In 2016, the German Federal Government launched the National Action Plan for Business and Human Rights (NAP) with the aim to protect human rights in their supply and value chains in the wider effort to protect human rights worldwide and give globalization a social dimension in line with the Agenda 2030 for Sustainable Development. In support of the UN Guiding Principles on Business and Human Rights, the NAP focuses on four action areas including the commitment of the Federal Government, corporate due diligence obligations, implementation support and access to remedy and compensation.
While corporate due diligence obligations will be mainstreamed and enforced through the Supply Chain Act from 2023, the latter act does not address the role of SMEs and start-ups in the protection of human rights in supply chains and beyond. Nevertheless, start-ups and SMEs can have a significant impact on the protection of human rights. This article serves to give an overview about supply chains and due diligence in Germany and at EU level providing an incentive for start-ups to assess their own compliance with the protection of human and workers’ rights.
Business and Human Rights in Germany
The Supply Chain Act
In June 2021, the German Bundestag adopted the Act on Corporate Due Diligence in Supply Chains as part of the revision of the NAP after more than 50 companies such as Ben & Jerry’s, Tchibo, Tony’s Chocolonely and Weleda called for a “more effective supply chain law, which consistently commits to international standards to protect the rights of all parties concerned and restores a fair competition”. By international standards, it was referred to the OECD guidelines on Due Diligence Guidance for Responsible Business Conduct and the afore-mentioned UN Guidelines with regard to business and human rights.
More precisely, the latter companies demanded that:
- The German supply chain law should adopt the risk-based approach of the UN Guiding Principles and consistently apply OECD guidelines and, in particular, ensure that proactive due diligence requirements apply to the entire value chain.
- The law should focus on the rights of those affected and also on the requirements for reparations creating a ‘level playing field’.
- The area of application should not be linked to a minimum size for companies and the law should also apply to companies with business activities in Germany.
Additionally supported by members of civil society, administration and academia, the law was adopted with 412 votes in favour, 159 against and 59 abstentions. However, its scope only foresees a mandatory compliance with human rights and due diligence obligations for companies with at least 3,000/ 1,000 employees within Germany in 2023/ 2024. The latter, among others, has led to facing critique from campaigners such as the ‘Initiative Lieferkettengesetz’ (Initiative in for the Supply Chain Act), which has recently published an assessment of the Supply Chain Law remarking that it fails to:
- Demand comprehensive due diligence obligations from indirect suppliers in addition to direct suppliers and a company’s own business activities
- Provide for a new cause of action in civil law holding companies liable for damage caused by failure to comply with their due diligence obligations
- Sufficiently address environmental due diligence obligations within an independent, comprehensive framework
- Provide effective remedies for affected parties in line with the UN Guiding Principles, which foresee that companies consult with potentially affected groups in order to assess human rights risks
- Address a suitable scope, wherein SMEs are also held accountable with regard to human rights obligations and environmental issues
- Protect human rights in relation with gender justice (i.e. gender-based violence) and indigenous rights (i.e. discrimination)
- Ensure the independence of the Federal Office of Economics and Export Control (BAFA) from the political influence by the Federal Ministry for Economic Affairs
- Provide legal certainty considered that the CDU effectively pushed for a clause clarifying that the law does not create a new cause of action for people affected
To conclude, while the Supply Chain Act has been praised to contribute to a paradigm shift with a view for prevention, representative action, an initial and expanded scope for environmental obligations in comparison with earlier legislation as well as with the provision of further rights for works councils and the opportunity to report rights violations to the BAFA, there are many chances for long-term improvement. Especially due to the above gaps, the ‘Initiative Lieferkettengesetz’ has called for a more comprehensive EU framework.
