A New Regulatory Framework to Promote Respect for Human Rights in Business Activities
In 2021, Germany enacted the Act on Corporate Due Diligence Obligations in Supply Chains, a law that requires companies to conduct human rights due diligence in their business operations and supply chains. The legislation entered into force on 1 January 2023.
Under this law, companies falling within its scope are required to respect human rights not only within their own operations but also throughout the global supply chains connected to their business activities.
Corporate Obligations to Identify Human Rights Risks
The Act requires companies to undertake reasonable efforts to prevent and mitigate potential human rights violations arising from their business operations and supply chain relationships.
These obligations include identifying and addressing risks related to:
- Forced labour;
- Child labour;
- Evictions;
- Environmental pollution;
- Land grabbing.
The responsibility extends beyond a company’s internal activities and also applies to both direct and indirect suppliers, including those located outside Germany.
Based on the UN Guiding Principles on Business and Human Rights
The due diligence requirements established under this legislation are grounded in the United Nations Guiding Principles on Business and Human Rights (UNGPs).
In addition to requiring preventive measures, the Act establishes oversight and enforcement mechanisms designed to ensure corporate compliance with its obligations.
Companies Covered by the Law
The implementation of the Act has been phased in according to the size of a company’s workforce.
Effective from 1 January 2023
The law applies to:
- Companies headquartered in Germany with at least 3,000 employees;
- Foreign companies operating in Germany with more than 3,000 employees.
Effective from 1 January 2024
The scope was expanded to include:
- Companies headquartered in Germany with at least 1,000 employees;
- Foreign companies operating in Germany with more than 1,000 employees.
Mandatory Compliance Measures
To comply with the requirements of the Act, companies must implement several compliance measures, including:
- Identifying risks within their business operations and supply chains;
- Developing and adopting a policy statement outlining the company’s human rights strategy;
- Establishing and implementing preventive and remedial measures to address identified risks;
- Creating and publishing a complaint procedure;
- Maintaining robust, effective, and accountable third-party compliance programs.
These measures are intended to ensure that companies have systems in place to identify, prevent, and address potential adverse human rights impacts.
Enforcement and Sanctions for Non-Compliance
Companies that fail to comply with the obligations set out in the Act may be subject to administrative sanctions imposed by the competent authorities. The level of sanctions depends on the nature and severity of the violation.
Furthermore, where allegations of human rights violations linked to corporate activities arise, the relevant authorities are required to investigate and take appropriate action within their legal powers.
Access to Justice for Victims of Human Rights Violations
One of the key features of the legislation is its effort to enhance access to justice for victims of human rights abuses connected to corporate activities.
Affected individuals may authorize non-governmental organizations (NGOs) or trade unions to bring legal claims on their behalf before German courts. This mechanism is intended to reduce barriers that victims often face when seeking legal remedies and the protection of their rights.
BAFA’s Role in Monitoring Compliance
Oversight of the Act is carried out by the Federal Office for Economic Affairs and Export Control (BAFA).
As the authority responsible for enforcement, BAFA has the power to impose various sanctions on non-compliant companies, including:
- Fines of up to €8 million;
- Exclusion from public procurement and tender procedures for a period of up to three years.
These enforcement powers form part of the broader framework designed to promote corporate compliance with human rights standards throughout business operations and global supply chains.
