Germany’s proposed supply-chain law—a glass half-empty

In drafting a law regulating supply chains Germany surrendered to the business lobby. The EU must not do the same.

‘The strongest law in Europe.’ That’s what the federal minister of labour, Hubertus Heil, is calling Germany’s proposed legislation on supply chains (Lieferkettengesetz). Is he right?

Well, yes and no. The government plans to introduce a new duty of care for human rights. If approved by parliament, Germany will become only the second country with such a law.

The proposal is a long-overdue step in fixing a broken system, in which globalisation is coming at a devastating cost to the planet and its people, while corporations running the show get away scot-free, regardless of whether they are based in Germany or elsewhere.

It hopes to oblige German companies regularly to identify, mitigate and prevent risks associated with their own activities and those of their suppliers with whom they have a contractual relationship.

But the current formulation risks letting companies off the hook for what happens at the very bottom of their value chains.

Child labour on cacao farms, worker exploitation in cobalt mines or union-busting in Bangladesh are all examples of serious human-rights violations which companies would only be required to examine, and try to prevent, if they are prompted by complaints.

Companies in the extractive industries wouldn’t even have to do a risk assessment. That is a cop-out.

What is needed is a risk-based approach to due diligence, based on international standards. If this is not reflected in the law, the costs of irresponsible business will continue to be felt by those least able to withstand them.

Mixed blessing

The draft law is a mixed blessing. Envisaged as taking effect in 2023, it would first apply to the country’s 600 largest companies and then, a year later, be expanded to around 2,900 companies with more than 1,000 employees. This is just half of what was initially suggested but the law would apply to more companies than the pioneering French duty-of-vigilance law.

At the press conference announcing the proposed law, all three relevant ministers—for development co-operation, labour and social affairs, and the economy—implicitly acknowledged that the goal should be to enhance judicial remedy for overseas victims.

But the lack of civil or criminal liability for corporations in the leaked draft text is bitter news for millions whose daily lives are affected by corporate abuse. Without such provisions, the proposal has no ‘stick’ to oblige corporations to prevent abuses, while providing a path to compensation claims by affected workers and other victims.

The proposal still has some teeth—but only a few. It promises to allow trade unions and civil society to file lawsuits against German companies, on behalf of those directly affected by their harmful and negligent behaviour.

If a company shirks its obligations, fines and sanctions could be levied against it of up to 10 per cent of annual turnover and it could face exclusion from public-procurement contracts for up to three years. Is this enough to finally break the cycle of destruction, destitution and impunity?

Fierce lobbying

Fierce lobbying by German business associations and corporate lobbyists has certainly played its part in the weakening of the proposal.

The parties to the grand coalition had agreed to introduce a supply-chain law if the business community did not sufficiently comply with its voluntary commitment to respect human rights, including workers’ and trade union rights, before the federal elections due this year. Their expectation that corporations would do the right thing was dashed when a government survey revealed that fewer than one in four German companies monitored their value chain for human-rights violations.

When the supply-chain law became politically inevitable, corporate interests tried to weaken it at every turn. As civil-society groups urged the federal government and the chancellor, Angela Merkel, to follow through on their promise, business associations and corporate lobbyists kicked up a fuss about costs, bureaucracy and liability.

But such arguments are corporate spin. A European Commission study found that that any increase in costs would remain relatively low compared with company revenue, including for small and medium enterprises. They would also pale in comparison to the lives and livelihoods lost in the many tragedies that have taken place at farms and factories supplying Germany companies. Instead, companies should see this as an investment in sustainability.

Parts of the law have clearly been written—or at least strongly influenced by—big German industry, more familiar with outsourcing production, squeezing workers, burning forests and ignoring climate warnings than with respecting human rights and the environment.

It’s no wonder the draft text includes so few companies and restricts due diligence to direct suppliers—a sore point for the civil-society groups, trade unions, fair-trade representatives and churches who form part of the German Initiative Lieferkettengesetz campaign.

Two of the three ministers fought hard for stronger civil-liability rules but ultimately ran out of steam, due to concerted pressure from corporate lobby groups and the economics minister, Peter Altmaier. Despite shamelessly labelling himself as a ‘grassroots activist’, Altmaier has been widely criticised for his warm reception of industry ‘advice’.

Missing pieces

It’s now up to the German parliament to improve the law and add the missing pieces. If lawmakers are genuine about delivering real change, they will have to align the proposal with international standards, such as the United Nations Guiding Principles on Business and Human Rights or the Due Diligence Guidance for Responsible Business Conduct of the Organisation for Economic Co-operation and Development. It should provide for civil liability and extend its obligations to all companies.

As the European Commission embarks on drafting its own proposal, it will have to do some real soul-searching: does it want to protect unchecked corporate interests or to stand with people, nature and the climate?

If it chooses the latter, it will be an important signal that the European Union finally recognises that people should no longer be an afterthought in the dash for unscrupulous profits. Let’s hope Brussels has learned that valuable lesson from this episode.