The EU Due Diligence Law: Working Together For Social and Economic Change

The EU Due Diligence Law is set to be adopted soon. It could be more extensive than the German version because its scope will also include small and medium-sized companies if there is a risk of them violating human or environmental protection rights.

In Germany, the Due Diligence Act is expected to be adopted by parliament before the summer holidays.

In the EU binding rules will require companies to review their supply chain from the raw material to the ready-to-sell product. This includes operational processes, direct and indirect business relationships as well as investment chains. All aspects that might violate human rights including social, trade union and labor law rights, environmental standards and climate goals as well as “good governance” would have to be eliminated. This is primarily intended to protect affected parties in third countries.

These rules apply to all companies operating in the EU single market, regardless of their size. After the EU Parliament has made proposals, a draft law from the EU Commission is expected in June. After that, the EU Parliament, Commission and Council will have to agree on a final version in a so-called trialogue. This can be expected next year.

Whereas under the German draft legislation, companies only have to take action with indirect suppliers if they have received indications of human rights violations, the EU Parliament defines the due diligence obligations more broadly.

In Germany, the Due Diligent Act will apply to companies with more than 3,000 employees starting in 2023; one year later, it will also apply to companies with more than 1,000 employees. The Federal Office of Economics and Export Control will monitor compliance and sanction violations.

The Federal Government intends to help business in the implementation of the Act. The relevant authorities use an electronic reporting format into which existing reporting duties such as CSR reporting are integrated. There will also be a recognition mechanism for existing certification systems.

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