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What Germany’s new Human Rights Due Diligence law means for UK companies
Global Banking & Finance Review®
Company
By Hartmut Dech, Business Development Director, ethiXbase
Human rights violations are sadly not something of the past. Examples can still be seen every day in the press, ranging from discrimination, to modern slavery and human trafficking. Addressing these issues is essential for all societies to enjoy a fruitful future, and Germany is leading the way in doing so, with its new German Due Diligence Act.
The country’s Lieferkettengesetz legislation, also referred to as Sorgfaltspflichtengesetz, is a bill to uphold the rights of the environment and prevent the exploitation of people in complex, multi-tiered supply chains. The Act, due to come into force in January 2023, will initially apply to German companies with more than 3,000 employees. While many companies are aware of the swiftly approaching deadline, some are hesitant to meet the expectations set out.
In many cases, the new German Due Diligence Act requirements will far exceed the standards currently upheld, or the monitoring procedures that have already been implemented. The legislation will force the hand of companies to improve standards, or risk losing business. So, what do business leaders need to do to be compliant?
Impacts and Implications
Large companies in breach of the legislation will face fines for not meeting due diligence obligations, and be subject to annual reports and assessment to measure the impact their businesses has on human rights and environmental factors. The draft proposes fines of up to €800,000, or 2% of annual worldwide turnover for companies with more than €400m turnover. This also includes the prospect of being banned from competing for public contracts in Germany for up to three years.
A unique development within the Act is the potentially explosive provision for foreign nationals, whose rights have been violated, to be represented by trade unions and non-governmental organisations before German courts. This brings a risk of extremely high fines for companies accused of violations. The risk is exacerbated by the fact that organisations will be required to set up internal complaints and whistleblowing procedures, which may result in a higher number of proceedings moving forward.
According to SPD Labour Minister Hubertus Heil: “This is the strongest law in Europe so far against worker exploitation. It is the end of companies weighing human rights against their economic interests.”
Clearly, there is much to be excited about with the advent of such ground-breaking legislation, poised to dramatically improve human rights standards and set the trend globally for holding accountable for their actions, and any other organisations they choose to associate with. It will no longer be acceptable for businesses to claim plausible deniability with due diligence being legally mandated.
What This Means For The UK
As of today, the UK currently has human rights legislation in place, in the shape of the UK Human Rights Act 1998. We can expect to see this updated in the coming years as the country aims to meet the rising bar. With the developments made in technology, and cybercriminals becoming more sophisticated, it is important that legislation is reviewed routinely.
UK companies should be closely observing the changes made in Germany. Implementing the same processes that are required in Germany can be time-consuming, and require much research and development. Although meeting international standards could be demanding in the short term, it may result in smaller steps required long term for companies. UK businesses should be looking to avoid another GDPR-style scramble to meet the deadline.
Smart Solutions
As the January 2023 approaches, businesses need to be aware of their existing infrastructure and consider whether it is compliant – those that do not react and continue with traditional, manual solutions could find themselves at risk of becoming outdated. If the legislation progresses as proposed, compliance could become costly and time-consuming, and require the process to be repeated periodically, with the risks of fines constantly present.
Monitoring legislative developments is an arduous and potentially expensive task, so using technology that automates this process can help businesses stay ahead of the curve and remain compliant. The ability to effectively assess risks throughout supply chains is becoming increasingly essential with the advent of new legislation, such as the Lieferkettengesetz.
With the nature of industries in our modern age, it is vitally important that companies, regardless of sector or size are aware of changes in legislation. We will continue to see altercations in legislation and mandates in place to reach the Sustainable Development Goals set out by the United Nations. Implementing new processes to ensure compliance takes time, which is why companies need to be taking preparatory steps now to minimise future risks.
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