Due diligence for supply chains in the EU and Germany

New requirements for due diligence requirements in supply chains regarding human rights and the environment in the EU and Germany are taking shape.

Supply chains have been in focus in recent months, not only because of the huge disruptions caused by COVID-19.  In the first half of 2020, the European Commissioner for Justice, Didier Reynders, announced that in 2021 the European Commission would propose legislation on mandatory corporate due diligence with regards to human rights and environmental risks across supply chains of big businesses.  The main purpose of the legislation would be to prevent the negative impacts related to the growth of international supply chains, such as violations of human and labour rights, including forced labour and child labour, environmental damage, land grabbing, and corruption.

In September 2020, the Committee on Legal Affairs of the European Parliament published a proposal for adopting a Directive on corporate due diligence and corporate accountability (link).  According to the proposal, companies would be required to perform due diligence of their value chain within the following risk areas:

• Human rights risks
• Environmental risks
• Governance risks

Also, Germany has sped up its works on its national supply chain law (ger. Lieferkettengesetz).  A couple of days ago, several German ministries finally reached an agreement on a draft version of the law which defines companies’ duties concerning the surveillance of human rights throughout their supply chains.  Initially, only partnerships and corporations under German and foreign law that are based in Germany and employ more than 3,000 people in the entire group are affected. From 2024, the supply chain law will also apply to smaller companies with more than 1,000 employees.

Among the new due diligence duties imposed on German companies are:

• Risk analysis obligation
• Duty to take follow-up measures: Termination of business relationship only as a last resort
• Reporting obligation
• Obligation to make efforts and the principle of appropriateness

On March 3, 2021, the German cabinet approved the submitted draft. The Bundestag is expected to vote on the final draft law in the current legislative period.