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Germany joins Norway, France with new law for ensuring sustainable supply chains
Germany joins Norway and France with issuing a new law – German Supply Chain Due Diligence Act – for ensuring sustainable supply chains. The Act – due to go into force in January 2023 – is the latest in a growing body of legislation moving away from voluntary standards to force companies to take responsibility for cleaning up their supply chains.
The new law requires larger German and German-based companies to identify and assess rights and environmental violations within their supply chains, and develop risk management, monitoring and reporting strategies, with stiff fines for non-compliance.
Norway and France have similar laws in place and a new European Union Directive, currently in negotiation, is expected to go further, including measures to allow victims to seek damages in court.
Although the new laws will affect a small proportion of EU companies and final rules may yet change, the push towards more stringent, binding social and environmental regulation is clear. The shift in direction is part of a reimagining of global supply chains, which, as the main channel of global trade and a major vehicle of job creation, are critical to the world economy. Crises such as the COVID pandemic and the Russian-Ukrainian crisis, as well as the related energy shock, have exposed the brittleness and inequities of globalized production networks. The threat to long-term growth from the climate emergency, coupled with calls from consumers, investors and civil society for fairer, greener production, mean that pressure to create more sustainable, and therefore resilient, supply chains will continue to grow.
This is good news, potentially leading to greater harmonization of regulations and the spread of cleaner, safer technologies and working environments, reversing some of the darker downsides of globalization. It could also accelerate innovation as firms upgrade to meet new standards, giving them more opportunities to enter global supply chains. Studies show that greater levels of environmental and social engagement among downstream companies is likely to benefit suppliers all along the chain.
But there are also risks. The new regulations could become a particular headache for small and medium-sized companies (SMEs) that lack information on sustainability practices, or the means to invest in green technologies. Companies unable to meet stricter entry requirements for global supply chains might be left out, leading to a further concentration of global trade in the hands of large firms, UNIDO’s Director of Fair Production, Sustainability Standards and Trade, Bernardo Calzadilla-Sarmiento, said.
Some suppliers in developing countries may struggle to cope with the growing raft of costly compliance measures, and experts warn of potential unintended consequences if financial and technical help is not forthcoming, he added.
To avoid this, more investment will be needed in developing countries, especially in infrastructure and digital skills, with more support for domestic industry, he said.
Calzadilla-Sarmiento, said, “We need to pay attention that these approaches do not turn into barriers to trade that make it more difficult for some countries to participate. We need to make sure that we do not trade-off the different dimensions of sustainability.”
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