In 2016, Germany adopted the National Action Plan on Business and Human Rights where the Federal Government sets out its expectation that companies will comply with human rights due diligence obligations and respect human rights along their supply and value chains. In addition, the National Action Plan on Business and Human Rights describes a wide catalogue of measures to better fulfil the state’s obligation to protect human rights, particularly within the economic context.

The Federal Government supports companies in implementing these measures – eg, by providing training, guidelines and online services. An inter-ministerial committee for business and human rights, chaired by the Federal Foreign Office, is responsible for reviewing the implementation of the measures taken on the basis of the National Action Plan.

The current national plan formally expired at the end of 2020, but is being extended regularly. A new national plan is being developed.

On 1 January 2023, the Act on Corporate Due Diligence Obligations in Supply Chain (Lieferkettensorgfaltspflichtengesetz, LkSG) came into force.

Scope of Application

Companies that have their head office, main branch, administrative headquarters or registered office in Germany must comply with the due diligence obligations set out in the LkSG if they employ at least 1,000 people in Germany. This also applies to foreign companies that maintain a branch of a corresponding size in Germany.

Prohibitions and Obligations

The LkSG requires:

• prohibition of child labour;
• protection against slavery and forced labour;
• freedom from discrimination;
• protection against unlawful land confiscation;
• occupational health and safety and related health hazards;
• prohibition of withholding an adequate wage;
• the right to form trade unions or employee representatives;
• prohibition from causing harmful soil or water contamination; and
• protection against torture.

Furthermore, the LkSG regulates the following due diligence obligations:

• establishment of a risk-management system (Section 4 (1));
• definition of an in-house responsibility (Section 4 (3));
• the performance of regular risk analysis (Section 5);
• issuance of a policy statement (Section 6 Paragraph 2);
• establishment of preventive measures in the company’s own business unit and direct suppliers (Section 6);
• taking of corrective measures (Section 7);
• establishment of a complaint procedure (Section 8);
• implementation of due diligence with regard to risks at indirect suppliers (Section 9); and
• documentation and reporting (Section 10).

“Supply chain” should be taken to mean all steps in Germany and abroad that are necessary for the manufacture of a company’s product(s) and the provision of its services – from the extraction of raw materials to delivery to the end customer. The due diligence obligations along the supply chain extend to a company’s own business operations and direct and indirect suppliers.

Consequences of Non-Compliance

Various sanctions may be imposed for violations of the LkSG. These include fines of up to EUR800,000 or up to 2% of the company’s global annual turnover (for a legal entity with average annual sales of more than EUR400 million). In the event of serious violations, the company concerned may also be excluded from public procurement for up to three years.

The Federal Office for Economic Affairs and Export Control (Bundesamt für Wirtschaft und Ausfuhrkontrolle, BAFA) is responsible for monitoring and imposing sanctions. BAFA may execute inspections (unannounced and unprovoked), and is authorised to enforce its orders and measures with a forced payment (Zwangsgeld) of up to EUR50,000.

Future Meaning

The new government has already announced its intention to abolish the LkSG. Whether and when this will happen is still uncertain. However, as the Corporate Sustainability Due Diligence Directive (CSDDD) entered into force on 25 July 2024, Germany has until 25 June 2026 to transpose it into national law. Due to this EU directive there will still be similar due diligence obligations set out in the LkSG. Furthermore, this EU directives will lead to a tightening of obligations under the LkSG.

As mentioned under 2.2.2 Corporate Human Rights Due Diligence Legislation, the LkSG prohibits child labour, forced labour and slavery. Other practices resembling slavery, and human trafficking, for example, are also prohibited. Regarding the obligations and consequences of non-compliance, see 2.2.2 Corporate Human Rights Due Diligence Legislation.

Furthermore, at the end of last year, the EU member states adopted the EU Forced Labour Regulation. This regulation will apply from 14 December 2027. The EU Forced Labour Regulation contains provisions that prohibit companies from placing and making available products made with forced labour on the EU market or exporting them from the EU market. Forced labour means all work or services exacted from any person under the menace of any penalty and for which the person has not offered themselves voluntarily. The EU Forced Labour Regulation is not limited to certain companies or company sizes and not limited to specific types of products.

If companies fail to comply with the EU Forced Labour Regulation, authorities can order the prohibition of placing, making available, or exporting such products. In addition, they may require affected products to be withdrawn or removed from the market. The consequences for non-compliance are still unclear, as penalties will be determined by the member states themselves. However, it is expected that there will be a comprehensive fine system with substantial financial penalties, as is often the case (see penalties of non-compliance with the LkSG in 2.2.2 Corporate Human Rights Due Diligence Legislation).

