On 11 June, the German government made good on its intention to pass a law requiring companies to include human rights and environmental concerns in their supply chain due diligence. The German Federal Parliament (Bundestag) adopted the Supply Chain Due Diligence Act, which was endorsed by the German Federal Council on 25 June 2021 and which will enter into force on 1 January 2023.
Dr. Felix Werner, an Associate at Morrison & Foerster LLP in Berlin says that the passing of the act is significant. “The fact that the Supply Chain Due Diligence Act was adopted at the end of the legislative period despite the fierce debate and the numerous changes in the parliamentary procedure – in particular when taking the failure to adopt the Corporate Sanctioning Act into account, which was another major legislative objective – indicates that both the German Federal Government and the German Federal Parliament take this issue very seriously,” he said.
For compliance teams in companies with more than 3,000 employees, supply chain due diligence and risk assessments will become more specific from 1 January 2023 (and for those with more than 1,000, employees from 1 January 2024). Significantly, the act includes German companies and their international subsidiaries as well as domestic branch offices of foreign companies.
For due diligence, the act emphasizes that only measures “within the scope of what is actually feasible and appropriate” must be taken to ensure a robust human rights and environmental due diligence. However, compliance teams need to be aware that subsidiaries or suppliers in countries that haven’t ratified international human rights laws in their local laws should be included as higher-risk in a company’s risk register. Companies are also expected to implement robust remedial measures in parent, subsidiary and partner businesses.
