Germany Cleans Up Its Supply Chains, Shares Lessons Learned

by Carolyn Mathas

Germany’s new Supply Chain Act, which took effect in 2023, requires firms with more than 1,000 staff to monitor suppliers’ human rights and environmental protection standards. Many are dead set against the Act, saying they are struggling to meet the cost and bureaucracy involved and asserting that their global competitiveness has suffered.

Not far away, the EU passed the Corporate Sustainability Due Diligence Directive (CSDDD), which necessitates that larger companies check if their supply chains use forced labor or cause environmental damage and take action if they do. On the plus side, the law will foster responsible corporate behavior, anchor human rights and environmental considerations in their operations, and support companies as investors and consumers demand more sustainable practices.

German companies with global supply chains and long lists of input materials say it is a struggle to obtain accurate information, partially because foreign laws regulate issues like workers’ rights. Germany failed to support the new EU law, as the pro-business Free Democrats (FDP), the smallest party in Germany’s three-way coalition, said it would burden businesses with excessive bureaucracy.

More than 5,000 German companies must submit due diligence reports addressing the required issues. The government claims its requirements are not unreasonable. Companies don’t have to guarantee their supply chains are free from violations of human rights or environmental damage; they just have to show they have made checks and fulfilled their obligations.

Some of the pushback in Germany includes fears around de-industrialization and laws being applied to companies just transporting imported goods from ports within Germany. However, the primary concern is the cost of compliance.

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