In Germany, various national laws and international directives contain reporting requirements on matters relating to BHR.

Section 289c/315c of the German Commercial Code (Handelsgesetzbuch, HGB)

Section 289c/315c HGB is the national transformation law for the European Union Non-Financial Reporting Directive (CSRD) and contains transparency and reporting requirements.

In addition to environmental aspects, social aspects and information on combating corruption and bribery, the following information must be provided:

• measures to ensure gender equality, working conditions, respect for the rights of employees and trade unions, health protection and safety at work; and
• information on the prevention of human rights violations.

The report can be published in different ways:

• Option I – in the management (group) report ((Konzern-)Lagebericht) in a separate section;
• Option II – in a separate “non-financial” (group) report (nichtfinanzieller (Konzern-)Bericht), which can either be disclosed (Option II 1) together with the management report, or (Option II 2) on the company’s website (in this case, (Option II 2a); either a reference to the internet source must be included in the report or (Option II 2b) as a separate section in another consolidated report (eg, as a sustainability or CSR report); or
• Option III – which involves integration into the other consolidated report; the supervisory board must review the content of the report.

This reporting obligation affects large, capital market-oriented companies that employ more than 500 employees on average over the year. A company is classified as a large company if it meets two of the following criteria: i) it employs at least 250 employees; ii) its balance sheet total exceeds EUR25 million; iii) its sales revenue in the 12 months prior to the balance sheet date exceeds EUR45 million.

In the event of incorrect presentation or concealment of the company’s circumstances, the members of the body authorised to represent the company or the supervisory board may be punished with a fine or imprisonment. In the event of improper reporting, the members of the body authorised to represent the company or the supervisory board may be fined up to the higher of EUR2 million or twice the economic advantage gained from the administrative offence, where the economic advantage includes profits made and losses avoided and may be estimated. The fine may also be imposed on the company. The company may be liable to investors for damages. Competition law injunctions against the company are also possible. Under certain circumstances, the legal representatives may be liable for damages to the company.

Large non-capital market-oriented corporations or large capital market-oriented companies that employ fewer than 500 people are obliged to report on non-financial performance indicators, such as information on environmental and employee matters, if this is relevant for understanding the course of business or the situation of the company.

Act on Corporate Due Diligence Obligations in Supply Chain (Lieferkettensorgfaltspflichtengesetz, LkSG)

Companies must submit an annual report to the Federal Office of Economics and Export Control (Bundesamt für Wirtschaft und Ausfuhrkontrolle, BAFA) on the implementation of due diligence obligations. The report must provide comprehensible information on:

• whether and which human rights and environmental risks the company has identified;
• what the company has done to fulfil its due diligence obligations;
• how the company assesses the impact and effectiveness of the measures; and
• what conclusions it draws from the assessment for future action.

The report must be electronically submitted to BAFA in German no later than four months after the end of the fiscal year. It must also be made publicly available online no later than four months after the end of the fiscal year and must be available for seven years. If no violations of duty were found, then this must be plausibly stated in the report. No further explanations are then required. Company and business secrets must be duly protected.

See 2.2.2 Corporate Human Rights Due Diligence Legislation for the affected companies and the consequences of non-compliance.

Corporate Sustainability Reporting Directive (CSRD)

The CSRD entered into force on 5 January 2023 and had to be transformed into German national law until 6 July 2024 at the latest. This means that it is not applicable at the moment but will be in the near future.

The CSRD obliged companies to provide information about anti-discrimination, equality, working conditions, respect for human rights, etc. The sustainability reporting must be a mandatory component of the management (group) report and must be clearly identifiable in a section designated for this purpose. The management (group) report of companies must be prepared in the uniform electronic reporting format (within the meaning of Article 3 of Delegated Regulation (EU) 2019/815). The report must be checked for compliance with the European Sustainability Reporting Standards (ESRS), which contain details of the exact type and manner of reporting.

All large companies and groups are affected by the reporting requirement if they meet two of the following three criteria:

• total assets of more than EUR25 million;
• net sales of more than EUR50 million; or
• more than 250 employees.

Small and medium-sized enterprises (but not micro-enterprises) are also subject to reporting requirements if their transferable securities are admitted to trading on a regulated market in a member state – ie, if they are capital market-oriented in this sense. Certain insurance companies and credit institutions, regardless of their legal form, as well as certain third-country companies, are also subject to reporting requirements.

