From vague to obligatory

A German Duty of Care and Supply Chain Act

Corporate Social Responsibility (CSR) is to become more compulsory. This is broadly how the content of the recently leaked paper on the key points of a duty of care act in Germany can be summarised. The new law is intended to make companies more aware of their obligation to assume responsibility for their supply chains. It is intended to define the duties of care that companies have along global supply chains to prevent the infringement of human rights and environmental violations. The days of mere voluntary standards and soft law regulations are therefore numbered.

The discussion about creating a legal framework for international supply chains in order to make companies more accountable is not new. In the past, the initiative Lieferkettengesetz.de made up of NGOs, churches and non-profit organisations had already formulated a comprehensive proposal on how Germany could do this. On the international stage, the Modern Slavery Act in Great Britain, the Dutch law on the duty of care to prevent child labour, the French law on the duty of care obligations of parent companies and contracting entities of 2017 and the EU Conflict Minerals Regulation have long been pursuing a similar direction.

The essence of such laws is the increased liability of companies for CSR violations along the supply chain. According to the current legal situation, companies are liable for processes at the levels of procurement, employee relations, environment and ethics (anti-corruption etc) almost exclusively in the context of their own business activities in Germany. Liability for infringements by subcontractors along the supply chain only occurs in exceptional cases. A duty of care or supply chain law would change this in part.

The exact structure of liability and the Supply Chain Act as a whole is currently the subject of intense debate in Berlin. It is still unclear, for example, whether and if so, which relevant CSR standards are actually considered a “safe harbour” and can therefore release companies from liability. For some, the draft does not go far enough. For example, personal criminal liability is not included in the current draft. From a conceptual perspective, some interest groups also call for a harmonised European solution instead of a "German solo effort".

Regardless of how a Duty of Care Act or Supply Chain Act (the terms are used synonymously) will be drafted in detail, it can be assumed that such legislation will be enacted. The German coalition partners are demonstrating unity. Federal Minister Heil (Social Democracts) and Federal Minister Müller (Christian Democrats) recently jointly announced that a supply chain law will be concluded before the end of this legislative period. Fairness and sustainability in the supply chain has also made it onto the agenda of the German EU Council Presidency. The road to legislation is by no means a long one.