Germany mulls introduction of supply chain act to clean up production abroad

The German government is preparing legislation that will hold companies operating in the country to account for ensuring that social and environmental minimum standards are upheld in their supply chains and by production partners abroad. The ministers for labour and for development cooperation, Hubertus Heil and Gerd Müller, jointly advocated the introduction of a supply chain act after a survey of thousands of large companies revealed that only a small fraction already apply and monitor compliance with minimum standards of upstream business partners. Development cooperation minister Müller called the survey results "disappointing," and argued that only a legal framework can ensure that unwanted practices such as child labour or environmental destruction in other countries are avoided. "Companies are invited to openly and constructively take part in this process," Müller said. "Exploiting other people and the environment must not become the fundament of a global economy and of our prosperity,” he added. “This would be a boomerang that comes back at us.” Labour minister Heil seconded that voluntary compliance is not enough. "We need a national law to establish fair competition,” he said. “The supply chain act will only demand what is feasible and appropriate.” The government asked around 2,250 companies to report on their compliance with social and environmental standards in supply chains, of which merely 455 replied. Only 22 percent of the responding companies fulfilled the compliance criteria.

The Confederation of German Employers' Associations (BDA) criticised the plan to legally oblige companies to ensure compliance along their supply chains. "German companies are very committed, also globally, and contribute to higher social and environmental standards abroad," the employers' lobby group said. The BDA also lamented that the survey's evaluation was too strict and castigates companies that fail to comply with only one out of many criteria. A "national solo attempt" to legally enforce compliance would pose severe difficulties for Germany's export-oriented companies that are already struggling to stay afloat due to the coronavirus pandemic, the BDA argued. 

The proposed law would also impact the supply of minerals and other raw materials needed for Germany's energy transition. The government introduced a new resource procurement strategy earlier this year in order to achieve a "secure, sustainable and responsible" supply for its renewable energy installations, e-mobility and other sectors of the economy. Germany's Federal Environment Agency (UBA) last year warned that the energy transition's growing raw material needs could become the project's "Achilles' heel," calling for better ecological and social mining standards to become an integral part of production chains.