German cabinet backs law to protect human rights in global supply chain

Germany’s cabinet has approved a law on due-diligence to enforce the protection of human rights and environmental standards along global supply chains, prompting criticism that ministers had either gone too far, or not far enough.

“Every human being has the right to a life of dignity — this applies not only to Germany but worldwide,” Gerd Müller, the country’s development minister, said on Wednesday.

Activists in Europe’s largest economy have long called for a law that would require companies to assess due diligence — not just at home but in places where raw materials are extracted and goods assembled right to their final destinations.

But businesses have warned the move would place an unfair burden on German companies and could put them at a disadvantage.

The campaign received a boost last summer when Müller together with Labour minister Hubertus Heil took up the cause as supply chains and labour rights gained attention during the early stages of the coronavirus outbreak.

A compromise draft, reached last month, was approved on Wednesday by the cabinet, meaning it is all but guaranteed to pass in parliament, where the ruling coalition of Christian Democrats and Social Democrats hold a majority.

Both business lobby groups and human rights activists complain that the compromise bill has been rushed.

The bill requires companies with over 3,000 employees to comply with supply chain standards by 2023 and imposes fines for non-compliance that could rise to 2 per cent of average annual sales for companies with €400m in sales or more. 

Ulrike Demmer, a government spokeswoman, told journalists that companies would be required to analyse risks to human rights, prevent violations and provide remedies, and create complaints procedures. “The responsibilities of the companies extends to the whole supply chain, graded by their ability to exert influence over this,” she said.

In a statement the Association of German Employers said. “[It] is a dangerous national route that puts German companies at a severe disadvantage in European and global competition.

“It will mean that foreign companies that do not have to comply with German requirements will take the place of German companies’ foreign trade commitments.”

Germany’s powerful Association of the Automotive Industry called for a “uniform European approach”.

Activists from the Supply Chain Act Initiative praised what they called a “paradigm shift” that moves taking action from voluntary commitments to a legal requirement. But they said the law was too watered-down to be effective. The bill only applies to larger companies, they said, and requires compliance checks only of direct contractual partners, not indirect suppliers further down the chain. 

Environmentalists are particularly outraged, arguing it is the initial stage of resource extraction where environmental abuse is most likely.

“This law does nothing to address one of the worst impacts of German consumption overseas: their devastating impact on the environment, especially forests and the livelihoods of people dependent on them,” said Sam Lawson, director at the British environmental investigation group Earthsight. 

Last year, the group published a report linking illegal deforestation in protected lands of an “uncontacted” tribe in Paraguay to the manufacture of materials used by German carmaker BMW. Lawson argued the new draft law would not prevent similar incidents in the future.

“Even for those issues it does encompass, the law is so riddled with holes as to be almost worthless,” he said.

Additional reporting by Guy Chazan