The Supply Chain Act addresses the responsibility of German enterprises to respect human rights in global supply chains.
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In 2021 the German Parliament passed the Act on Corporate Due Diligence Obligations in Supply Chains (Gesetz über die unternehmerischen Sorgfaltspflichten in Lieferketten, LkSG). The responsibility of German enterprises to respect human rights in global supply chains is thereby put on a legal footing.
The Act places enterprises in Germany under the obligation to respect human rights by implementing defined due diligence obligations. To fall within the scope of the law, enterprises must have their central administration, principal place of business, administrative headquarters, statutory seat or branch office in Germany.
The Act initially applies to enterprises in Germany with at least 3,000 employees from 2023 and then extends to those with at least 1,000 employees from 2024.
The Federal Office for Economic Affairs and Export Control (Bundesamt für Wirtschaft und Ausfuhrkontrolle, BAFA) has the necessary enforcement instruments to monitor an enterprise’s supply chain management. In this context BAFA has far-reaching supervisory powers. It is permitted, for example, to enter business premises, demand information and inspect documents. BAFA can further require enterprises to take concrete action to fulfil their obligations and enforce this by imposing financial penalties.
The core elements of the due diligence obligations include the establishment of a risk management system to identify, prevent or minimize the risks of human rights violations and damage to the environment. The Act sets out the necessary preventive and remedial measures, makes complaint procedures mandatory and requires regular reports.
The due diligence obligations apply to an enterprise’s own business area, to the actions of a contractual partner and to the actions of other (indirect) suppliers. This means that an enterprise’s responsibility no longer ends at its own factory gate but applies along the entire supply chain.
The Supply Chain Act contains an exhaustive list of eleven internationally recognized human rights conventions. The legal interests protected in those conventions are used to derive behavioural requirements or prohibitions for corporate action in order to prevent a violation of protected legal positions. These include, in particular, the prohibition of child labour, slavery and forced labour, the disregard of occupational safety and health obligations, withholding an adequate wage, the disregard of the right to form trade unions or employee representation bodies, the denial of access to food and water as well as the unlawful taking of land and livelihoods.
If enterprises fail to comply with their legal obligations, administrative fines may be imposed. These can amount to up to 8 million euros or up to 2 % of annual global turnover. The fines system based on turnover applies only to enterprises with an annual turnover of more than 400 million euros. Moreover, if an administrative fine is imposed above a certain minimum level, enterprises may be excluded from the award of public contracts.
Further information in English can be found on this website and the website of the Federal Ministry of Labour and Social Affairs.
