Following intense discussion, the German Bundestag passed a mandatory Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz) today that has the potential to become one of the most significant statutes in that area worldwide. Once the new law enters into force in 2023, in-scope companies will find themselves exposed to a whole range of new obligations along their supply chains.

The Act will apply to companies from all sectors having their head office, principal place of business, administrative headquarters or registered office in Germany and employ a minimum of 3,000 employees (as of 2024 reduced to 1,000 employees). The supply chain is understood to extend to the entire supply chain of a company, which means it comprises all activities inside and outside of Germany that are required to manufacture goods or provide services. In-scope companies are obliged to (i) assess whether violations of certain defined human and environmental rights occur in their supply chains, (ii) take respective prevention and mitigation measures, (iii) adopt a policy statement on human rights protection in their supply chains, (iv) implement grievance procedures to allow for the reporting of human rights violations and ensure appropriate follow-up measures and (v) document their compliance with the due diligence obligations.

For all companies not directly affected by the Act, it is important to understand that in-scope companies are required to pass on their due diligence obligations, through supplier codes and contractual provisions, so that they will walk up the supply chain and create additional obligations and liability risks also for other companies.

Read more in our client alert, where we summarise the main elements of the new law and provide companies with recommendations on how to comply with the new requirements.