BEERG Newsletter - EU: Due diligence – heavy obligations

During the coming year, the EU will finalise legislation on corporate due diligence. What lies ahead for companies can be glimpsed from the German law which came into force this January. As the Economist reports: 

Peter Bokelmann has had a busy few months. The chief counsel at Trumpf, a maker of machine tools, oversees the firm’s efforts to comply with the new law on the due diligence of supply chains that came into force on January 1st. Mr Bokelmann has been at it since the law was passed in mid-2021. “The enormous effort needed is underestimated,” he sighs. 

The German law requires companies with more than 3,000 employees in Germany to monitor whether their suppliers around the world meet human-rights and environmental standards. From 2024 the law will extend to firms with 1,000 German workers. Fines of up to €8m ($8.6m) or 2% of the German firms’ global sales, whichever is higher can be imposed.  The Economist adds:

In Trumpf’s case, of its 15,000 suppliers, 5,000 are deemed by the firm to be low-risk. Of the remaining 7,000, Trumpf has so far evaluated 800; assessing the rest will be a multi-year effort, says Mr Bokelmann. And that may not be the end of it. In October the Federal Office for Economic Affairs and Export Control, which is in charge of supervising implementation, sent out a 35-page questionnaire to businesses with 437 data fields, including for details not specified in the law. Moreover, civil-society activists want the German government to push for even stricter EU-wide legislation. 

As it now stands in draft form, subject to negotiations between the Council, Commission, and Parliament, the Directive would require firms with 500 employees or more and annual sales of €150m to monitor environmental and labour standards across their supply chains, and to ensure their business is compatible with the decarbonisation path set out by the Paris agreement on climate change. In industries such as farming or textiles, where human rights concerns are more common, think Bangladesh, the EU Directive would apply to companies with just 250 employees and sales of €40m. 

As Bokelmann of Trumpf says, do not underestimate the effort that will be needed to comply. 

HR Policy Global has now set up a discussion group on due diligence legislation and what it will mean for companies. If your company would like to be involved, then email Wen Dong [email protected] 

We will also look in detail at this issue at our upcoming BEERG Network Meeting in Brussels.