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The Supply Chain Due Process Act, passed in June 2021 and in force since January 2023, aims to improve the international human rights situation. It establishes prohibitions on child labor, slavery, forced labor, labor and health violations, inadequate payment of wages, disregard for the right to form trade unions or employee representatives, denial of access to food and water, and unlawful deprivation of land and livelihoods.
Supply chains encompass the entire path of a service or product from raw material to consumer. They illustrate the global interconnectedness of the economy, as products often pass through numerous stations before reaching the end customer.
Different minimum standards may apply through international cooperation, and serious human rights violations may become part of the supply chain. The law requires companies to monitor and address their supply chains for human rights violations.
The law is primarily aimed at direct suppliers and the company’s own business unit. However, risk analyses must also be carried out for indirect suppliers and preventive and remedial measures must be taken if there is concrete knowledge of possible violations of human rights or environmental obligations.
This can significantly extend the due diligence obligations. In addition, a clause ensures that the due diligence obligation cannot be circumvented by intermediaries.
The Supply Chain Duty of Care Act seeks safe conditions for people in supply chains, companies and consumers. It aims to protect against child labor, fair wages, environmental protection and safe working conditions. In addition, consumers should have assurance that products are made with fair manufacturing practices in mind.
The law has affected German companies with more than 3,000 employees and at least one location in Germany since January 2023. The obligations apply to the company’s business operations, contractual partners, and indirect suppliers.
Since January 2024, companies with over 1,000 employees must also fulfill comprehensive due diligence obligations. In the coming years, there is likely to be a comparable law at EU level that will apply to companies of all sizes.
Note: Group companies are included in the number of employees of the parent company, as are temporary workers whose assignment lasts more than six months.
Large companies will have to conduct risk analyses and take preventive measures with regard to their contractors and suppliers. As a result, the companies concerned will also require their smaller suppliers to take appropriate measures.
The law calls on companies to pay attention to whether their suppliers can meet “human rights-related expectations” when selecting them. Smaller companies should also pay attention to compliance with due diligence requirements to avoid contractual penalties. In addition, larger companies also increasingly expect “smaller companies” to implement these legal requirements as part of their selection process.
Companies that fail to comply with their obligations can be fined up to 8 million euros or up to 2 percent of global annual sales. There is also the possibility of being excluded from public procurement. BAFA monitors company reports, investigates complaints and has wide-ranging monitoring powers.
In the event of violations, it can impose periodic penalty payments and require companies to fulfill their obligations. In the event of damage in other countries, the law of the country concerned applies and not the German Supply Chain Sourcing Obligations Act.
The Supply Chain Due Diligence Act is an urgent appeal to companies to assume their corporate responsibility and actively take measures to prevent human rights violations along their supply chains. It opens up the opportunity to make the world a bit fairer and more sustainable. By fulfilling their due diligence obligations, companies help to combat inhumane working conditions, environmental destruction and exploitation.
The supply chain due diligence law also has an impact on consumers and consumers. More and more people are attaching importance to ethical and sustainable products whose production respects human rights.
The law will assure consumers that the products they buy have been produced with respect to human rights standards. Companies that neglect their supply chain due diligence could face a loss of image and a decline in demand.
The Supply Chain Duty of Care Act is an important compliance issue with high liability risks. Companies should deal with the innovations and carefully check their company’s current status.
With HWData as your contact for compliance topics, we support you in the legally compliant implementation of the law, the digital documentation and the revision of your contracts with suppliers and business partners.
