Will human rights due diligence become a mandatory legal requirement in Germany? Statements from various government representatives have indicated that additional regulation may be on its way. Heated reactions from the private sector have been quick to follow. Ingo Kramer, President of the German Employers’ Association, went as far as to say that he hopes the government “abandons this nonsense”. But would it really hurt business if the German government made human rights due diligence mandatory?
Judging by the tone of the debate, the suggestion that human rights due diligence may become mandatory seems to have hit a nerve. For some, making due diligence mandatory is a necessary step to improve the human rights situation in global supply chains. For others, it is yet another bureaucratic measure without any real impact, while putting German companies at a competitive disadvantage. Before we jump into the controversy (and become a part of it), let’s consider the facts.
Human Rights Due Diligence: Is a new law on its way?
- What is being planned?
On February 10, 2019 the German daily newspaper TAZ reported that the German Federal Ministry for Economic Cooperation and Development is working on a law that would make human rights due diligence mandatory for German companies. The law would require companies to identify human rights risks in their supply chain and to take measures to reduce those risks.
- Why would we need such legislative changes?
Germany already has a National Action Plan on Business and Human Rights (NAP), which it adopted in 2016. The plan lays down the responsibility of businesses in preventing human rights violations and provides guidance on the measures companies should take. The NAP focuses not only on the companies as such, but includes their suppliers and contractors, nationally and internationally. However, the NAP did not introduce sanctions for companies that do not assume their responsibility – it is an action plan rather than an enforceable law. Because voluntary approaches have their limits, the new law is being considered.
- Who would be affected?
Human rights due diligence would become mandatory for companies with over 250 employees and over 40 million Euros annual turnover. Affected companies have to take measures to ensure human rights compliance in their operations and supply chain, independently of whether suppliers are based in Germany or abroad.
- When could human rights due diligence become mandatory?
Whether the proposed law will ever be voted is highly uncertain. At the moment, the government is monitoring to what extent German companies already comply with the expectations of the National Action Plan. This monitoring is to be completed by 2020. The Minister of Labour Hubertus Heil has stated that when the monitoring would show that less than 50 % of the affected companies meet the expectations, the intention is to make human rights due diligence mandatory by law. However, such a law would obviously have to be voted by the relevant institutions. On top of that, the monitoring itself has also become the subject of controversy, making it impossible to rule out any scenario. The only certainty seems that the importance of human rights due diligence will continue to grow in the foreseeable future.
The Arguments against the Plan – and why they do not hold
In an interview with Rheinische Post, the president of the German Employers Association Ingo Krämer called the bill “absurd”. This statement led to media headlines such as “Economy Against Human Rights Law” (Tagesschau) and “Private Sectors opposes Commitment to Human Rights” (Spiegel). In reality, the reactions from the private sector have been much more diverse. Leading companies such as Kik, Tchibo and Daimler welcome the initiative, because they feel a binding regulation would provide much-needed legal certainty. So what is all the fuzz about?
Counterargument # 1: “Competitive disadvantage for Germany in a globalized world”
One of the parties to fiercely oppose the plan for new legislation is the liberal FDP. Christoph Hoffmann, member of the German parliament, argued such a law could not work. “Trade takes place globally; the focus markets are no longer in Germany or Europe.” It would therefore be wrong to create special obligations only for German companies.
But would Germany really be the exception? Not quite – both Australia and the UK have already passed a Modern Slavery Act, France has the Duty of Vigilance Law since 2017, in Switzerland the Reponsible Business Initiative led to a counter-proposal by Parliament and similar measures are being discussed in Finland and Norway.
In addition, Hoffmann assumes that a legal regulation would discriminate against German companies internationally – an assumption that is at least questionable. A law that makes human rights due diligence would not only specify what is required of a company, but also make clear what cannot be reasonably expected of them. This ensures proportionality and legal certainty. Moreover, due diligence can increase investor confidence and protect the image of German brands internationally. Thus, the legal regulation would not weaken the German economy, but sustainably strengthen it.
Counterargument #2: “Legislation puts the brakes on voluntary initiatives”
In recent years, a variety of industry initiatives has sprung up, all aiming to ensure compliance with human rights in the supply chain. Would a new law thwart these voluntary efforts? The association Textil + Mode, for example, has already stated that such a law would “undermine the industry’s efforts in the textile alliance” (source).
If legislation were suddenly to formulate entirely new expectations, that would indeed create problems for industry initiatives that are already operational. However, there are no indications that the proposed law would radically change course. Almost all industry initiatives are based upon the UN Guiding Principles on Business and Human Rights, which are also at the heart of the National Action Plan for Business and Human Rights. Thus, the proposed legislation would be aligned with existing initiatives and may even contribute to their success.
Counterargument #3: “We have no influence over human rights in our supply chain“
“When I, as an entrepreneur, have personal influence over the production in my factory abroad, of course, I feel obligated to work according to our social and ecological standards,” said employer president Kramer. “But not when I cannot influence that, or as a medium-sized company, cannot even monitor it.” Similarly, the association Textil + Mode claims that it is not possible to control human rights in the supply chains abroad.
In our view, this argument is invalid for several reasons.
First, let’s replace the word “human rights” with “quality”. Who in their right mind would claim that quality cannot be monitored or influenced in the supply chain? Right – no one. Just as there are good practices and tools to ensure that suppliers comply with quality standards, similar methods can be used to ensure that suppliers comply with social and ethical requirements.
Of course, there are industry-specific factors that hamper monitoring, such as very long and complex supply chains, which present particular challenges to the textile industry. But even there, there are promising initiatives to increase transparency, benefiting not only the workers, but also the industry itself.
Second, an often-heard objection is that the purchasing power of small and medium-sized enterprises is too limited to influence suppliers. However, this is precisely what makes it necessary to have a regulating framework: If all German companies have the same expectations towards their suppliers, this generates the much-needed critical mass to exert influence.
Outlook: Assuming Responsibility for Human Rights in the Supply Chain
With or without legal obligation: Companies would be well advised to introduce procedures for human rights due diligence. Customers, investors, policymakers, workers and civil society expect companies to take responsibility for upholding human rights in their supply chain. Like any other risk, the risk of human rights violations is one that needs to be managed. If the government will not impose sanctions, customers will.