“More an Opportunity than a Guarantee”

The Lieferkettensorgfaltspflichtengesetz (Supply Chain Due Diligence Act) came into force in Germany in January 2023. It stipulates that German companies must ensure compliance with all human rights standards across their global supply chains, meaning that German companies can also be held liable for human rights violations committed abroad.

The law has received praise from some quarters as an important step towards extending corporate liability and globalizing standards, while, unsurprisingly, facing a lot of criticism from industry representatives who call it burdensome, impractical, or simply poorly designed. So which is it?

Annika Klügel from the Rosa Luxemburg Foundation spoke with lawyer and workers’ rights advocate Christian Schliemann-Radbruch to get his perspective on how the Supply Chain Due Diligence Act will help protect human rights across the supply chain, and where it needs improvement.

Why do we need a Supply Chain Due Diligence Act at all?

A Supply Chain Act is necessary because, in recent decades, we have seen that economic actors in transnational supply chains in particular contribute to human rights violations and environmental pollution. In many areas of the economy, we can observe a concentration of economic power in the hands of individual companies. The pesticide industry is one example, but other sectors in which only a few companies are involved are guilty of this, too.

Many of them originate in Europe but operate worldwide, thus contributing to human rights violations in other countries, often in the Global South. This law should ensure that human rights violations are contained and that pre-emptive measures are taken to prevent them from occurring — and, should violations occur, that those affected have access to redress and reparations.

What exactly does the law stipulate?

Essentially, the law states that all companies defined as Germany-based with more than 3,000 employees have due diligence obligations regarding compliance with human rights standards across their supply chains. More specifically, this means that companies have to implement certain processes to ensure that no human rights violations occur along the supply chain.

This starts with a risk analysis, which identifies specific risk areas where human rights violations may occur. Once these have been established, companies must consider which measures can be taken to ensure that human rights violations do not occur. If they find that violations have already occurred, they must take remedial action. Companies must release an annual public report on their findings. This is the basic idea behind this Supply Chain Act.

Could you illustrate it with a concrete example?

Let’s take a German company like Adidas, which has suppliers in multiple countries around the world. That means there are factories in many different places that manufacture products for Adidas. We know that issues with workers’ rights arise in certain countries time and time again — in factories, at production sites. These may relate to building safety and fire prevention or to basic issues such as safety at work, child labour, forced labour, freedom of association, and gender discrimination. All of these violations occur.

With the new Supply Chain Act, Adidas now has the obligation to carry out checks along its supply chain and pinpoint where such risks exist. Once the risks have been identified, preventative measures must be taken.

Who monitors whether companies comply with the requirements?

Under the Supply Chain Act, companies have to submit reports on how they implement the legal stipulations along their supply chains. An authority in Germany, the Federal Office for Economic Affairs and Export Control (BAFA), then examines these reports.

They can then consider whether the reports are sufficient and whether the measures set out have actually been implemented to prevent risks or to remedy violations — and whether these measures are appropriate. If this is not the case, BAFA has the power to impose fines on the companies. The law allows secondary sanctions to be imposed if a company does not comply with the regulations.

We still need civil society, trade unions, and other organizations that support workers to join forces and work together with affected communities, individuals, and NGOs from the Global South to uncover violations, put pressure on companies, and call on the relevant German authority to help change corporate behaviour.

In addition, affected persons themselves have the opportunity to lodge a complaint with the company or submit information on violations that come to light along the company’s supply chain. The company is then required to examine this information and, if necessary, take measures to prevent human rights violations.

If those affected still feel that the company is not doing enough, they have the option of calling BAFA and asking the authority to take immediate action to force the company to take appropriate measures.

Which factors determine whether the law is genuinely effective in preventing human rights violations?

We will see the effects of the law in practice once the first reports have been submitted and we can see how companies actually implement their due diligence obligations.

We run the risk of companies taking a “tick-box approach”, i.e. creating a catalogue of criteria for themselves that they tick off when it comes to certain issues. If the boxes are ticked, they will have done their due diligence. Then they will publish a relatively abstract report that tells us nothing about individual cases. If this happens, the basic situation will largely remain the same.

This means that this law is more an opportunity than a guarantee that individuals in the Global South will be able to change their situation. We still need civil society, trade unions, and other organizations that support workers to join forces and work together with affected communities, individuals, and NGOs from the Global South to uncover violations, put pressure on companies, and call on the relevant German authority to help change corporate behaviour.

