Act on Corporate Due Diligence in Supply Chains

Brief Description

In June 2021, the German Parliament adopted the “Act on Corporate Due Diligence in Supply Chains” which will enter into force in 2023 to initially cover companies with 3,000 or more employees. It places companies under the obligation to establish a risk management system to identify, prevent or minimise the risks of human rights violations and violations of certain environmental regulations. The Act sets out the necessary preventive and remedial measures, makes complaint procedures mandatory and requires regular reports. The due diligence obligations include the prohibition of child labour and apply to the entire supply chain. The law creates strong regulatory oversight and enforcement. This means that an enterprise’s responsibility no longer ends at its own factory gate but applies throughout the entire supply chain.  If enterprises fail to comply with their legal obligations, administrative fines may be imposed. These can amount to up to 8 million euros or up to 2% of annual global turnover. The powers of the responsible office (Federal Office for Economic Affairs and Export Control) includes being able to enter business premises, inspect goods and documents and impose fines as needed.