Caroline Johnson 

ELR Staff, Class of 2026

Current State of Affairs 

Globalization has resulted in the emergence of powerful multinational corporations that extract resources and labor from developing countries with virtual impunity from legal accountability. Countries subject to the coercive practices of multinational corporations often face a plethora of impediments to challenging such dynamics, whether it be a weak rule of law, corrupt business practices, a lack of established civil liberties, or the fear that voicing concerns will lead to a flight of capital investment.

Due Diligence Obligations

In Germany, there has been an effort to legislate corporate responsibility on a mandatory basis. Entered into force on January 1, 2023, the German Lieferkettensorgfaltspflichtengesetz, or the Supply Chain Due Diligence Act, established a mandatory human rights due diligence standard for corporations that use international supply chains. The law applies to companies headquartered in Germany that employ at least 1,000 employees. Currently, the law applies to 4,800 different corporations. Section (3)(1) delineates the due diligence requirements. It mandates that companies (1) establish a risk management system, (2) designate a responsible person or person within the enterprise, (3) perform regular risk analyses, (4) issue a policy statement, (5) lay down preventative measures in their own area of business and vis-avis direct suppliers, (6) take remedial action, (7) establish a complaints procedure, (8) implement due diligence obligations regarding risks from indirect suppliers and (9) document and report.

The above-listed due diligence obligations only apply to the parent company and direct suppliers. Regarding indirect suppliers, corporations must only act if they receive “substantiated knowledge” regarding violations of the abovementioned rights.

Protected Rights 

The Act lists a variety of protected human rights, such as freedom of association, as well as provisions against child labor, slavery, and other human rights violations. The Act also has environmental provisions.  Section (2)(3) prohibits “any harmful soil change, water pollution, air pollution, harmful noise emission or excessive water consumption” that “a) significantly impairs the natural bases for the preservation and production of food, b) denies a person access to safe and clean drinking water, c) makes it difficult for a person to access sanitary facilities or destroys them or d) harms the health of a person.”

Consequences 

The Federal Office for Economic Affairs and Export Control (BAFA), a division within the Federal Ministry of Economics and Energy, has been tasked with enforcement. Under the provisions of the law, BAFA can review corporate reporting, incorporate measures to prevent, detect, and end violations, interview individuals, request evidence, and visit a company’s headquarters or other property. Investigations can originate from BAFA internally or stem from an outside informant. Fines for violations of the law can be as high as 500,000 Euros. Companies that violate the Act might also be excluded from eligibility to apply for government contracts.  

Concurrent Legislation in EU

Mandatory due diligence is not limited to Germany. In 2017, France enacted the Loi de Vigilance or Duty of Vigilance Law. More recently, the European Union enacted its Corporate Sustainability Due Diligence Directive (CSDDD) in July. The European Union law mandates that corporations identify and address “potential and actual adverse human rights and environmental impacts in the company’s own operations, their subsidiaries and, where related to their value chain(s), those of their business partners.” Furthermore, it requires large companies to “adopt and put into effect, through best efforts, a transition plan for climate change mitigation aligned with the 2050 climate neutrality objective of the Paris Agreement as well as intermediate targets under the European Climate Law.”

Moving Forward

Several cases have been brought to the attention of BAFA, such as the European Center for Constitutional and Human Rights suit against German car manufacturers or the National Garment Workers Federation suit against Tom Tailor, Amazon, and Ikea. However, the long-term impact of this law has yet to be seen, especially regarding the environmental regulations.