The Supply Chain Act was announced on 16 July 2021 and will come into force on 1 January 2023. The law is based on the UN Guiding Principles on Business and Human Rights and aims to prevent human rights abuses, such as child labor, forced labor, discrimination and inadequate health and safety standards along the supply chain. Environmental protection is also covered in the draft law, insofar as environmental risks can lead to human rights violations.

The law specifies how companies should fulfil their human rights due diligence obligations within supply chains. This means that they must analyse human rights risks, take preventive and remedial measures, set up grievance mechanisms and report on their activities.

According to the Act, it is a company’s responsibility to extend their human rights due diligence to their entire supply chain, graded according to the degree of influence. The obligations must be implemented by the company in their own business area as well as vis-á-vis their direct suppliers. Indirect suppliers are included as soon as the company receives substantiated knowledge of human rights violations at this level.

The Supply Chain Act is monitored by the German Federal Office of Economics and Export Control. In the event of negligent or intentional violations, fines or other sanctions may be imposed.

From 1 January 2023 this law will be applicable to companies with 3000 employees with a registered office or branch in Germany. From 1 January 2024 this threshold will be reduced to 1000 employees.