London – ImpACT International for Human Rights Policies welcomes the new German Act on Corporate Due Diligence to Prevent Human Rights Violations in Supply Chains, also known as German Supply Chain Act (LkSG), which came to effect early January this year.

The London-based think tank applauds the LkSG Act, which obligates companies in Germany to protect workers' human rights all along the supply chain and makes the companies responsible for implementing extensive compliance measures.

Some 80 million children work under appalling conditions of exploitation in textile mills, mines, quarries and on farms

The act is a significant step for other European companies involved in human rights violations against workers, especially migrants. The act will also fight off offences against child labour, low wages, and forced labour.

Some 80 million children work under appalling conditions of exploitation in textile mills, mines, quarries and on farms.

The scope of the LkSG covers companies with more than 3,000 workers. This act aims to protect human rights in supply chains at the international level. It requires companies to consider the harsh and unfair working conditions when they purchase materials from abroad. Under this law, aid organisations and trade unions can represent those concerned before German courts in case of human rights violations.

According to the Federal Minister for Economic Cooperation and Development (BMZ), Svenja Schulze, this affects about 900 German companies. These companies will have to meet varying requirements imposed on their areas of operation, as well as on their direct suppliers.

In principle, companies must consider that supply chains are committed to human rights. However, the demands and conditions are gradual, especially according to the company's authority and its impact on the perpetrator of human rights abuses and according to the varying degrees of supply chains.

According to the BMZ, companies must also conduct a risk analysis and risk management study and find a mechanism for communicating complaints and declaring them publicly. For example, suppose human rights abuses occur within the framework of the company's work or through a direct supplier. In that case, the company must act as quickly as possible "to prevent, end as soon as possible, or mitigate these abuses to the maximum extent possible."

The LkSG requires companies to follow human rights and environmental standards throughout the supply chain. In addition, companies must include the implementation of due diligence in their policies. These include implementing human rights-related risk management; an in-house human rights body; human rights risk analysis; a declaration of fundamental principles for the protection of human rights in business; the implementation of preventive measures in the own business area, and other obligations.

According to the act, abusers shall face a range of fines that range from up to 800,000 euros against natural persons and up to 400 million euros against companies.  

However, the LkSG does not require companies to succeed in totally abolishing human rights violations but instead establishes a duty of effort. Companies must prove that they have done everything possible to guarantee that violations do not occur along the supply chain.   

The LkSG requires companies to conduct a risk analysis of their supply chain and business activities. In addition, companies must appoint a human rights officer to monitor human rights risks.

This obligation forms the basis for defining preventive and remedial measures to identify, prevent, end, or minimise supply chain human rights risks and violations. Prioritise unanticipated risks. The company must investigate ambiguous cases.

It also forces companies to implement a company policy and individual compliance measures based on risk analysis results. This includes updating human rights-related guidelines.

The legislator emphasises "tone from the top"—the company management must adopt the human rights declaration and commit to the company's human rights strategy, including identification of the relevant human rights and environmental risks, description of the corporate risk management, and explanation of the company's objectives, standards and human rights guidelines. 

The legislator requests the human rights strategy's general principles applied to business. The human rights strategy must be applied to all business processes, including codes of conduct or guidelines. The human rights strategy must also be considered in business contracts.

The LkSG requests establishing a complaints system, which must be accessible. Furthermore, the requirements of confidentiality and data protection must be considered.

The complaints procedure should also be accessible for people whose rights were violated by the business activities of an indirect supplier. Consequently, the complaints procedure must be set up so that third parties who become aware of the violation of a protected legal position also have the opportunity to comply.

By documenting due diligence obligations and, at the same time requiring that the documentation must be kept for a period of seven years, the legislator creates the prerequisite for monitoring and enforcing the duties set in the LkSG.

In addition to the obligation to provide relevant information and to cooperate in inspections upon request, companies must prepare an annual report on the due diligence measures implemented, namely on risk identification and the preventive and remedial actions taken.

ImpACT International believes that the LkSG is a significant new compliance requirement that introduces substantial liability risks because, by this act, company managers must analyse all new responsibilities outlined in the LkSG and assess the situation in their respective organisations. If due diligence requirements are not followed properly, there is a chance of an administrative procedure and the imposition of significant fines.

Finally, ImpACT International encourages other European countries to follow the lead of Germany and enact similar legislations that would curb human rights violations and further empower workers along the supply chains.