EU Supply Chain Law: A German Controversy

The debate surrounding the proposed EU Supply Chain Law is dividing German politics and business. While some companies support the implementation of the Corporate Sustainability Due Diligence Directive (CSDDD), others fear a competitive disadvantage and reject the law. 

We've compiled the central arguments of the debate in loose order - without any claim to completeness:

1. Goals of the EU Green Deal undermined: The rejection of the CSDDD by the German federal government jeopardises the sustainability transformation of the economy and weakens the EU Green Deal project.

2. Reliability and credibility of the German government in European legislative procedures at risk: Despite previous approval of the Supply Chain Act and its own national legislation, Germany's withdrawal from support at the final stage harms its reputation as a reliable partner in Europe.

3. Competitive disadvantage of the German economy in European comparison: Failure to implement the CSDDD could weaken the position of German companies in international competition, as they already adhere to German supply chain law. Harmonisation through the CSDDD would lead to a level playing field beneficial to German companies.

4. Corporate Governance in the Context of CSRD and CSDDD: The European Corporate Sustainability Reporting Directive (CSRD) also encompasses the value chain. Supervisory bodies therefore need to be aware of significant environmental and social risks in the supply chain anyway. The CSDDD underpins the informative value of future sustainability reporting as well as the overarching objectives of climate neutrality and strengthening human rights in the EU.

Companies that would fall within the scope of the CSDDD would in fact have to take a closer look at their supply chains anyway - especially in order to meet the sustainability reporting requirements under the CSRD.

5. The CSDDD enables focus: The risk-based approach in the CSDDD is precisely defined: Companies are required to conduct investigations only in areas where violations of human rights are most severe and likely. This assessment is based on OECD risk factors: including sector, geographic location, product type, and company structure. Furthermore, due diligence in the CSDDD is based on an obligation to achieve success and make efforts. 
6. Four years in the making: Companies criticising the CSDDD must accept the accusation that they had over four years during the legislative process to prepare for the directive. This timeframe should have been sufficient to implement basic governance and risk management systems that comply with the CSDDD.
7. The CSDDD overburdens smaller companies in particular: The central argument against the CSDDD is that regulation in its current form would lead to an unacceptably high level of bureaucracy.
8. More extensive legal consequences: Another argument against the CSDDD focuses on the more extensive legal consequences - compared to the German Supply Chain Due Diligence Act - in the event of a breach. In particular, the possible claim for damages for injured parties (workers, relatives, communities) is criticised as being too extensive.
9. International trade agreements should regulate social and environmental standards in supply chains: The responsibility for increasing social and environmental standards in global supply chains is imposed on individual companies or associations. Legal norms between the client country and the contracting country are conflicting. International trade agreements could provide a more effective remedy here.

It remains to be seen whether the German government is doing its own companies a disservice in this legislative process. It is clear that risk management is not an end in itself and that every company must ask itself whether its own purchasing behavior is sustainable.

Our experts support companies in the legally compliant and pragmatic handling of supply chains that comply with the principle of due diligence.