(Credit: Pixabay)In June, Germany passed legislation toughening ethics standards for supply chains. The law requires large German companies to establish due diligence procedures to screen for human rights and environmental abuses within their global supply chains. If a violation is identified, the company must take action. If it fails to do so, it will incur a fine of up to 2% of its annual revenue. Beginning in 2023, companies with more than 3,000 employees will be affected. In 2024, the law will expand to cover companies with more than 1,000 employees, encompassing nearly 5,000 German companies.
Discussing the international implications of the law, Jim Bureau of global supply chain and procurement tech provider Jaggaer stated, “Germany’s Supply Chain Act is essentially the GDPR of ESG. It sets a new global standard for due diligence obligations and paves the way for stricter future legislation. The law is a big deal for businesses that operate or do business with companies in Germany, regardless of where they’re based.” He added that “more countries will likely follow suit and increase legal pressure on organizations to protect human rights and our planet.”
Back in March, the EU approved an outlined proposal requiring companies from all member countries to practice supply chain due diligence for human rights, environmental, and good governance concerns, citing research that a “voluntary approach” has proved insufficient. According to the European Parliament, only one in three businesses is conducting appropriate supply chain due diligence measures. The directive, which could be enacted as early as 2022, applies to companies with more than 250 employees or €50 million in revenue, as well as publicly listed or “high-risk” small and medium sized entities. Failure to comply risks large fines, a freeze on government contracts and subsidies, and even an outright import ban in severe cases.
