The new Law on the supply chain valid in Germany entered into force on January 1st, 2023. (hereinafter: Law).
This Law enacts new rules aimed primarily at high respect for human rights, meeting environmental standards, ensuring decent working conditions for those responsible for the production of goods and providing services and, ultimately, the creation of ethical business practices.
In a practical sense, appreciating the fact that according to the same Law companies are responsible for the “behavior” and rules specific to individual entities in the vertical supply chain, this Law together with ESG standards represents a new era in terms of corporate target action.
The law applies to all business entities that employ at least 3,000 people. As of 2024, the Law will apply to all companies with at least 1,000 employees. At this point, they will eventually have to comply with the Law of the Global Organization with a complex supply chain. However, bearing in mind that the application of the Law will gradually spread to other entities, it would be useful for companies that are not required to start adapting their operations to new, probably global, requirements.
The requirements of the Law refer to a system of rules that lead to one goal – sustainability (sustainable development, sustainable product, sustainable business…). In order for entities to be able to act in accordance with the above, they must adopt risk management practices aimed at full visibility of the supply chain.
The absence of legally mandated internal and external behavior of business entities will also be felt by companies that are not founded or operate on the territory of Germany, and returning to the object of legal regulation that indirectly includes the entire supply chain, the result will be enormous sanctions. For example, companies from the area of Germany will refuse or terminate cooperation with entities that have not introduced ethical business practices based on the principles of the Supply Chain Act, and if they continue such cooperation, they may face monetary and other types of sanctions.
It should be noted that Germany is not the only one to recognize the issue, other member states of the European Union are already negotiating with the aim of closer regulation and incorporation into the legal system of the values and principles contained in the UN Guiding Principles on Business and Human Rights.