Law on Due Diligence of Companies in Supply Chains

On January 1st, 2023, a Law on Due Diligence of Companies in Supply Chains (ger. Gesetz über die unternehmerischen Sorgfaltspflichten in Lieferketten) will come into effect in Germany. This law binds larger German companies, meaning companies with at least 3,000 employees (by 2024, this number shall be lowered to only 1,000 employees), to adopt measures to ensure a more sustainable operation of their company and likewise monitor the measures of their direct and indirect suppliers in this area.

As Germany is Slovenia's largest trading partner, it is likely that this law will impact Slovenian companies in the supply chain of larger German companies, as well.

This law binds larger German companies to demand of their direct suppliers the adoption of sufficient preventive measures to safeguard human rights and key environmental principles, and that their direct supplier educates and trains their employees on the issue. The company may demand that their direct supplier concludes a contract that will make these measures binding for them, and yearly check-ups regarding the adoption and implementation of these measures must be agreed upon by both the German company and their direct supplier.

If serious breaches regarding human rights or environmental principles that cannot be remedied in the foreseeable future are found in the direct supplier’s operation, German companies must adopt an appropriate plan to sever the cooperation with said supplier. Furthermore, German companies that shall not respect the provisions of this law may be subjected to fines.

It is very likely that in the future, a similar legislation shall be adopted not only in Germany, but throughout the entire European Union. Namely, in February 2022, the European Commission adopted a proposal for a Directive on corporate sustainability due diligence, which is supposedly based heavily on the aforementioned German law.

The entire text of the German Law on Due Diligence of Companies in Supply Chains can be found on this link.