Member states have flexibility in implementing the CSRD with regard to sanctions, as the CSRD does not contain corresponding provisions. It is expected that the consequences for cases of non-compliance will be similar to the current sanctions for violations of 289c/315c HGB (see above).

Corporate Sustainability Due Diligence Directive (CSDDD)

The CSDDD entered into force on 25 July 2024 and must be transformed into German national law until 26 July 2026 at the latest. This means that it is not applicable at the moment, but will be in the near future.

In addition to various due diligence obligations an affected company must report once a year on matters covered by the CSDDD. The report must be written in at least one of the official languages of the EU and published no later than 12 months after the balance sheet date of the financial year. If the company is already required to report on sustainability according to Section 289c HGB (see above), it is exempt from the reporting obligation under the CSDDD.

The scope of the Directive basically covers EU companies with more than 1,000 employees and more than EUR450 million in global net annual turnover. It also covers supreme parent companies of a group if they meet the thresholds and companies from third countries if they generate a net turnover of EUR450 million in the EU.

Member states have some flexibility in implementing the CSDDD with regard to sanctions. Therefore, it is not yet possible to say with certainty what the consequences of non-compliance will be. However, member states must provide regulations that include the following:

• companies’ liability for damages resulting from breaches of their due diligence obligations;
• effective, proportionate and dissuasive sanctions for non-compliance;
• forced payments (Zwangsgeld) that may amount to up to 5% of global net turnover; and

• in the event of non-payment of forced payments, the breach will be publicly disclosed.

There are no national laws that explicitly refer to human rights of indigenous peoples in the context of business activities. Indigenous peoples are protected in the same way as all ethnic groupsin Germany (see the due diligence obligations mentioned-above under 2.2.2 Corporate Human Rights Due Diligence Legislation – 2.2.4 Transparency and Reporting Requirements). However, Germany has ratified the ILO-Convention 169 (Indigenous and Tribal Peoples Convention) from 1989, which is the only legally binding international treaty that comprehensively protects the rights of indigenous peoples.

Apart from the laws already mentioned (in particular the LkSG), there are no other laws in Germany that explicitly refer to the topic of BHR.

In addition to statutory regulations and the German National Action Plan on Business and Human Rights, numerous guidelines and principles are also applied in Germany. Some examples are listed below:

• UN Global Compact – principles for global business in the areas of human rights, labour and the environment;
• UN Guiding Principles on Business and Human Rights – see 2.1 International;
• OECD Guidelines for Multinational Enterprises on Responsible Business Conduct – see 2.1 International;
• ISO 26000 – assistance for organisations in contributing to sustainable development including human rights;
• German Sustainability Code (Deutscher Nachhaltigkeitskodex) – assistance in the subject of reporting obligations; and
• Berlin CSR Consensus (Berliner CSR-Konsens) – management and leadership principles that are necessary for responsible supply chain management.

In its Sustainability Strategy, Germany has established a Sustainability Action Programme where the government has set binding targets for itself for complying with sustainability criteria in the procurement of textiles, information technology and paper, as well as in services such as catering. As part of this, the Federal Government Guidelines for Sustainable Textile Procurement were drawn up. Further self-binding guidelines are in the process of being developed.

As already mentioned above, Germany, as a member state of the EU, is subject to (ongoing) legislative developments and adjustments at EU level. Accordingly, there will be further EU-related changes to the legal situation in Germany in the near future. The most important of these regarding BHR are the obligations already mentioned to implement the CSDDD and CSRD into national law.

Particularly relevant at this time is the discussion on amending the CSDDD and the CSRD, even though the CSDDD has not even had to be implemented into national law yet. This so-called EU Omnibus Package provides, among other things, for various far-reaching simplifications with regard to sustainability reporting and due diligence obligations.

• The reporting obligation under the CSRD will only apply to large companies with more than 1,000 employees, turnover of more than EUR50 million, or a balance sheet total of more than EUR25 million;
• The application of the CSRD will be postponed by two years for companies newly subject to reporting requirements (already decided by the EU).
• CSDDD due diligence obligations will be restricted with regard to indirect business partners.
• There will be no civil liability for breaches of CSDDD obligations.

In addition to these plans at EU level is the new government’s plan to abolish or amend the LkSG. However, whether and to what extent this will happen in view of the obligation to implement the (stricter) CSDDD is in question at present.