German businesses must soon screen suppliers for human rights compliance

German businesses will soon be legally obliged to screen their suppliers for compliance with human rights standards. The Bundestag (German parliament) approved the supply chain bill or Lieferkettengesetz (LKG) on 11 June. The bill is already encountering a great deal of resistance, however, because companies fear it will create a lot of extra red tape.

“Millions of people around the world live in misery and deprivation because minimum social standards, such as the prohibition of forced labour and child labour, are ignored. Worldwide, 79 million children work under exploitative conditions: in textile factories, in mines or on coffee plantations,” states a report by the German Federal Ministry of Economic Affairs and Development.

Supply chain law

To tackle this, the German government has agreed on a draft supply chain law. The aim is to improve the protection of human rights in global supply chains and thus ensure compliance with fundamental human rights standards, such as the prohibition of child labour and forced labour. This will mean that businesses in Germany can no long claim ignorance of human rights violations in their supply chains. The law contains clear and enforceable regulations for companies’ ‘know your customer’ obligations and thus creates legal certainty for companies and stakeholders, according to the ministry.

Coming into force in 2023

For companies with more than 3,000 employees, the Lieferkettengesetz will enter into force in 2023. It will also apply to companies with more than 1,000 employees from 2024 onwards. After that, the government will examine how the scope can be broadened. The fine for violating the law can be up to 2% of the average annual revenue.

Incidentally, similar legislation has already been in place in France for a few years, and Brussels is currently working on a similar law at EU level. Nevertheless, many German businesses are unhappy about this development, mainly because they fear extra red tape and the risk of a competitive disadvantage. On the other hand, dozens of multinationals – including Nestlé and Primark – are in favour of the bill.