What Is the German Supply Chain Act and What Do You Need to Do About It?

As human rights violations within supply chains have been increasingly exposed in recent years, more countries and jurisdictions are taking action to regulate supply chains. In 2023, Germany will begin enforcing the German Supply Chain Act, a precursor to possible future supply chain legislations in other jurisdictions.

If your company is operating in Germany, here’s what you need to know about taking action to meet the requirements. But even if you do not operate in Germany, take note — similar legislation is likely on the horizon for the European Union at large.

What Is the German Supply Chain Act?

The German Supply Chain Act requires companies to take responsibility for human rights and environmental risks in their supply chains. Many companies will need to strengthen their compliance management systems in order to meet the new due diligence obligations included in this Act.

What Is the Scope of the German Supply Chain Act?

The German Supply Chain Act enters into force on January 1, 2023. It applies to all companies whose headquarters or main branch is located in Germany.

Companies with fewer than 3,000 employees are exempt until 2024, at which point the scope will extend down to companies with more than 1,000 employees.

The scope of the human rights considerations in the Act are defined in Section 2.1, which details the internationally recognized human rights protected by the Act. These include protections against child labor; slave labor; and occupational, health, and safety hazards.

The scope of environmental considerations in the Act includes certain restrictions on the import and export of hazardous waste, and the use and manufacture of mercury.

What Human Rights Are Protected by the German Supply Chain Act?

The Germany Supply Chain Act specifically prohibits many human rights violations:

  • Child labor for children under 18 in accordance with the ILO Convention on Worst Forms of Child Labor, 1999 (No. 182).
  • Forced labor.
  • All forms of slavery or similar practices of domination or oppression at work.
  • Ignoring the local applicable rules on workplace safety and working conditions if it could lead to workplace accidents or work-related health risks.
  • Harming freedom of association.
  • Employment discrimination.
  • Wage discrimination.

What Environmental Protections Are Included in the German Supply Chain Act?

The German Supply Chain Act specifically bans several environmentally harmful practices:

  • The export of hazardous wastes and other wastes according to Article 1, paragraphs one and two of the Basel Convention to a state party that prohibits the import of such wastes, to an importing state that does not consent in writing to the specific import, to a nonstate party, or to an importing state where the wastes will not be managed in an environmentally sound manner.
  • The export of hazardous wastes from states listed in Annex VII of the Basel Convention to states not listed therein.
  • The import of hazardous wastes and other wastes from nonstate parties of the Basel Convention.
  • The manufacture of mercury or mercury compounds in the manufacturing processes in accordance with Article 5, paragraph two or the Minamata Convention after the phaseout date.
  • Handling mercury waste contrary to the requirements of Article 11, paragraph three of the Minamata Convention.
  • The manufacture and use of chemicals according to Article 3, paragraph one, letter a of the Stockholm Convention on Persistent Organic Pollutions (POPs Convention).
  • The incorrect handling, collection, storage, or disposal of chemical waste contrary to the requirement of Article 6, paragraph 1, letter d of the POPs convention.

What Measures Must Be Taken to Comply with the German Supply Chain Act?

Section 3 of the German Supply Chain Act states that companies must respect human rights in their supply chains. The specific obligations are then detailed in the rest of that section. Companies will need to take several measures to comply with the Act:

  • Publicize company human rights policies.
  • Create preventative measures for the company and its supply chain.
  • Remedy any violations.
  • Establish a risk management system.
  • Name a company point of contact person for human rights obligations.
  • Implement similar measures for indirect suppliers.
  • Document and retain data.
  • Regularly assess non-compliance risks.
  • Establish a complaints process.

How Much Cost Will Be Involved?

The German government estimates overall costs for all affected companies to be about €110 million to launch compliance programs. After all the programs are in place, the government estimates an additional €44 million will be necessary to keep these systems functioning.

One thing that may help reduce the overall effort is that some companies already comply with many or most of the obligations that have now be codified. The German government believes that out of the 2,900 companies subject to the Act, around 600 companies already comply with the new requirements. If this is true, it could mean that much of the approximately €154 million in costs would be borne by roughly 600 companies who may, on average, need to invest around €250,000 to institute a compliant program.

What Steps Should Companies Be Taking Now?

Company compliance professionals should consider the new provisions of the German Supply Chain Act and begin taking action now. It is expected that there will be fines and/or sanctions levied against companies who do not comply. In the near future, there will also likely be a European Supply Chain Act, which will be easier to comply with if a company has already fulfilled the obligations of the German Supply Chain Act.

If you are wondering where to start on complying with the new German Supply Chain Act, Tetra Tech can help you get started by walking you through the process and setting up an action item plan to keep you compliant.

If you need help with any of these tasks, contact Tetra Tech’s product compliance experts today at [email protected]. We can help you understand your requirements in in the new German Act and set up a compliance program to help you meet your due diligence obligations.

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