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 11 June 2021, the German government passed the "Act on Corporate Due Diligence Obligations 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.
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. The Helpdesk on Business & Human Rights is pleased to support you in implementing human rights due diligence processes with your company.
The issue of human rights due diligence is coming to the fore not only on the national agenda but also at the European level.
EU Justice Commissioner Reynders announced a draft for binding regulation of corporate due diligence at European level for 2021. At the same time, on March 10, 2021, the European Parliament adopted by a large majority a resolution with recommendations to the Commission on corporate due diligence and accountability. On February 23, 2022, the EU Commission published a corresponding draft directive on corporate sustainability obligations. The directive would for the first time create a uniform, Europe-wide legal framework for human rights and environmental due diligence obligations of companies. Like the obligations under the Supply Chain Due Diligence Act (LkSG), they are based on the UN Guiding Principles on Business and Human Rights.
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. The law has not yet entered into force.
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, 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.