by Source Intelligence
on June 25, 2021
In March 2021, the German Federal Cabinet – the chief executive body of Germany – adopted the Due Diligence Act which aims to encourage companies to better protect human rights in their domestic and international supply chains.
The draft, also known as Supply Chain Act, outlines the duty holders’ obligations and defines the areas where companies are expected to actively intervene. While still subject to discussions and expected to be amended, the German Human Rights Due Diligence Act is scheduled on the agenda of this summer’s legislative session.
If passed, the Act will add to the list of human rights European compliance programs like the Modern Slavery Act of 2015 (UK), the Corporate Duty of Vigilance Law of 2017 (France), the Dutch Child Labour Due Diligence Law (Netherlands) due to enter into force in 2022, and the Mandatory Policy on Human Rights (EU) expected to be adopted this year.
Ever since the UN’s Guiding Principles on Business and Human Rights were published in 2011, countries all over the world have developed due diligence compliance standards designed to eliminate human rights abuse and child labor from global supply chains. The German Act results from a national plan that didn’t quite work as expected, prompting legislators to explore a regulatory program or law.
The National Action Plan on Business and Human Rights studied the viability of voluntary due diligence programs for German companies. NAP was eventually abandoned in 2020, due to a lack of satisfactory engagement.
The German government reached an agreement to implement a Supply Chain Act.
The Act is adopted. Some clarifications will be released in the future, such as details on requirements, the introduction of control and enforcement procedures, provisions on administrative fines, and official general guidelines.
The Act is binding for companies of 3,000 employees or more (total number of employees, including temps and subsidiaries).
The threshold is lowered to 1,000 employees.
Unlike many compliance programs, companies do not carry the burden of proof under the German Human Rights Due Diligence Act. There is no obligation of result; instead, businesses are expected to demonstrate they have implemented appropriate measures to protect human and environmental rights and processes to mitigate and remediate risk within the direct value chain. For indirect suppliers, businesses shall exercise due diligence obligations proportionate to risk levels in a case-by-case approach.
Companies in the scope of the Act are defined as those:
The Act requires companies to implement various measures, including:
For all intents and purposes, the Act defines abuses of human rights as:
Per the Act, enforcing compliance obligations will be the responsibility of The Federal Office of Economics and Export Control. It shall have powers to investigate if necessary and impose fines in averred cases of violation. In the event of serious infringement, violators may be excluded from public tenders (up to three years).
Penalties will be based on the company’s turnover and vary depending on the type of violation, from €800,000 to €8 million or up to 2 percent of global average turnover when more than €400 million.
Compliance with the Act will require companies to reassess their legal efforts and potentially implement changes in their organizational processes. At a minimum, human rights corporate policies and procedures will be necessary in conjunction with supply chain monitoring systems.
Source Intelligence has an industry-leading supply chain compliance solution that gathers the supplier data you need and can be customized to the specifics of national laws. Our platform is built to simplify processes so there is no gap in the flow of information. Additionally, our unique risk-mapping capabilities improve your mitigation and remediation strategies.
Request a demo to see how you can:
The German due diligence act may become a law, giving you less than two years to get ready. Should it not pass, the likelihood is that the EU legislation will.
Either way, the time to adopt human rights protection standards is now. To be completely effective, transparency in your supply chain is paramount.