms
While the NAP covers all companies, it also takes into account the perspective and special challenges of SMEs. According to the NAP, the implementation of human rights due diligence processes by companies should take place in a manner appropriate to their size, sector and position in the supply chain.
The NAP is designed as a continuous process for the implementation of human rights due diligence in companies. The previous German NAP covered the timeframe from 2016 to 2020; work is currently underway on a follow-up process.
Between 2018 and 2020, the German Federal Government examined the extent to which companies based in Germany with more than 500 employees have integrated human rights due diligence in their business processes . The result: 13 to 17 per cent of companies fully comply with the requirements of the NAP. This means that the Federal Government's expectation was not met. As a result, a Supply Chain Due Diligence Act is being introduced.
Further information on the monitoring process can be found on the website of the Federal Foreign Office.
You can also find answers to questions on the German National Action Plan on Business and Human Rights here.