On many crucial points, policy-makers weren’t able to withstand the massive pressure to weaken the text exerted by business associations and some political representatives. As a result, the act risks losing effectiveness and falls short of upholding and implementing the standards set in UNGPs on important points.

Starting on 1 January 2023, the Supply Chain Act will apply to companies with a head office or branch office in German that have more than 3,000 employees, and from 2024 to those with more than 1,000 employees. Due diligence obligations reach only to a corporation’s direct suppliers, not to indirect suppliers. For indirect suppliers, companies only have to carry out a risk analysis if they have "proven knowledge" of human rights violations. This is regrettable, since it is well known that most human rights violations occur at the beginning of the supply chain.

Without creating new avenues for civil remedy, the law introduces the possibility for victims of human rights violations to assert their rights before German courts through trade unions and NGOs (using the existing, limited avenues under German law). Victims can also lodge complaints with the Federal Office of Economics and Export Control (BAFA) on a particular situation. If affected persons report violations of a company’s due diligence obligations to the BAFA, it must take action, investigate the allegation and, if necessary, it can impose fines proportional to the company’s total turnover and to the gravity of the violation. In case of serious human rights violations, the Supply Chain Act provides for temporary exclusion from public procurement and fines of at least EUR 175,000. However, it is questionable whether the BAFA, which is the highest federal authority in the portfolio of the Federal Ministry of Economics and Energy, can be expected to take adequate measures and act with the necessary guarantees of independence.

Unfortunately, the law also fails to provide for a specific civil liability regime for companies that cause or contribute to harm by failing to comply with their due diligence obligations or whose business relationships are responsible for abuses. This means that the principles of the third pillar of the UNGPs, such as the possibility of legal protection with the participation of those affected, an effective remedy and compensation for damages caused, are not guaranteed in the German law. The absence of such a regime also means the law could fail to exert the necessary deterrent pressure on companies to prevent future violations...