A new law that is being enforced from the beginning of 2023 means that German companies will now face fines of up to 2% of their global turnover if they fail to provide a comprehensive account of the environmental, social, and governance (ESG) frameworks in place in their supply chains, including details of what is being done to prevent human rights abuses and protect the environment.
As Thibault Lecat, Managing Director of procurement and supply chain management consultancy INVERTO notes: “UK businesses will essentially have no choice but to comply with this law if they want to keep their German customers”.
The law outlines risks that companies must be taking action to prevent, divided into human rights risks and environmental risks. The human rights risks include child labour, forced labour, and employment inequality, while the environmental risks cover production of pollutants and handling of hazardous waste.
It applies to all German companies with over 3,000 employees- a threshold that will be reduced to 1,000 employees from 1 January 2024.
This follows the proposal of similar legislation in Canada, as governments around the world ramp up the ESG requirements for global supply chains. The EU is also expected to introduce tighter regulations on ESG in the near future, as outlined in a 2018 action plan for ‘financing sustainable growth’.