Supply chain law: control, deception, convoluted supply chains

Three years ago, the German Bundestag passed the Supply Chain Due Diligence Act. Behind the word monster there is a regulation that, however, has relevance far beyond the German bureaucracy: From a certain size, companies from Germany now have to prove that they have an eye on their supply chain right up to the place of origin of the product, they have to prove their efforts that labor and human rights standards are adhered to. Control is carried out by a small branch of the Federal Office of Economics and Export Control (Bafa) in Borna near Leipzig – but how does the authority want to control all the companies and their convoluted supply chains? Questions for Bafa boss Torsten Safarik.

Mr. Safarik, your branch in Borna has 100 employees. Is that enough? What tasks should they perform?
On the one hand, it’s about monitoring and checking whether companies are implementing the law correctly. But it is also very important to us to support companies in the implementation; for example, with handouts and an extensive question and answer catalog that is constantly updated. We are in discussions with companies. I took part in over 70 events last year and was on numerous panel discussions…

…to promote the law?
To explain what we expect from companies. But also so that they can ask questions. We want to learn from companies what is affordable in order to successfully implement the law.

Supply Chain Act: “Most German companies want to implement the law”

What do you expect then?
You always have to explain: Why does this all exist? Why was the law passed? The goal is not to fulfill the law. This is just a measure to achieve the actual goal. And that is improving human rights in global supply chains. At first, an attempt was made to achieve this goal through the voluntary commitment of companies. That failed. That is why the legislature passed the law.

Voluntariness didn’t work. How are companies reacting to the law?
Most German companies want to implement the law and are very successful in doing so. Many people have been dealing with the issue of improving the human rights situation for many years. I often bring up a picture of a flock of sheep. Most German companies are white sheep who will hardly have anything to do with us. There are some gray sheep. We want to help them change color. And then there are a few black sheep. They are welcome to fear us because then we will use all the tools we have at our disposal.

What percentage are white sheep, 90?
I can’t say exactly yet. Until the end of last year, the law only affected companies with more than 3,000 employees, but now all with more than 1,000.

How many are that?
Last year there were around 1,300. Now there are around 5,200.

Do you really believe in the companies that are already there? Self-commitment did not comply, did a rethink begin?
I look forward and no longer analyze the commitment. This is an old topic.

UN conventions set out the framework for what companies should do on their own initiative over ten years ago.
That’s right, the UN Guiding Principles were the starting point. These were also just one measure to achieve the goal: an improved human rights situation.

The guidelines appear to have done little to improve this. Can that be a law?
It is up to each country how it deals with the UN Guiding Principles. We have committed ourselves to this. The voluntary commitment did not have the desired success. That’s why the German supply chain law was passed. And now the next step is coming: the European Supply Chain Directive.

This was recently passed by the EU Parliament. Some celebrate this as a moral turning point. Is that it?
The term doesn’t apply because many companies are already dealing with the topic for a long time and intensively. What I think is good is that there are now uniform regulations for the European internal market, no more competitive disadvantages for committed companies because we have a uniform legal basis in Europe.

But that will always depend on how the individual countries fill in and interpret this legal situation…
Every new law means additional work. But we as Bafa have set ourselves the goal that the whole thing must be justifiable.

What exactly do companies have to consider?
You must carry out a risk analysis and take measures – both preventatively and after an incident has occurred – to prevent, or at least minimize, a human rights violation. An important point of the law is: It is not an obligation to succeed, but rather an obligation to make an effort. It is about companies making serious efforts to improve the human rights situation. If you really try, a lot is possible. This is not about companies withdrawing from global markets if they are not successful. It’s about maintaining their business relationship and contributing to improving human rights wherever possible.

Effort is a flexible term…
That’s true, but we can judge very well whether a company is making a serious effort or is just fooling us. It is always a case-by-case assessment. If a company with 100,000 employees only hires one person to deal with the topic, then it cannot work. Then that is not enough to ensure that the human rights situation in the supply chain is monitored and – if necessary – improved.

Many entrepreneurs who have far fewer than 1,000 employees and are not actually covered by the law complain that large companies simply pass on the duty of care to them. Is that so?
Unfortunately you are right. We discovered last year that some of the large companies believed that they could delegate the duties imposed on them by law and do so. That is of course not the case. That’s why we have published a handout for small and medium-sized companies that are not covered by the Supply Chain Act. It clearly states what we expect, what is appropriate and what is excessive. It is not permitted for duties to be delegated to suppliers. We do not contact the suppliers. And it’s not enough for the big companies to say, I asked my supplier to ensure that human rights are respected.

In practice, however, small companies deliver reports to the major customers they serve. Is this okay?
Yes, transparency and collaboration between large and small companies are becoming greater and that is what we want. But: The whole thing has limits. The big companies must not overdo it. It always depends on the individual case. We have published case studies of what is permissible and what is not. I have asked employers’ associations to develop questionnaires for their member companies to send to suppliers. That would make collaboration much easier. Some associations have received this well.

The vast majority of producers in the supplying countries have never heard of the German law. What can German clients do to change this?
We do not tell companies what measures they should take to successfully implement the law. We only check that the measures taken are appropriate to achieve the goal. We are not the better entrepreneur and tell you how to act. We just look at whether the chosen path can lead to the desired goals.