After a protracted tug of warfare, the German legislator has not too long ago handed a brand new Legislation on company due diligence in provide chains. The so-called Provide Chain Act (Lieferkettengesetz) applies to any firms which might be seated or have a department with greater than 3,000 workers in Germany. It defines the availability chain as all steps required to fabricate merchandise and supply companies, from the extraction of uncooked supplies to supply to the tip buyer.
As of January 1, 2023, firms and their suppliers shall be obliged by legislation to look at human rights and environmental due diligence obligations alongside the availability chain appropriately. The Act imposes fines on virtually all of the legally required due diligence measures, as much as 2 p.c of the annual turnover for firms with greater than €400 million ($486 million) in turnover.
Let’s take an instance. Germany is without doubt one of the high 10 importers of agricultural and mineral merchandise from Brazil, reminiscent of espresso, cellulose, wooden, meat, leather-based and copper, and iron minerals. In Brazil, the manufacturing chains of agricultural and mineral merchandise have, on a number of events, been overshadowed by human rights violations and environmental crimes. German-based firms that import from or manufacture in Brazil should certify the integrity of their provide chain additionally in Brazil.
The due diligence obligations beneath the Act set up a responsibility of effort. The businesses should subsequently exhibit that they’ve carried out the due diligence measures described within the legislation. The obligations regarding human rights embody, amongst different issues, the avoidance of kid and compelled labor, slavery and the disregard of occupational well being and security obligations, prohibiting unequal therapy in employment, in addition to the prohibition of inflicting dangerous soil contamination, water, and air air pollution, dangerous noise emissions or extreme water consumption. Sadly, compelled labor, little one labor, office discrimination, deforestation, soil and water air pollution, and even unprecedented environmental tragedies are a part of the Brazilian actuality. The identical applies to many different international locations worldwide.
The Brazilian instance exhibits how deep the German Due Diligence provide chains Act would possibly attain. In keeping with the brand new legislation, firms based mostly in Germany should guarantee, greater than ever, the integrity and respect for human rights and environmental safety all through their whole provide chains globally. These guidelines additionally apply to produce chains to China (e.g., associated to the persecution of Uighurs within the Area Xinjiang), little one work in Bangladesh, or environmental disasters in Ghana for the digital waste in Agbogbloshie.
Furthermore, the brand new German legislation entitles individuals whose paramount authorized place, reminiscent of life or limb, has been violated, to have interaction, amongst different issues, NGOs to claim their rights to litigation towards firms in Germany. To make sure the integrity of their enterprise regarding human rights and environmental safety, it’s important now that firms implement a threat administration system for ESG to hold out threat analyses in addition to implement preventive measures, not solely inside their firms but in addition concerning their direct and oblique suppliers, particularly those which might be hundreds of miles away.
The German Due Diligence in Provide Chains Act is a major step in direction of human rights safety within the company world and has a worldwide impression. In October 2021, additionally the European Fee plans a legislative proposal on due diligence within the provide chain to guard human rights and the surroundings. The safety of human rights is a matter of curiosity to all mankind, and legal guidelines coping with the matter are certain to have an effect exterior of nationwide territories.
Dr. Eric Decker, pictured above left, is a Accomplice at COMINDIS, a boutique legislation agency in Germany for Compliance, Insurance coverage & Dispute Decision. Eric has labored beforehand as Authorized Director & Head of International Insurance coverage at Bilfinger SE, a number one industrial companies supplier. At COMINDIS, he counsels multinational firms, particularly within the plant engineering, building, and infrastructure trade on compliance, insurance coverage, litigation & arbitration circumstances.
Dr. Esther Flesch, above proper, is a Accomplice at FLESCH ADVOGADOS, a boutique legislation agency in Brazil that focuses on Compliance, Authorities Enforcement, and authorized points for funding in Brazil. Esther has led groups in international compliance circumstances & investigations and was regional chief and appointed International Co-Chair of a International Legislation Agency earlier than founding FLESCH ADVOGADOS. She was Lead Counsel in a number of of essentially the most vital Brazilian investigations and compliance settlements.
The authors wish to thank Sophia Flesch and Dr. Ingo Kühl for his or her help with this put up. Sophia is an affiliate at FLESCH ADVOGADOS. She represents purchasers in authorities and inner investigations and white-collar litigation. Ingo is a accomplice at COMINDIS representing multinational purchasers in compliance, insurance coverage, and litigation/arbitration circumstances.