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The German Supply Chain Due Diligence Act and its impact on Polish businesses

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by ​Jakub Plebański

15 September 2023


The German Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz) adopted in 2023 extends considerably the due-care-in-business obligations of German enterprises and their business partners.

Given the scale of trade with the Federal Republic of Germany, the new law affects business of many companies in Poland. 

Key obligations of enterprises


The main obligation for German enterprises and their foreign branches is to exercise due care in ensuring the observance of human rights along the supply chains. 

The law requires German enterprises to develop a system for assessment of risk of violations of human rights and environmental standards across supply chains. Moreover, they will have to publish a violation prevention plan covering their enterprise as well as its suppliers, and will have to demonstrate due care in checking compliance with human rights among all parties they work with along the supply chain.

The above-mentioned obligations apply since the beginning of 2023 but at present only to businesses hiring more than 3,000 people. The threshold will go down to 1,000 in 2024. According to the German federal government, there are about 4,800 such companies at the moment.

The new statute defines a supply chain broadly to include all necessary stages of production or service performance – starting from raw material extraction all the way to delivery to end customer in Germany or abroad. This means that a German company subject to the statutory obligations must demonstrate due care in monitoring the compliance with human rights at all those stages.

Prohibited signs of violations of human rights and environmental protection


The statute includes a diversified and extensive list of prohibitions of human right violations. Among other things, the following are a no-go:  

  • disregard for the occupational safety and health rules; 
  • child labour;
  • forced labour;
  • violation of the freedom of association;
  • unequal treatment in employment, e.g. due to nationality or ethnic origin, social status, health condition, disability, sexual orientation, age, sex, political opinion, religion or beliefs;
  • remuneration below the minimum wage.

The law also prioritises environmental protection matters. Significant environmental pollution, including non-ecological waste treatment or use of certain banned chemicals, is outright prohibited.  

The above requirements in respect of business partners of German enterprises fit in the concept of sustainable business development which is also incorporated in the EU’s ESG laws. 

The statute’s impact on Polish businesses


The new law may make the affected German companies expect their Polish business partners to develop procedures to confirm compliance with the statutory standards and proper risk management. This means e.g.:

  • add the statutory requirements to in-house rules and regulations;
  • adjust contracts with business partners;
  • implement whistleblowing procedures and prevention measures. 

Given that the statutory obligations will expand in 2024, some German companies may already demand from their Polish business partners information about their sub-suppliers and potential threats to human rights. 

Penalties


Violations of the new law may lead to a fine for a German enterprise of up to 500 thousand euro, or even up to 2 per cent of turnover in the case of groups earning globally more than 400 million euro in a year. Therefore, the compliance with this statute may for many companies from across the border be key to starting or continuing business. 

If you are interested in adapting your business standards to the requirements of the German Supply Chain Due Diligence Act and other measures to ensure sustainable business development and ESG reporting, you are welcome to contact our experts.

Contact

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Jakub Plebański

Lawyer (Poland)

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