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Germany’s New Supply Chain Act – Part 1 of 4 – Introduction

On 11 June 2021, the German parliament approved the Federal Act on Entrepreneurial Due Diligence Obligations in Supply Chains (“Gesetz über die unternehmerischen Sorgfaltspflichten zur Vermeidung von Menschenrechtsverletzungen in Lieferketten – Lieferkettensorgfaltspflichtengesetz – LkSG”) – German Supply Chain Due Diligence Act.

With effect as of 1 January 2023, companies operating in Germany and employing a certain number of employees will encounter a completely new set of rules obliging them to review their supply chains and to enact a supply chain related compliance management system – the new rules demand for remediation measures and may even trigger the need to terminate relationships with suppliers as a measure of last resort. Non-compliance with these obligations will be sanctioned, in particular with fines of up to 2 % of the yearly global turnover and the exclusion from public tender procedures. Private enforcement by workers’ unions or non-governmental organisations will further increase the risk that infringements of the new rules will expose companies acting in Germany to litigation, financial and reputational risks.

In addition, and from a broader perspective, the German Supply Chain Due Diligence Act is going to have an impact on the standards that companies, irrespective of whether they fall under the statutory scope of the German Supply Chain Due Diligence Act, should consider in relation to improving their Environmental Social Governance (ESG) profiles.

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Companies operating in Germany will have to ensure compliance with the newly enacted rules of the German Supply Chain Due Diligence Act that will enter into effect on 1 January 2023. With this new legislation, Germany lines up with countries like the UK, France and The Netherlands where similar rules have already been acted. The developments on the EU level as well as the up-coming federal elections in September 2021 may trigger changes in the German regulations soon.

A&O’s series of briefings will provide an overview on key aspects that companies doing business in Germany need to be aware of.

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