Does that mean that the law has at least raised the pressure on companies?

Yes, definitely. The law has expanded the range of instruments for putting pressure on companies. They now have a statutory duty to fulfil their obligations.

If you can compile information that shows that they are not doing that, you have an additional authority which can threaten companies with sanctions, and which has the power to obtain additional information from companies and directly order that certain measures be taken.

To what extent this German authority will do this and, if so, in which cases remains to be seen. No individual case has been implemented so far. In this respect, 2023 and probably also 2024 will be two exciting years in terms of judging how effective the law actually is.

What role does your organization, the European Center for Constitutional and Human Rights (ECCHR), play in this?

The EHCCR tries to enforce human rights standards worldwide through legal means. We have a programme in the field of business and human rights, and since the programme’s inception we have been working on human rights violations committed by economic actors in transnational constellations. In other words, these is a lot of overlap with the cases targeted by the Supply Chain Act.

As a rule, we try to check with those affected from abroad whether legal solutions can contribute to their goals. If this is the case, we examine together which legal means at which level make sense in order to influence companies to change their behaviour — or to secure compensation.

We have tried this in the past, for example at the international level through United Nations institutions, but also through the courts or other soft-law instruments. The Supply Chain Act gives us new options.

How satisfied are you with the law’s design?

The law does have a few weak points, which have been criticized relatively unanimously by civil society.

Firstly, there is major criticism of the definition of the supply chain. At the international level, value chains are used as a concept. This means that it is not only a question of whether a supplier company delivers to a German company — it is also about what happens in the so-called “downstream” with products sold by German companies.

Ultimately, it must be ensured that those affected play a role in the law’s implementation and enforcement.

There are dangerous products, such as medicines or pesticides, where you also have to consider their usage, because that is often where human rights violations occur. You have to check whether these products are covered by the German Supply Chain Act. This is still an open debate, however it is clear that the German authorities will first interpret the law in such a way that only so-called upstream activities, i.e. supply, are covered.

The second major bone of contention is that, although it is possible to enforce administrative law via the German authority, there is no civil liability. Civil liability has always been a key demand of civil society, because it is highly relevant to those affected.

Another objection to the law pertains to its coverage of environmental concerns. To a certain extent, the environment is now also included in this law. Companies have certain obligations to avoid contributing to environmental pollution and destruction, albeit not nearly to the extent that environmental organizations in particular would have liked. The law also does not explicitly refer to the climate crisis or the prevention of aggravating factors.

Will the law also bring about more transparency for consumers who want to shop responsibly?

The Supply Chain Act may well have the secondary benefit of giving consumers more information about how certain companies are fulfilling their due diligence obligations. In our view, however, this law should change something else. It should contribute to a system that encourages companies to change their behaviour and stop putting the burden of the negative effects of global capitalism on the shoulders of consumers.

So far, each individual country in Europe has its own regulations for human rights standards in supply chains. To ensure a more uniform approach, the EU is working on a European supply chain law. What do you expect from this process?

The process is ongoing and questions are arising similar to those that we witnessed in Germany during the legislative process. We have political institutions making proposals themselves. We have a civil society that is making certain demands of the EU legislative act. And, of course, we have business associations with their own perspectives on this legislative process.

Attempts are now being made to resolve this power struggle. From the perspective of civil society, we would of course like to see Europe address all the criticisms that we have directed at the German law.

This means incorporating civil liability into the law in order to ensure legal certainty all and allow those affected outside the EU to appeal to European courts. This option is still underdeveloped and this creates obstacles to enforcing the law. We have a global economy, but we have no global access to redress through law and the courts. It would be good if that could be changed at the EU level.

The second improvement involves broadening the definition of a supply chain, as enshrined in German law, to include value chains. This would allow the law to cover all forms of economic activity that we know actually lead to human rights violations and environmental pollution in particular.

We are demanding that those affected have a clear say in the development of the law, ideally in the early stages of the legislative process and decisions on which rights must be respected by companies. For example, the collective rights of indigenous peoples must also be included. This only occurs to a very limited extent in German law. Ultimately, it must also be ensured that those affected play a role in the law’s implementation and enforcement.