Bundesrat approves supply chain law

On June 25, 2021, the Bundesrat approved the Act on Corporate Due Diligence in Supply Chains by waiving a conciliation procedure. It can now be forwarded to the Federal President for signature and pronounced in the Federal Law Gazette. It will largely enter into force on January 1, 2023 – and for individual provisions already on the day after its pronouncement.

On June 25, 2021, the Bundesrat approved the Act on Corporate Due Diligence in Supply Chains by waiving a conciliation procedure. It can now be forwarded to the Federal President for signature and proclaimed in the Federal Law Gazette. It will largely enter into force on January 1, 2023 – and for individual provisions already on the day after its pronouncement.

Companies based in Germany above a certain size will then be obliged to better meet their responsibilities in the supply chain with regard to respect for internationally recognized human rights. This is intended to strengthen the rights of people affected by corporate activities without disregarding companies' interests regarding legal certainty and fair competitive conditions.

The law sets out requirements for responsible risk management for certain companies. It defines as "human rights risks" imminent violations of expressly enumerated prohibitions, such as the ban on employing school-age children. Corresponding risk management must be anchored by appropriate measures. According to the law, effective measures are those that make it possible to identify risks affecting human rights and the environment and to prevent, end or minimize violations of protected legal positions or environmental obligations if companies have caused or contributed to these risks or violations within the supply chain. Companies must ensure that it has defined who within the company is responsible for overseeing risk management.

Enforcement mechanisms are also provided. The authority responsible for monitoring and enforcing compliance with the due diligence requirements – the Federal Office of Economics and Export Control – is named and given powers of intervention. The law establishes a so-called duty of effort, but neither a duty to succeed nor a guarantee liability. It is to be adapted to a future European regulation with the aim of preventing competitive disadvantages for German companies.

Environmental protection is also included, insofar as environmental risks can lead to human rights violations. In addition, environment-related obligations will be established, arising from two international agreements on protection against the health and environmental hazards of mercury and persistent organic pollutants.

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