08 Dec 2020
Legislation and cases

So far, Germany has not adopted any human rights due diligence legislation. The coalition agreement between the two ruling parties of 2018 made the adoption of such legislation subject to the outcome of a monitoring of the implementation of the National Action Plan for Business and Human Rights (NAP) in companies employing more than 500 employees. Two surveys, undertaken in the course of the monitoring, have shown that German companies are not fulfilling the requirements of the NAP. Therefore, the Federal Ministry for Labor and Social Affairs and the Ministry for Economic Cooperation and Development announced a draft Due Diligence Act (Act) on 14 July 2020.

Business practices

A first discussion paper, including criteria relevant for the Act as developed by the two Ministries was leaked at the end of June 2020. Since that time, the two ministers in charge could not agree with the Federal Ministry for Economic Affairs and Energy on progressing the Act. Although, the draft of the Act was announced by the spokesperson of the German Government for the late summer. A similar commitment, “to an EU action plan to strengthen corporate social responsibility in global supply chains that promotes human rights, social and environmental standards and transparency” is included in the Program for Germany’s Presidency of the Council of the European Union.

The criteria leaked include the following elements:

  • The Act shall only apply to companies domiciled in Germany which employ more than 500 employees (including employees in foreign affiliated companies) and where the major decisions are taken in Germany.
  • The due diligence shall be in line with the standards set by the United Nations Guiding Principle for Business and Human Rights and the OECD Guidelines for Multinational Enterprises.
  • The risk analysis shall cover the company's own activities and also those of the company’s business partners and those related to their products and services along the whole value chain.
  • The risk analysis shall determine if the company’s activities have a potential or actual adverse impact on internationally recognized human rights.
  • Companies with identified risks shall take adequate preventive measures, monitor them and provide a grievance mechanism.
  • A limitation of liability to intent and gross negligence shall be possible by joining an officially recognized industry standard (“Safe Harbor”).
  • A report with the activities undertaken shall be drawn up and be made freely accessible on the internet and released to a federal authority.
  • Such federal authority shall have investigation rights and be competent to impose administrative fines for serious violations of due diligence obligations.

But the following cornerstones of the Act are still under discussion:

  • Definition of companies being subject of the Act.
  • The extent of due diligence when it comes to risk prevention and if such prevention shall stretch beyond tier one suppliers.
  • Right of foreign rights holders affected from a violation to bring damage claims before German courts.
  • Extent of administrative fines for non-compliance with the due diligence requirements.
What do you predict for 2021?

It appears as if the Covid-19 resulted in some reluctance of the Government to push the Act. Elections for a new German Parliament must be held in October 2021 at the latest and in light of this, it remains unclear if enough time will be left to pass such Act in the coming months.

Notwithstanding the above, companies are well advised to get prepared for such an Act, at least as far as the initiative by the EU commission is concerned. They should focus on strengthening their risk analysis capabilities as the majority of companies surveyed in the context of the NAP Monitoring had no appropriate processes. The Federal Ministries of Labour and Social Affairs and for the Environment, Nature Conservation and Nuclear Safety have released guidelines to build up such capabilities. They may help companies to identify sector-specific high risk areas for human rights violations and environmental impacts along their supply chains.

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Karsten Kuehnle
+49 69 505096 304

Michael Wiedmann
+49 69 505096 226