Human Rights and Due Diligence

As early as 2016, the federal government emphasized the responsibility of German companies to respect human rights and developed a national action plan for business and human rights. By 2020, however, only around 15 % of German companies with more than 500 employees would have signed up to this voluntary commitment. With the Lieferkettensorgfaltspflichtengesetz, legally binding and internationally compatible due diligence standards should be guaranteed in German companies.

With effect from January 1st, 2023, the Supply Chain Due Diligence Act applies to all companies with headquarters or branches in Germany and at least 3,000 employees in Germany.
On January 1st, 2024, the law will come into force for all relevant companies with at least 1,000 employees in Germany. The legal form of the company is irrelevant. 

The due diligence requirements contained in the law are based on the UN Guiding Principles on Business and Human Rights, which the United Nations Human Rights Council adopted in 2011.

The due diligence includes:

1. Establishment of a risk management system with the definition of internal responsibilities and the implementation of regular risk analyses
2. Submission of a policy statement on the company’s human rights strategy
3. Anchoring of preventive measures and the taking of corrective measures, both in one's own company and with direct suppliers
4. Establishment of a complaints procedure that enables people to point out violations by their own company, direct suppliers and indirect suppliers
5. Documentation and reporting to fulfill due diligence requirements

If a company has indications that violations have occurred at an indirect supplier, these due diligence obligations also apply to indirect suppliers with whom there is no specific contractual relationship.

Even for companies with fewer than 1,000 employees, the implementation of human rights due diligence will be part of day-to-day business in the future.There are two main reasons for this:
On the one hand, it is to be expected that the requirements of affected companies will be passed on along their own supply chain. The obligation to provide information will increase, as can already be observed with the updated SAQ 5.0 (Self-Assessment Questionnaire) of the automotive industry. But the requirements at the measure level, such as contractually obligatory training courses or codes of conduct, will continue to increase.
On the other hand, the regulatory requirements will affect other companies in the future. The European Commission has presented a draft directive for an EU supply chain law that goes beyond the previous requirements of the LkSG and will be mandatory for companies with 250 or more employees. The draft law will be negotiated in a trialogue between the European Council, the European Commission and the European Parliament in 2023. After the law has been passed, the EU states have two years to transpose the law into national law. 

Violations of the law are classified as administrative offenses and punished with a fine. The amount of the fine is graded according to the severity of the violation. Failure to take preventive or remedial action despite a risk being identified can result in a fine of up to €800,000. For companies with annual sales of more than 400 million euros, this amount can increase to up to two percent of this turnover.
In addition, an allocation ban or an exclusion from public contracts of up to three years will be imposed on companies with a detected violation

There was and is criticism of the Lieferkettensorgfaltspflichtengesetz from both the supporters and the critics of regulatory tightening.
After the publication of the first government draft, industry and branch associations urgently warned of the legal consequences and the additional bureaucratic burdens for companies. This mobilization ensured that the law was not passed in the form originally envisaged.
From the perspective of the supporters, the law is not effective enough compared to the first government draft due to this watering down. It is criticized that the law deviates from the UN Guiding Principles on Business and Human Rights in key areas. For example, the law does not oblige companies to take environmental due diligence into account. Likewise, no reparation for one's own adverse human rights impacts is required.