Sustainability Blog

The German Chain Law Masquerade

By Apurva Gosalia - Jul 09, 2021

In “The Texas Chainsaw Massacre,” a group of kids unwittingly stumbles into a situation of unimaginable horror, an innocent mistake for which they pay the ultimate price. Their powerlessness in the face of what unfolds makes their demise all the more terrifying.

With the introduction of the new German Supply Chain Law (GSCL), no such innocence or powerlessness can be claimed by German companies anymore for their overseas suppliers’ child labor exploitation, collapsed factories or rainforest destruction.

The GSCL, officially passed through the legislative process on June 25, is a response to the devastating incidents in which some German companies have been directly or indirectly involved in their international business activities in the past years.

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The GSCL will enter into force in 2023 and will initially apply to companies with 3,000 or more employees, then from 2024 to companies with 1,000 or more employees with a registered office or branch in Germany. According to the German government, it is estimated that the law will cover 900 companies from 2023 and approximately 4,800 companies from 2024 onwards and oblige them to fulfil their due diligence obligations in their supply chains with regard to respecting internationally recognized human rights and certain environmental standards.

The German Federal Bureau for the Economy and Export Control (BAFA) will monitor whether companies are complying with the GSCL. Violations of the new law may result in a maximum fine liability of €8 million or 2% of the company’s average annual turnover. Companies that do not comply could be excluded from public tenders.

Generally, the GSCL is a political compromise. It includes a number of points that have the potential to contribute to greater human rights and environmental due diligence. But at the same time, the compromise falls significantly short in many aspects, which means that the law is not effective enough and therefore cannot yet serve as a model for a European supply chain law.

The GSCL covers the entire supply chain and initiates an urgently needed paradigm shift in Germany, away from purely voluntary corporate social responsibility toward binding human rights and environmental obligations for companies.

However, it does not create – in addition to the specific environmental obligations – a general clause that also takes biodiversity and climate impacts into account. The law does also not provide for a new cause of action allowing affected parties to more easily sue companies before German courts for damages suffered.

For the NGO Germanwatch, the law is an important first step for more sustainable supply chains. But it warned that in its current form it could not guarantee standards are upheld. It would have to cover more companies and also better enforce environmental standards to become effective. Another NGO, Human Rights Watch, proposes extending the scope of the law to all companies above 250 employees or a €20 million balance sheet total – defined as large companies in German law – and to small and medium-sized companies.

In that case, many lubricant companies in Germany will also be affected by the GSCL, which means that they need to prepare adequately right now, if not yet having done so in the past.

Of course, the GSCL is certainly no massacre, but on decisive issues, it is still a masquerade. Therefore …

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