Germany’s new Supply Chain Due Diligence Act

Many governments around the world are using legislation to drive responsible business practices and positive impacts on people’s working conditions. These laws require companies to manage their operational impacts on people and the environment and report on their efforts. It’s important to know which of these laws apply to your business and how to comply.

One of the most recent changes in this area is the new Human Rights Due Diligence Law adopted by the German parliament on June 11, 2021.

From 2023, this law will require large companies to conduct supply chain due diligence activities. Companies will need to identify, prevent, and address human rights and environmental abuses within their own and their direct suppliers’ operations, and take actions if they find violations.

The law aims to ensure that social and environmental standards are maintained in large companies’ operations and supply chains to address the following risks:

• Forced labor
• Child labor
• Discrimination
• Violations to freedom of association
• Unethical employment
• Unsafe working conditions
• Environmental degradation.

Who does this new law affect?

• From 2023: Companies based in Germany with more than 3,000 employees, or German-registered branches of foreign companies with more than 3,000 employees.
• From 2024: Companies based in Germany with more than 1,000 employees, or German-registered branches of foreign companies with more than 1,000 employees.

What do the affected companies need to do?

• Set up a process to identify, assess, prevent, and remedy human rights and environmental risks and impacts in:

    1.  Your supply chain    
    2.  Your own operation.

• Ensure you provide ways for employees of indirect suppliers to file a complaint alerting the company to any human rights or environmental violations.
• Publish an annual report outlining the steps you have taken to identify and address these risks.

How can affected companies prepare for this change?

If this – or any similar law – applies to your business, it’s most important to have a clear internal process to understand and assess your supply chain:

Step 1: Define your scope

Map your suppliers and put in place a preliminary risk analysis to better understand your supply chain and current CSR capabilities.

Step 2: Pre-assess your suppliers’ CSR conditions

Conduct a deeper evaluation to identify your most reliable suppliers, the ones requiring action, and those with zero tolerance issues. You can then prioritize your program and create an action plan.

Step 3: Apply relevant actions based on identified risks and priorities

Deploy an adequate action plan based on the identified issues and their risk levels and implement remediation programs to improve the suppliers’ performance.

Many other countries have enhanced their regulations on human rights, such as:

• Australia: Modern Slavery Act 2018
• France: Corporate Duty of Vigilance Law
• Germany: CSR Directive Implementation Act
• India: Business Responsibility and Sustainability Reporting
• Italy: Legislative Decree no. 254
• United Kingdom: Modern Slavery Act 2015
• United States: Transparency in Supply Chains Act 2012 (State of California).

How API can help you prepare for these legislative requirements:

• Documentary review
• Preliminary risk assessment to help you prioritize issues
• Factory audit
• Training
• COC/manual/audit guidelines creation and review
• Program benchmarking services for strategic suppliers.