CSR Voice: Germany on the EU proposal for a Due Diligence Directive
CSR Voice is the new blog series dedicated to exploring key global sustainability issues locally together with CSR Europe’s National Partner Organisations.
Following the publication of the European Commission’s long-awaited new rules for sustainable supply chains, we spoke with Nadine-Lan Hönighaus, Executive Director of econsense – Forum for Sustainable Development of German Business e.V, to take stock of the situation and the implications it will have at the European and national level.
On 23rd February the European Commission published the proposal for a directive on corporate sustainability due diligence. How was the Commission’s proposal received in Germany? Does it meet your expectations?
I think in Germany we were as curious about the Commission’s proposal as people in Brussels or other member states given that the initiative had first been communicated in 2020. We, at econsense, are the business network on sustainability in Germany with 44 large internationally operating member companies. We have been following the political developments closely since the beginning and also contributed to the Commission’s public consultation. Yet, human rights due diligence has been an important topic for our members long before the debate. In our network, we have accompanied our members’ efforts, management approaches, and practices on due diligence already before the endorsement of the UN Guiding Principles and offered assistance and guidance on human rights to businesses even beyond the circle of our members.
As for the recent Commission proposal on due diligence, we would have preferred to see the EU and its member states follow a more coherent and consistent approach, particularly regarding the timing of initiatives. We now have the situation that our members prepare for the implementation of the German Supply Chain Due Diligence Act, which they will have to adhere to from January 2023 on.
At the EU level, on the other hand, negotiations on the EU directive are just beginning and it remains to be seen when they will be finished. Then, once the EU directive will be passed, the German Supply Chain Act will most likely need to be adapted to the EU requirements. For companies that operate internationally, it is already a complex venture to establish and integrate a human rights and environmental due diligence management system for their own operations, their subsidiaries, and supply chains with thousands of suppliers on the first tier. Having to adapt their approach shortly after implementation again costs valuable time and resources.
Last year in June the German Federal Parliament had adopted the Supply Chain Due Diligence Act, which will enter into force on 1 January 2023. Is this law aligned with the new proposal of the Commission?
The German Supply Chain Due Diligence Act, as well as the Commission’s proposal, are both based on internationally renowned frameworks like the UN Guiding Principles and the OECD Guidelines for Multinational Enterprises and refer to International Human Rights Conventions. Therefore, it can be stated that both legislative texts are based on the same principles and are also very similar in terms of their overall objective and structure. As far as the concrete implementation in the company is concerned, it is often the details that need to be carefully considered and these details are still anything but clear and elaborated in both the German law and the EU proposal.
After a first, rough analysis of the EU proposal, we see the main differences between the EU proposal and the German legal text in the following areas: companies in scope, the potential adverse impacts covered by the act, the definition of the value chain particularly including downstream business relationships and the regulation on civil liability.
In the Commission’s proposal article 14 is mentioning “accompanying measures” that will be necessary to ensure human rights environmental due diligence. What kind of measures do you foresee will be applied at the National level in Germany?
In Germany, several accompanying measures mentioned in the EU draft directive are already in place. The governmental website CSR-in-Deutschland was relaunched recently and gives an up-to-date overview of information sources, tools, good practice examples, and initiatives available to support companies. And businesses, too, have been joining forces in industry schemes to tackle the challenges in their value chains, in networks like econsense, or in specific supply chain-oriented initiatives.
We welcome the fact that the Commission recognises the importance of collaboration in its proposal. It even considers facilitating joint stakeholder initiatives. In Germany, the Federal Ministry of Labour and Social Affairs has been hosting the so-called NAP sector dialogues, where different stakeholders from businesses along the value chain, labour associations, and civil society work together. econsense has been participating in the automotive dialogue, which started in 2020. Soon the first phase of this dialogue will come to an end and as one result the stakeholders will publish practical step-by-step guidelines for successful and impactful due diligence in the automotive sector. Further NAP-dialogues are currently in the making and econsense is following these developments closely.
What challenges do you foresee companies will encounter in applying the new proposal of the Commission?
While companies are familiar with due diligence procedures and have been committed to the UN Guiding Principles, there remain challenges, especially when looking beyond their own operations and first-tier suppliers. Considering the complex and dynamic relationships in international production and trade, full supply chain traceability is close to impossible to achieve. There is a lack of data availability due to practical, technical, or legal reasons, like anti-trust or privacy laws.
Moreover, companies lack leverage vis-á-vis indirect business relationships, where there is no contractual link. Risks in the supply chains are often part of structural problems in third countries and need to be addressed by different stakeholders together. Through collaboration along the value chain, sector-specific industry schemes as well multi-stakeholder initiatives, individual companies can join forces and address the challenges together.
Do you have any upcoming initiatives/activities planned to support German companies in complying with this new proposal?
At econsense we are in an ongoing dialogue not only with our member companies but also with other stakeholders to provide feedback and share the practitioners’ views on decisive questions regarding the implementation of the German Due Diligence Act. The European proposal and its potential impact on German law is a new element in this ongoing exchange. As econsense we will even step up our game, supporting companies in implementing due diligence. Already today we offer numerous publications and tools, which are freely available on our website.
The econsense Supplier Sensor app, for example, was developed and refined together with our members in order to enable companies to raise awareness for sustainability issues at a suppliers’ site. To support the engagement of suppliers worldwide, econsense has developed training material including short video clips in several relevant languages. And with the ongoing debate, we have and regularly will also offer public events to raise awareness and help companies to take concrete steps regarding sustainability in supply chains.
Updates on the EU proposal for a corporate sustainability directive, and its reception in different EU countries, were shared at the NPO Cafe’, on 31 April.
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