The New German Supply Chain Law

The German parliament passed the Supply Chain Due Diligence Act, also known as the Supply Chain Act, on June 11th, 2021. The new German Supply Chain Act, which takes effect on January 1, 2023, focuses on human rights issues while also taking into account environmental concerns. We’d like to give you an overview of what this law means for your business and how it relates to existing environmental compliance regulations.

The issue and the goal

The legislature refers to the increasingly complex economic structures of medium-sized and large companies in its draft law for the new supply chain law. Because of its particularly strong international interdependence, Germany as a business location bears a special responsibility to safeguard human and environmental issues beyond its own borders.

Because the Federal Republic naturally only has legislative sovereignty over its own national territory and thus cannot pass laws for other countries, the new supply chain law focuses on German companies and their areas of responsibility. The basic concept is as follows: The companies involved have been instructed to examine their supply chains to determine whether individual suppliers or sub-dealers are in violation of certain human or environmental regulations. As a result, market participants who violate these provisions, according to the new supply chain law, should either withdraw from the market or adapt to the established rules of conduct.

The new Supply Chain Act is based on three regulatory areas in order to achieve the stated goals:

  1. Creating obligations to act on behalf of the companies involved
  2. External authority review
  3. Increased rights for those affected

When it comes to determining which duties of action apply to a company, the new supply chain law grades them based on the company’s respective areas of responsibility. According to the principle, the closer a field of activity is to the core of the company, the more responsibility it bears for it.

According to the new Supply Chain Act, for example, affected companies must adopt a statement of principle on human rights respect for their own business area and direct suppliers, as well as carry out a procedure to assess the extent to which the company may contribute to human rights violations. A risk assessment for indirect suppliers, on the other hand, is only required if there is a specific suspicion of an injury.

What constitutes a violation in this context is defined in Section 2 of the Supply Chain Act as the creation of a human rights risk. According to the new Supply Chain Act, such a situation exists when a company employs children as workers or endangers public health due to poor waste management.

If risk areas are identified as part of the risk analysis, the company in question must develop a plan of action in accordance with the new supply chain law, based on which there is no longer any risk of future human rights violations. In extreme cases, the business relationship may be severed. However, that is not the legislature’s stated goal. Rather, the new Supply Chain Act states that a case-by-case solution that corrects the existing trade relationship while protecting human rights should be sought. This can be accomplished, for example, by a supplier demonstrating that it will no longer employ minors in the future or that it has implemented environmentally friendly waste management.

As a third measure, the new supply chain law expands the rights of those who have been subjected to human rights violations. They will be able to file a complaint with the Federal Office of Economics and Export Control in the future, in addition to asserting their rights in German courts. Furthermore, the new supply chain law allows them to assert their interests through litigation in German courts with the assistance of German trade unions or non-governmental organizations.


Who is affected by the Supply Chain Act 2023?

With the increased administrative volume that the supply chain review entails, the new Supply Chain Act is aimed at least directly at those companies that, in the legislature’s opinion, can provide the corresponding capacities and have sufficient influence on internationally branched supply chains. The limits are strictly enforced and are determined by the size of the company or the number of employees.

From the day it goes into effect on January 1, 2023, the new Supply Chain Act will apply to all companies with at least 3,000 employees. One year later, on January 1, 2024, the number will be reduced to 1,000. Companies with a branch in accordance with Section 13d of the German Commercial Code are also included in the new supply chain law.

What exactly the European supply chain law will look like is currently unknown. If the federal government had its way, the Supply Chain Act 2023 could “serve as a blueprint for a European law.” It remains to be seen how much of a role the Commission will play in this. In any case, businesses should not only incorporate the provisions of the Supply Chain Act 2023 into their corporate structure, but also gain a comprehensive understanding of their supply chains in general. The subsequent administrative effort should be kept to a minimum.

Whether you have specific questions about currently applicable regulations, such as the new supply chain law, or you want a reliable partner on your side who will always support you in the future with environmental issues, we at Deutsche Recycling are here for you. Simply fill out our contact form to get in touch with us.