7. April 2021 / Proposed legislation on due diligence in supply chains

On 3 March, the German Cabinet has adopted a draft legislation for the new Supply Chain Act (Lieferkettengesetz), which is highly disputed among commercial and industry associations.

The draft legislation on corporate due diligence in supply chains is to obligate German companies to meet their global responsibility better. Anosha Wahidi, Head of Division Sustainable Supply Chains at the German Federal Ministry for Economic Cooperation and Development, also presented the draft law at the International Cotton Conference Bremen in mid-March as part of the session “Supply Chain Transparency”.

What does the Supply Chain Act regulate?

Under the provisions of the new legislation, companies’ responsibility is to extend along their entire supply chain, graduated in line with the opportunities they have to exert an influence. Companies must realise their obligations in their own field of business and vis à vis their direct suppliers. Indirect suppliers are involved as soon as the company receives substantiated reports of human rights violations at that level.
The legislation translates into concrete provisions the way companies must comply with their due diligence obligations in the field of human rights. This involves analysing human rights-related risks, taking measures to prevent and mitigate human rights violations, setting up grievance mechanisms and reporting on their activities. The bill also covers environmental protection, where environmental risks can lead to human rights violations.

Implementation projected for 2023

With the Federal Office for Economic Affairs and Export Control, a government authority is tasked with monitoring compliance with the law. The law is expected to be adopted by the German Parliament before this year’s summer break and will apply to companies with more than 3,000 employees (over 600 companies in Germany) from January 1, 2023. From 2024 onwards it will include companies with more than 1,000 employees (2,900 companies).

Initiative at European level

With a large majority, the European Parliament adopted a legislative initiative report on 10 March that calls for due diligence obligations for all companies operating in the European Union.

Picture: Anosha Wahidi © BMZ

All sessions and discussions of the International Cotton Conference 2021 were recorded and are already available online. After logging in on the platform navigate to the session of interest where the respective video is accessible. The presentations will be published within the next weeks on the platform and the website of the Bremen Cotton Exchange.

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