Germany’s new Supply Chain Act is expected to come into force in 2023, whereupon it will initially impose specific obligations on German companies with more than 3,000 employees. From 2024, the obligations will extend to companies with more than 1,000 employees. The aim is to oblige companies and their foreign suppliers to enforce human rights and comply with environmental standards. Forced labour, child labour, harsh working conditions and environmental harm are just some of the risk areas mentioned.
Risk assessment is crucial
Companies subject to the Act must first carry out a risk analysis (i.e. check whether the risks referred to above exist in their supply chain). Thereby, companies should ensure that there is no malpractice in either their own operations or those of their direct suppliers. When deciding what measures to take, the principle of proportionality applies. Accordingly, a company’s responsibility for its indirect suppliers should reflect a graduated approach. In the case of human rights violations or environmental infringements, the company must take action to remedy the situation and even terminate business relations as a last resort.
More than just window-dressing!
In future, compliance with due diligence obligations will be monitored and controlled locally by the Federal Office for Economic Affairs and Export Control. Any breaches of due diligence will result in coercive penalties and fines of up to ten percent of the company's turnover.