In the coalition agreement two years ago, the “AMPEL”-Coalition agreed to support the EU supply chain law. It states unequivocally: “We support an effective EU supply chain law, based on the UN Guiding Principles on Business and Human Rights, which does not overwhelm small and medium-sized companies.” (siehe unten).
Now – shortly before the successful adoption of the EU Supply Chain Act – things suddenly sound completely different for the FDP. The FDP Presidium published a resolution paper on January 15, 2024, which states: “We reject the current draft of the EU Supply Chain Directive. This would create disproportionate bureaucratic hurdles and legal uncertainty…”
This is questionable in itself against the background of the joint coalition agreement. However, it also overlooks the fact that many companies (including medium-sized businesses) welcome a stricter EU supply chain law. A recent survey of 2,000 companies by the Handelsblatt Research Institute (HRI) showed that only 7 percent reject an EU supply chain law, while 44 percent of companies are already paying attention to sustainability in the supply chain and 37 percent are already partially doing so.
Johannes Heeg from the Supply Chain Act Initiative, of which XertifiX is also a member, writes: “The EU supply chain law is not about annoying bureaucracy, but about fundamental human rights and environmental standards. With its U-turn shortly before the finish line, the FDP is jeopardizing Germany’s credibility in the EU when it comes to sustainability. … With its blockade stance, the FDP is also isolating itself internationally: the liberal group in the European Parliament celebrated the agreement on a compromise on the EU supply chain law in December as a great success.Chancellor Olaf Scholz is now responsible for protecting the credibility of the federal government in the EU.”
See: Coalition Agreement
The German Due Diligence Act (LkSG) has now been in force for almost a year. This means that all companies with 3,000 or more employees must, among other things, adopt a policy statement, analyze the risks among direct suppliers and, if necessary, take corrective measures if risks are identified. From January 1, 2024, the LkSG even applies to companies with 1,000 employees.
The Federal Office of Economics and Export Control (BAFA) is responsible for monitoring the implementation of the LkSG. This can even impose sanctions on companies for violations of the LkSG. In the first year, however, BAFA has not yet imposed any sanctions on companies. This is quite deliberate, because – as Torsten Safarik, head of BAFA, explains: “We see ourselves as partners of companies in order to successfully implement the law together,” as can be seen in an article in the Tagesschau.
There is also criticism of this approach because it means that changes are achieved less quickly than human rights violations in supply chains might require. The criticism is certainly justified. However, as always, it is important to find the balance between reality and expectations. The new EU supply chain directive with civil liability and applicability to companies with 500 or more employees will certainly increase the pressure on everyone involved.
Yesterday, the EU Council and the European Parliament reached a provisional agreement on the Corporate Sustainability Due Diligence Directive (CSDDD), which aims to protect the environment and human rights in the EU and worldwide.
The Due Diligence Directive imposes obligations on large companies regarding actual and potential negative impacts on human rights and the environment. This affects EU companies with more than 500 employees and a net turnover of 150 million euros and includes their own business activities, those of their subsidiaries and those of their business partners.
Companies must therefore carry out a risk analysis of their supply chains and, if necessary, initiate measures to minimize the risks. The directive also strengthens access to justice for those affected (“civil liability”), according to which those affected by negative impacts (including trade unions and NGOs) have 5 years to make claims. If companies violate the directive, they can be subject to penalties equal to 5% of the company’s net sales.
The provisional agreement reached with the European Parliament must now be approved and officially adopted by both institutions (which is considered a formality in Brussels).
It is great that the Due Diligence Directive has now been adopted in this form and will give all European companies legal certainty in the future and a level playing field in matters of human rights and environmental protection for companies with 500 or more employees. In the last point, the EU directive goes beyond the German Supply Chain Act, which can be seen as a great success and a step in the right direction!
Tin, tungsten and tantalum (coltan) are mined and traded in the Great Lakes region of Africa (Angola, Burundi, Republic of Congo, Democratic Republic of Congo, Kenya, Rwanda, Central African Republic, Sudan, South Sudan, Uganda, Tanzania and Zambia). These raw materials enable the (illegal) enrichment of unlawful militias. This also puts international companies under pressure not to trade in these conflict minerals. The result is that companies are withdrawing from the region – which in turn deprives the local population of access to income.
The federal government is supporting the Great Lakes region in establishing a transparent and credible certification system for the most important mineral raw materials (tin, tungsten and coltan). To this end, the Federal Institute for Geosciences and Natural Resources (BGR) is carrying out a long-term project. The central points of the project are:
- Through training and further education in mining supervision and inspection, national authorities are enabled to ensure the sustainability of raw material mining.
- Supporting the Great Lakes Region in implementing the regional certification mechanism.
- The sustainable implementation of the “Analytical Fingerprint” (AFP) developed by BGR.
The traceability of the supply chain is ensured based on the mineralogical and geochemical compositions of the mineral concentrates. However, this system is only used if doubts about traceability arise when the supply chain is checked by external auditors. The project will run until the end of 2024.
The Frankfurter Rundschau reports that small and medium-sized enterprises (SMEs) generally support compliance with human rights in global supply chains. This was the result of a survey by the Hamburg Foundation for Business Ethics. At the same time, the survey shows that companies fear that the Supply Chain Act (LkSG) will lead to companies focusing primarily on “compliance”, i.e. on legal certainty – and less on actual changes in favor of human rights.
There is also criticism of the behavior of the business associations, which “first ignored the fundamentally positive attitude of many SMEs, then relied on prevention for too long and finally did not contribute enough pragmatically to the concrete design,” as the study quotes.
The Business & Human Rights Resource Center reports that the Organization for Economic Co-operation and Development (OECD) has updated its corporate due diligence guidelines. Along with the UN Guiding Principles on Business and Human Rights and the ILO Tripartite Declaration of Principles, these guidelines are the international reference for the implementation of companies’ due diligence obligations.
The update involves, among other things, companies having to specify that CO2 reduction targets are scientifically based, that not only the supply chains for the production of a product must be examined, but also the potential use of a product, as well as a tightening of the requirements for combating corruption.