The German “Lieferkettensorgfaltspflichtengesetz” (Supply Chain Due Diligence Act) is a law that took effect on January 1st, 2023. The law requires companies in Germany with over 3,000 employees to implement a due diligence system for their global supply chains. In January 2024, companies with more than 1,000 workers must comply with this law also. The due diligence system must include measures for identifying and assessing human rights and environmental risks in the supply chain and appropriate measures to prevent or mitigate these risks. Furthermore, the law requires companies to establish a complaints mechanism to allow stakeholders to report potential human rights abuses or environmental harm. Non-compliance with the law can result in fines and, in some cases, exclusion from public procurement processes. The law is part of a broader trend towards supply chain transparency and corporate responsibility, with similar legislation proposed or enacted in other countries. An EU Directive is also in the making.
Some people have criticized the German Supply Chain Due Diligence Act, or “Lieferkettensorgfaltspflichtengesetz,” for adding to an already overburdened bureaucracy. In addition, critics have dubbed it an administrative “monster” because of the additional administrative and reporting requirements it places on companies.
The law requires companies to conduct due diligence in their global supply chains to identify and address human rights and environmental risks. These due diligence measures include:
- identifying potential risks,
- creating measures to mitigate those risks,
- implementing a grievance mechanism and
- regularly reporting on the progress of these measures.
These measures may require significant investments in resources, technology, and personnel for many companies, with smaller ones expected to be the hardest hit.
Supporters of the law argue that it is necessary to ensure that companies take responsibility for the impacts of their business activities on supply chains and to prevent human rights abuses and environmental harm. They also argue that the law will create a more level playing field for companies and reduce the risk of reputational damage or legal liability associated with supply chain issues.
Whether the law is too burdensome or not will depend on the specific circumstances of each company. However, the law’s requirements align with international expectations for responsible business conduct and human rights due diligence. Companies already addressing supply chain risks will likely find it more manageable.
In light of responsible business practices, it is crucial for companies to follow through on their commitments, cease greenwashing, and collaborate with their suppliers to address issues in the countries of supply. Pursuing the cheapest product while turning a blind eye to supplier misconduct, including breaches of local laws and exploitation of workers, is simply unacceptable. It is time for businesses to take action and invest in ethical sourcing practises that prioritize the well-being of people and the planet.
It is essential to acknowledge that significant change does not occur overnight. The journey towards responsible business conduct must begin with the first step: mapping out the risks and becoming fully aware of the potential issues within the supply chain. By doing so, businesses can make informed decisions that prioritize ethical practises and address any areas of concern. This initial risk assessment and awareness process is crucial for creating a sustainable and responsible supply chain.