German Companies to Face Fines If Suppliers Abuse Human Rights

(Bloomberg) -- German companies from BASF SE to Volkswagen AG risk fines if their suppliers around the world breach human rights.

Under new legislation agreed to by Chancellor Angela Merkel’s government on Friday, companies will have to ensure their partners don’t engage in harmful practices and exploitation. In addition to penalties, German firms can also be excluded from public contracts.

The so-called Supply-Chain Law, which still needs parliamentary approval, will apply to 600 firms with more than 3,000 employees starting in 2023. Its scope will be widened to nearly 3,000 companies with more than 1,000 workers from 2024.

The plan has been highly contentious, with industry groups arguing that the complexity and length of supply chains means companies can’t be held accountable for actions beyond their control.

The goal of making companies responsible for practices in global supply chains is part of the coalition agreement between Merkel’s conservative bloc and the Social Democrats. They made a commitment to foster “sustainable” supply structures for agricultural goods like palm oil, cocoa and soybeans.

The government initially encouraged companies to prevent abuses on a voluntary basis. However, a survey carried out by the foreign ministry published last year found that only a minority of firms with more than 500 employees had met the requirements. Only a fifth of the 2,250 companies asked to participate in the survey responded.

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