Here We Go After All: National Supply Chain Act Coming!

For a long time it seemed that this project of the Grand Coalition would not come to completion in this legislative period. The differences between the German Federal Ministers Müller, Heil and Altmeier were apparently too great. The Chancellor acted as mediator. Now a compromise solution has been found. Today, Federal Minister Heil, together with Federal Ministers Müller and Altmeier, announced a "historic breakthrough": the Supply Chain Act is to be passed before the end of this legislative period. This is the first time that corporate responsibility for the observance of human rights and the protection of human rights along the supply chain has been regulated (cf. the announcement of the Federal Ministry of Labour and Social Affairs (Bundesministerium für Arbeit und Soziales, BMAS) here). The Federal Cabinet will probably deal with the ministries' draft bill in March.

The compromise solution that has now been found no longer provides for special liability under civil law for human rights violations along the supply chain. However, compliance with the new law is to be monitored by the Federal Office for Economics and Export Control. Violations may result in significant fines and exclusion from public contracts. In addition, non-governmental organisations and trade unions shall in future also be able to sue in German courts on behalf of those affected, if those affected agree to this. Federal Minister Heil pointed out that those affected who felt their core human rights had been violated could already take legal action before German courts under private international law (which is true in principle, cf. the action brought by victims of the factory fire in Pakistan against the German textile company KIK before the Dortmund Regional Court). Since those affected often lack the "power" to do so, they should be able to be represented by non-governmental organisations or trade unions in the future. It remains to be seen how this will work out in detail. The law is supposed to come into force on 1 January 2023. and will initially apply to companies with more than 3,000 employees. One year later, it will be extended to all companies with more than 1,000 employees.

These are the most important points. And now a quick look at the background. Already last year, the considerations for a national and/or Europe-wide law on human rights due diligence in the supply chain had become more and more concrete: On 14 July 2020, Federal Ministers Müller and Hubertus Heil informed in a press conference about the "once again disappointing" results of the second monitoring round of the National Action Plan on Business and Human Rights (NAP). Considerably less than 50 percent of the companies were in fact complying with their corporate duty of care. Now the coalition agreement for a supply chain law is coming into effect. The goal is to reach a conclusion before the end of this legislative period (cf. our blog post National Supply Chain Law Upcoming of 16 July 2020). At the same time, a key issues paper on the planned German supply chain law was published, which we examined in more detail in our Newsletter "ESG and Law: Sustainability Remains a Political Focus" in July 2020.

Also in this newsletter, we described the increasingly specific plans for a European supply chain law. Here, too, the work has progressed in the meantime. Recently, the EU Commission launched a consultation on an EU measure for sustainable corporate governance. This included in particular the topic of corporate due diligence along the supply chain. At the same time, the European Parliament has already addressed the issue. In January, the Legal Affairs Committee of the European Parliament formulated, with a large majority, requirements for a new EU law that would oblige companies to exercise due diligence along their supply chains. It calls on the European Commission to urgently present a law that holds companies liable if they violate or contribute to violations of human rights, environmental standards and good corporate governance. The rules on due diligence for supply chains should also guarantee access to legal remedies for any injured parties. The EU Commission has announced a corresponding legislative proposal for spring 2021 (cf. here).

Federal Minister Heil made it clear today: The German Supply Chain Act does not mean that the European Supply Chain Act is off the table, but is still desired in the sense of a level playing field. The German Supply Chain Act should set European standards in this respect.

Dr. Daniel Walden
Dr. André Depping



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