Business and Human Rights at the EU Level
Towards a EU system of due diligence for supply chains
In October 2020, the European Parliamentary Research Service (EPRS) published a briefing report called ‘Towards a EU system of due diligence for supply chains’, which emphasizes that while the EU is already enforcing strict due diligence obligations at cross-sectoral level (i.e. minerals and timber), the European Commission (EC) considers it a necessity to adopt further binding legislation to protect human rights and environmental norms in international supply chains. Among others, based on a study of the garment sector, the European Parliament (EP) concluded that a voluntary commitment does not effectively promote human and workers’ rights, safety in supply chains, environmental protection and sustainability, gender equality and consumer awareness.
Based on the latter finding, the EC and the EP have both published a study on ‘Due diligence requirements through the supply chain’ and two briefing reports in relation to ‘Substantive Elements of Potential Legislation on Human Rights Due Diligence’ (Briefing Nº1) as well as ‘EU Human Rights Due Diligence Legislation: Monitoring, Enforcement and Access to Justice for Victims’ (Briefing Nº2). In the following, is an overview of recommendations and concluding remarks with a focus on expectations from businesses.
- Briefing Nº1: Substantive Elements of Potential Legislation on HRDD
The potential ‘EU Human Rights Due Diligence Legislation’ should:
- cover a comprehensive scope of human rights as defined by UDHR, the two covenants, further global human rights treaties, the ILO core standards and other internationally accepted instruments of human rights, such as the UNDRIP.
- not limit itself to protecting only severe human rights violations and include vulnerable groups by referring to other human rights treaties and instruments (i.e. CEDAW, CRC, CRPD and UNDRIP).
- cover companies and business activities regardless of size and scope through a non-sector specific approach and a view for non-direct suppliers along the value chain.
- oblige companies to analyze, mitigate and remedy any adverse impacts on human rights connected to their business activities.
- oblige EU member states to guarantee adequate country level enforcement and remedy mechanisms through a set of different implementation mechanisms, including administrative, civil and (possibly even) criminal law instruments with the first being liable to penalties upon non-compliance.
- Briefing Nº2: Monitoring, Enforcement and Access to Justice for Victims
The potential ‘EU Human Rights Due Diligence Legislation should, among others:
- demand periodic monitoring from companies to address a range of business-related aspects (i.e. business structure, potential human rights risks and impacts etc.);
- ask companies to install complaint mechanisms and involve workers in monitoring processes;
- demand from companies to make information about their compliance with due diligence freely available online in a standardized format.
Thereby, the EU member states and the EU would take over the enforcement of a HRDD law and would also be responsible for providing remedy as stated in the corresponding report for Briefing Nº2. Overall, both reports show that the potential EU HRDD legislation could constitute a comprehensive instrument with a far-reaching impact. Different from Germany’s Supply Chain Law, the latter legislation would also affect SMEs with start-ups not explicitly mentioned, but also not excluded.
Business and Human Rights: The Case of Start-Ups
While the German Act on Corporate Due Diligence in Supply Chains is not inclusive of start-ups, start-ups could certainly draw inspiration from the German Supply Chain Act, the draft for a EU system of due diligence for supply chains and, in a wider context, the UN and OECD Guidelines. One of the main questions regarding the inclusion of SMEs and start-ups under the potential EU HRDD legislation arguably might relate to building up networks for monitoring. Especially, start-ups with a smaller scope of impact might benefit from such networks in order to both mainstream their compliance with human rights obligations and environmental standards and effectively organize monitoring efforts.
In other words, it would need to be addressed how the tasks, which the EU overtakes at a broader level, could be taken over by local organizations or Start-up hubs in support of start-ups. Certainly, it could also be imaginable that supply chain start-ups would overtake such a task, which might lead to strengthening regional networks of start-ups in Germany.
Whether you are a social entrepreneur, would like to restructure your business along the lines of human rights due diligence and environmental standards, or whether you need support with starting-up a business along these lines, our team of legal experts can assist you with questions regarding the right choice of the legal model, intellectual property protection, relocation and human rights due diligence. In addition, we can offer German SMEs comprehensive business advice in relation with human rights due diligence and knowledge across multiple African jurisdictions. Whether you need support with your business activities in Germany or in Africa, we aim to support you effectively.
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