The Federal Law on Entrepreneurial Due Diligence Obligations in Supply Chains (“German Supply Chain Law”) was approved by the German parliament on 11 June 2021. The legislative step follows a long journey that began with the German government’s National Action Plan (“NAP”) for the Implementation of the United Nations Guiding Principles of Business and Human Rights, which was published in 2016.
Once it enters into force on 1 January 2023, companies must adopt the standards that the German Supply Chain Law sets. The Law aims to prevent human rights abuses by suppliers to German companies.
Companies with more than 3,000 employees must follow due diligence obligations within the scope of the German Supply Chain Law. It should be highlighted that the number includes both German-based employees and those based abroad. German subsidiaries of foreign companies also fall within the scope of the Law. Additionally, companies with more than 1,000 employees will have to comply with the new obligations as of 1 January 2024.
Moreover, companies within the scope of this law must ensure its requirements are implemented by their direct suppliers. It should be underlined that indirect suppliers will also be subject to the law if human rights violations are discovered by German companies. Thus, Turkish companies that engage with German companies at any level of the supply chain will fall within the requirements of the German Supply Chain Law.
In order to maintain legal, safe and humanitarian business operations, companies must ensure suppliers act in accordance with the German Supply Chain Law at every level of the supply chain. According to the law:
It should be noted that companies with a yearly global turnover of more than EUR 400 million can be sanctioned with fines of up to 2% of their turnover for any violations.
Also, any violation of the obligations can give rise to exclusion from public tender procedures.
Until 1 January 2023, a transitional period of roughly a year and a half allows companies to adjust their operations to the new obligations. In order to manage legal, financial and reputational risks companies can:
Within the scope of the newly introduced German Supply Chain Law, companies must follow through with their obligations in order to prevent human rights abuses. It is important for companies to acknowledge that non-compliance with the standards will inevitably make them uncompetitive in their relevant industries. Companies must also, enforce their compliance programs in order to prevent financial and reputational risks.