There are elements to welcome in the draft law. For example, companies are expected to examine how their own purchasing practices may help mitigate human rights and environmental risks. Moreover, the law recognizes the need for accountability measures to ensure that the due diligence obligation is meaningful... The draft does not establish a new civil cause of action, but the government has indicated that this will not prevent it from supporting more ambitious measures at European Union level.

In its preambular part, the draft law states that its requirements “closely align with the due diligence standard of the UN Guiding Principles” (UNGPs). The text also references the OECD Guidelines for Multinational Enterprises, which mirror the UNGPs on this subject.

This is all to the good. But at the same time, a close review of the draft raises significant questions about several specific formulations in the law, and how they may be interpreted in practice. Below, I briefly identify a number of areas that warrant reexamination in order to “closely align” them with the UNGPs, as the law promises. Perhaps identifying these issues also could be of assistance to the European Commission, which is in the process of drafting EU-wide legislation.

1. A focus on Tier 1. Although the draft law defines the concept of supply chain broadly to include the entire value chain, the specific obligations on companies to proactively identify risks and take action to address them apply only to [...] Tier 1 suppliers. In contrast, the UNGPs and the OECD Guidelines cover the full spectrum of value chain actors, for the simple reason that Tier 1 suppliers typically are not the biggest source of the problem... A focus on Tier 1 alone would lead companies to focus on relationships that are less likely to pose significant human rights risks, while ignoring others (beyond Tier 1) where the probability of such risks is higher.
2. Risks beyond Tier 1. The draft law stipulates that if a company obtains “substantiated knowledge” of a possible violation beyond Tier 1, as a first step it should “carry out a risk analysis.” Under the UNGPs, a primary purpose of human rights due diligence in the first place is to identify possible risks throughout the value chain. Indeed, if “substantiated knowledge” of a possible violation is already available, conducting a risk analysis may no longer be necessary; instead, under the UNGPs the company at this point should determine what its remedial obligations are...
3. Salient human rights risks... [T]he concept of salient human rights risks appears to be missing from the draft law.
4. Influence... Th[e] notion of influence-based responsibility is foundationally at variance with the UNGPs and the OECD Guidelines. Responsibility flows from the connection between the negative impact and a company’s operations, products or services. Influence then plays a key role in what the company can reasonably be expected to do about it. Moreover, the weight of a company’s influence in part lies in its own hands...
5. Contractual enforcement. For ongoing enforcement of due diligence, the draft law depends on the lead company to impose the same requirements on its Tier 1 suppliers via its contracts with them, and then to have these contractual obligations cascaded throughout the supply chain... [G]reater supply chain transparency is a prerequisite to the approach promoted by the draft law but is not emphasized. At the same time, and equally important, a focus on contractual measures alone misses the role of positive incentives, capacity- building and other collaborative approaches with suppliers.
6. Meaningful stakeholder engagement. The draft law does not explicitly address the need for companies to focus their attention on individuals and communities who are or could be affected by their operations or value chains. The appended justifications do note the importance of discussions with workers and trade unions. But the UNGPs and OECD Guidelines expect stakeholder engagement to inform the entire due diligence process and to include the perspectives of all relevant stakeholders...

There are other issues that could be noted in relation to the UNGPs and the OECD Guidelines but, in my judgment, these are some of the most significant.

In closing, permit me to congratulate the government... German leadership on these issues is of enormous value and importance both within and beyond Europe. I share these reflections with you in the spirit of supporting that continued leadership in championing corporate respect for human rights in line with the UN Guiding Principles. I very much hope that this letter will be received in that constructive spirit.