Germany's New Supply Chain Act - Part 1 of 4 - Introduction - JD Supra
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Germany’s New Supply Chain Act – Part 1 of 4 – Introduction 11 June 2021 On 11 June 2021, the German parliament approved the Federal Act on Entrepreneurial Due Diligence Obligations in Supply Chains (“Gesetz über die unternehmerischen Sorgfaltspflichten zur Vermeidung von Menschenrechtsverletzungen in Lieferketten – Lieferkettensorgfaltspflichtengesetz – LkSG”) – German Supply Chain Due Diligence Act. With effect as of 1 January 2023, companies operating in Germany and employing a certain number of employees will encounter a completely new set of rules obliging them not only to review their supply chains and to enact a supply chain related compliance management system – the new rules demand for remediation measure and may even trigger the need to terminate relationships with suppliers as last resort. Non-compliance with these obligations will be sanc- tioned in particular with fines of up to 2 % of the yearly global turnover and the exclusion from public tender procedures. Private enforcement by workers unions or non-governmental organisations will further increase the risk that infringements of the new rules expose com- panies acting in Germany to litigation, financial and reputational risks. In addition, and from a broader perspective, the German Supply Chain Due Diligence Act is going to have an impact on the standards that companies, irrespective of whether they fall under the statutory scope of German Supply Chain Due Diligence Act, should consider in relation to improve their Environmental Social Governance (ESG) scorings.
Germany’s long way to its new In October 2020, a monitoring report revealed that
the goals of the NAP were not reached. Accordingly,
Supply Chain Act 13 to 17% of companies in Germany only imple-
mented human rights related compliance mecha-
Back in 2016, the German government published a
nisms on a voluntary basis.5
National Action Plan (NAP) for the Implementation
of the UN Guiding Principles of Business and Hu- Against that background, the Ministry of Economy
man Rights (UNGPs).1 and Energy – which has been headed by the third
party of the coalition, Angela Merkel’s CDU – started
According to the Coalition Agreement 2018 be-
to engage in the discussion and finally agreed to pro-
tween the political parties CDU, CSU and SPD, the
pose a joint draft act that was approved by the gov-
newly formed government aimed at implementing le-
ernment on 3 March 2021 (“Gesetz über die un-
gally binding legislation if less than 50% of all com-
ternehmerischen Sorgfaltspflichten zur Vermeidung
panies based in Germany with more than 500 em-
von Menschenrechtsverletzungen in Lieferketten
ployees were undertaking human rights due dili-
(Sorgfaltspflichtengesetz)“) (Government’s Pro-
gence processes with respect to their value chains
posal 2021).
by 2020.2
On that basis, the legislative procedure was
However, already in 2019, government-internal draft
launched on 23 March 2021.6 Expert hearings were
legislation proposed by the CSU headed Ministry for
held on 17 May 20217 – and only a day later CDU,
Economic Cooperation and Development was
CSU and SPD surprisingly stopped the legislative
leaked, suggesting that at least some members of
procedure to re-negotiate details of the new rules.
government expected that the 2020 target was not
Parliament’s approval of the Government’s Proposal
be reached. The leaked draft act was referred to as
2021 was initially scheduled for 21 May 2021 but
the draft “Act to Regulate Human Rights and En-
postponed. It took until 27 May 2021 that the gov-
vironmental Due Diligence in Global Value Chains”
ernment agreed on amendments which were offi-
(“Entwurf eines Gesetzes zur Regelung menschen-
cially introduced to the legislative process by deci-
rechtlicher und umweltbezogener Sorgfaltspflichten
sion of the parliament’s committee for Labour and
in globalen Wertschöpfungsketten (Sorgfalts-
Social Affairs in its session held on 9 June 2021 (Fi-
pflichtengesetz)”) (2019 Draft).3
nal Amendments 2021).8
In March 2020, the Minster for Economic Coopera-
On that basis, the German parliament finally ap-
tion and Development (CSU) and the Minister for La-
proved the German Supply Chain Due Diligence Act
bour and Social Affairs (SPD) jointly presented a re-
in its session held on 11 June 2021 – i.e. within the
vised proposal, this time in a downsized version re-
penultimate session prior to the end of the 4 years
ferred to as Term Sheet for a German “Federal Act
term of the CDU, CSU and SPD government.
on the Strengthening of Corporate Due Diligence to
Avoid Human Rights Impacts in Global Value Once officially published in the German Federal Le-
Chains” (“Entwurf für Eckpunkte eines Bun- gal Gazette, the German Supply Chain Due Dili-
desgesetzes über die Stärkung der unternehmer- gence Act will enter into force with effect as of 1
ischen Sorgfaltspflichten zur Vermeidung von January 2023. This provides for a transitional period
Menschenrechtsverletzungen in globalen of about a year and a half allowing companies to
Wertschöpfungsketten (Sorgfaltspflichtengesetz)”) adopt their operations to the new rule set.
(Term Sheet 2020).4
1 5
NAP published on the website of the German Federal For- More about this monitoring report can be found on the web-
eign Office (Auswärtiges Amt). site of the German Federal Foreign Office (Auswärtiges
2
The Coalition Agreement can be found here. Amt)
3 6
A German version of the 2019 Draft can be found here. Proposal of the Draft 2021 can be found here or here.
4 7
The Term Sheet 2020 can be found here. Some statements can be found here.
