What is Lieferkettengesetz? The new German Due Diligence Act Explained

“This is a good day for human rights,” remarked SPD Labour Minister Hubertus Heil in February as Germany drafted its much anticipated Due Diligence Act targeting human rights and environmental standards in global supply chains. 

This sentiment is being echoed once again in June as Germany joins countries such as the UK, Australia, and the Netherlands, as a leader in the global legislative trend to combat unsustainable supply chain practices bypassing its own Due Diligence Act. 

Lieferkettengesetz Explained  

The Lieferkettengesetz legislation also referred to as sorgfaltspflichtengesetz, is a bill to uphold the rights of the environment and potentially exploit people in complex, multi-tiered supply chainsThe Act will initially apply to German companies with over 3000 employees, with the potential of being rolled out to include those with over 1000 employees. It is due to be implemented as early as 2023. 

 The bill will affect more than just large employers. SMEs within larger company’s supply chains may need to make operational changes. This is because large employers who are subject to the legislation will be required to ensure that companies within their supply chains are also compliant with the requirements on an ongoing basis.  

In many cases, the new German Due Diligence Act requirements will far exceed the standards currently upheld, or the monitoring procedures that have already been implemented. Here, the burden of the legislation will fall upon many companies to improve standards or risk losing business. 

Impacts & Implications 

Large companies in breach of the legislation will face fines for not meeting due diligence obligations, which include an annual report on the impact of their business concerning human rights and environmental factors. The draft proposes fines of up to €800,000 or 2% of annual worldwide turnover for companies with more than €400m turnover. This also includes the prospect of being banned from competing for public contracts in Germany for up to three years. 

 A unique development within the Act is the potentially explosive provision of future rights for foreign nationals who have been violated to be represented by trade unions and non-governmental organisations before German courts. This brings a risk of exorbitantly high fines for companies accused of violations. The risk is exacerbated by the fact that companies will be required to set up internal complaint and whistleblowing procedures, which may bring about a higher number of proceedings. 

 According to SPD Labour Minister Hubertus Heil, “This is the strongest law in Europe so far against worker exploitation. It is the end of companies weighing human rights against their economic interests.” Clearly, there is much to be excited about with the advent of such ground-breaking legislation, potentially set to reconnect Germany with its constitution and manifest improvements in human rights standards globally. 

At ethiXbase, we constantly monitor legislative developments so we can help businesses stay ahead of the curve. Our Modern Slavery Questionnaire is the first step in gathering the information required to effectively assess such risks throughout supply chains. We use this to provide actionable analytics enabling you to target and manage key risks and establish key reporting mechanisms. 

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