German government's supply chain draft law criticised for shunning environmental standards
An agreement by Germany's government on a new supply chain law that means large companies will be responsible for compliance with sustainability standards by their suppliers has been welcomed by civil society groups. But the agreement was also criticised for falling short of fully enforcing environmental aspects. Industry associations have criticised the draft for imposing hurdles on German companies competing in international markets. The ministries for development cooperation (BMZ), for labour and social affairs (BMAS) and for the economy (BMWi) found a compromise after months of dispute on a draft rebranded as "due diligence law". The law will cover major companies which rely on the import of raw materials and intermediary goods for production in Germany, including coffee producers and textile retailers but also manufacturers of more complex products like e-cars or renewable power installations.
"Companies here profit from the labour in other parts of the globe. This is why they are responsible for ensuring that human rights are respected along their supply chain," the labour ministry said. Minister Hubertus Heil of the Social Democratic Party (SPD) stressed that a revision of a national action plan for human rights in industrial production made last year had found only one in five major already complies with voluntary standards. "This is why we are turning this into a law now," Heil said. Starting in 2023, companies with more than 3,000 employees will have to meet "practicable" compliance standards, the economy ministry said. By 2024, the rule will be expanded to also cover companies with only more than 1,000 employees. Small and medium sized companies, which make up the vast majority German industry, "are explicitly not within the scope of this law”, the BMWi added.
According to the ministry, the law compels companies to apply "adequate" risk management, preventive measures to avoid legal infractions, a mechanism for corrective action and the possibility to appeal. Companies found in violation of the law will be subjected to fines and can be excluded from taking part in public tenders. While the law generally only covers direct suppliers, it can also be expanded to cover intermediate suppliers depending on the occasion. This would mean that companies are expected to act whenever they are informed about possible infractions in their supply chains, the BMWi stated.
A major sticking point during the negotiations that had particularly been opposed by the economy ministry was the idea to expand the accountability of companies by civil law, which ultimately was not included in the draft. "This will avoid that companies leave difficult trading regions due to the unclear scope of the law and a possible liability to recourse," the economy ministry said. The introduction of a similar regulatory framework for supply chain standards has also been discussed at the EU level. The German government said it would strive to achieve a common European position soon, adding that its agreed new law could set an important precedent and "show what can be reasonably expected from companies”.
"A more effective law would have been possible"
For NGO Germanwatch, the proposed law is "an important first step" for more sustainable supply chains. But it warned that, in its current form, it could not guarantee standards are upheld. It would have to cover more companies and also better enforce environmental standards to become effective. "Parliament has to amend this draft and ensure that companies actively look for human rights risk in their entire supply chain and work to remove them," said Cornela Heydenreich, corporate responsibility expert at Germanwatch.
The group Initiative Lieferkettengesetz (Supply Chain Law Initiative), which is supported by more than 120 civil society organisation, said while the compromise had been "overdue", it merely yielded a "weakened" version of the law and could not be the ultimate solution for improving compliance with supply chain standards. "A more effective law would have been possible," the group said, arguing that industry lobby groups had been successful in mitigating the law's impact on their business. The initiative said full legal accountability according to civil law is crucial for effective regulation and also criticised that environmental aspects had only been covered "marginally" in the draft.
Chemical industry associations BAVC and VCI criticised the proposed law for "going into the wrong direction”. The associations said a "solo attempt" by the German government would ultimately lead to a legal "patchwork", arguing that only a global or at least joint European approach are adequate for addressing the violation of standards in the supply chain. "Supply chains are complex constructions that entail thousands of intermediary goods and suppliers. This is why an internationally connected industrial economy like Germany's needs international and most importantly practicable rules," said VCI head Wolfgang Große Entrup.
The Federation of German Industries (BDI) said the proposed law would clearly up pressure on companies to make their production chains more transparent but warned that this could overstretch some companies' capacities, especially if these act as suppliers themselves.