8
Final Amendments 2021 can be found here.
2 allenovery.comUp-coming German Federal regulation to ensure a level playing field to Ger-
man companies competing with companies
Elections in September 2021 from other EU Member States.12
In September 2021, Germany is going to hold fed-
eral elections. Most of the parties have been pub-
Supply chain legislation on the
lishing the electoral programs in the meantime, EU level
providing for a broad range of perspectives on sup-
ply chain regulations: Supply chain legislation driven by business human
rights and environmental related aspects is at the
The currently ruling parties CDU and CSU have top of the European political agenda as well.
not yet published their program (they struggled
with finding their front runner until recently). It The EU Commission has conducted a “Study on due
might be expected that they will not want to go diligence requirements through the supply chain”
any further and rather preserve the status quo published in February 202013 and kicked-off a con-
achieved just now. sultation process in October 202014.
The Social Democrats (SPD) celebrate the new Predominantly pushed by highly regulatory-friendly
German Supply Chain Due Diligence Act and initiatives launched by the European Parliament 15,
claim this as one of their successes achieved the EU Commission was expected to publish a draft
as part of the currently existing government. regulation on supply chain management in June
Anyhow, they want to develop this new legisla- 2021 but this has been postponed until fall 2021 at
tion further – without clarifying details.9 least, reportedly due to conflicting views particularly
between the more regulatory-friendly Justice Com-
The Green Party (Bündnis90/Die Grünen) de- missioner Didier Reynders and his key opponent,
mands for a strict and effective civil law liability the more company-friendly Internal Market Commis-
of companies that breach human rights and en- sioner Thierry Breton.
vironmental related obligations along their sup-
ply chains10. However, the future EU legislation may have an im-
pact on the German Supply Chain Due Diligence Act
The Socialists Party (Die Linke) wishes to in- to the extent the EU legislation will provide for bind-
tensify supply chain related regulations e.g. by ing, potentially stronger rules than foreseen by the
a strict and effective civil law liability, by consid- German lawmaker. If so, Germany will have to adopt
ering greenhouse gas neutrality of value its legislation to the future EU standard.
chains, by prohibiting the import of rare raw
materials and by implementing a comprehen- Supply chains & ESG
sive certification system applicable to raw ma-
terials imported from conflict regions.11 Not at least the continuing rise of ESG principles pro-
vides for the broader background on why supply
The Liberal Party (FDP) proposes to restrict chain legislation is at the top of the agenda of that
any supply chain related obligations to direct many regulators, companies, financial institutions
suppliers only and to reduce administrative bur- and other stakeholders around the world.
dens such as obligations to document efforts,
risk analysis etc. They promote an EU wide E – Supply chain regulations such as the German
Supply Chain Due Diligence Act often comprise the
need to comply with particular environmental related
9
Party’s election program can be found here. 14
Details can be found here.
10
Party’s election program can be found here. 15
Cf., for example, the Parliament’s reporting, its legally non-
11
Party’s election program can be found here. binding proposal for a regulation or its or the EU Parlia-
12
Party’s election program can be found here. ment’s briefing paper.
13
Study can be found here.
allenovery.com 3legislation. Sustainability is, without saying, a closely Further Briefings on the Ger-
related topic in this context16.
man Supply Chain Due Dili-
S – Considering and complying with human rights is
at the core of all supply chain legislation, be it in Ger-
gence Act to Come
many, the UK17, France or The Netherlands18. This briefing is Part 1 of a series of briefings aiming
at providing an overview on key elements of the
G – Ensuring an adequate management of supply
new German Supply Chain Due Diligence Act.
chain related risk is a critical challenge when setting-
up future government structures. Our series will consist of the following briefings:
A&O’s The Business and Human Rights Review reg- Part 1: Introduction
ularly provides for up-dates on these topics.
Part 2: Compliance requirements
Part 3: Litigation risks
Part 4: FAQs
Key points/15 seconds read/Summary
Companies operating in Germany will have to ensure compliance with the newly enacted rules of the German
Supply Chain Due Diligence Act that will enter into effect on 1 January 2023. With this new legislation, Ger-
many lines up with countries like the UK, France and The Netherlands where similar rules have already been
acted. The developments on the EU level as well as the up-coming federal elections in September 2021 may
trigger changes in the German regulations soon. A&O’s series of briefings will provide an overview on key
aspects that companies doing business in Germany need to be aware of.
16 18
See our briefing. On the latest development see for example our briefing.
17
On the UK Modern Slavery Act see for example our brief-
ing.
4 allenovery.comContacts
Dr Udo Olgemoeller Suzanne Spears Dr Tim Mueller Dr Nicolas Gillen
Tel + 49 69 2648 5690 Tel +44 20 3088 2490 Tel +49 69 2648 5996 Tel +49 69 2648 5528
udo.olgemoeller@allenover.com suzanne.spears@allenovery.com tim.mueller@allenovery.com nicolas.gillen@allenovery.com
Dr Birgit Kramer Dr Stephan Buehner
Tel +49 89 71043 3129 Tel +49 69 2648 5787
birgit.kramer@allenovery.com stephan.buehner@allenovery.com
Allen & Overy (Deutschland) LLP
Dreischeibenhaus 1, 40211 Düsseldorf, Germany | Tel +49 211 2806 7000 | Fax +49 211 2806 7800
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