Renata Jungo Brüngger has had a lot on her plate recently. The Chief Legal Officer of Mercedes-Benz had to ensure that the Stuttgart-based car manufacturer was prepared when the Supply Chain Act came into force in Germany on January 1. This is because large companies will then be legally responsible for ensuring that human rights are respected in their supply chains.

The law is controversial. Business representatives complain about the effort involved. Human rights and environmental organizations, on the other hand, do not think the law goes far enough. What is behind it?

The "Supply Chain Due Diligence Act", as it is officially called, initially applies to companies with more than 3,000 employees. According to the Federal Ministry for Economic Cooperation and Development (BMZ), around 900 companies are affected. There are different requirements for them, for their own business area as well as for direct and indirect suppliers.

According to the BMZ, companies must implement a range of measures. Among other things, they must carry out a risk analysis, set up a risk management system and a complaints mechanism and report on these publicly. In the event of violations in their own business area or with direct suppliers, the law states that companies must immediately take appropriate remedial measures "to prevent, end or minimize the extent of the violation".

"It doesn't change that much for us because we have been preparing for this for years," says Mercedes manager Jungo Brüngger. You can't simply implement supply chain controls at the push of a button. The Group has agreed corresponding contractual conditions, procurement standards and audit rights with its direct suppliers.

Measures defined for the greatest risks

Mercedes-Benz has around 40,000 suppliers in the direct area alone. In addition, there are many more in the indirect area. "We can't check these suppliers every day. That is not feasible, not even for such a large company." A risk-based approach must therefore be taken. Measures would be defined for the greatest risks, which would then be monitored.

For example, in the case of electromobility, which requires batteries and battery cells. "There are of course greater risks here at the moment." Cobalt, for example, comes from countries that are associated with child labor. "We recognized this and made the supply chain for cobalt more transparent back in 2018 and monitored it right up to the mines," says Juno Brüngger.

Law with a sense of proportion?

"The law is very ambitious in many respects and it will certainly be a major challenge," says the board member. However, it can also be said that the law was drafted with a sense of proportion in many respects. It is positive that there is an obligation to make an effort. "If we as a company can prove in a specific case that we have done everything in our power, then this fulfills this requirement," says Jungo Brüngger. "Small companies certainly have a harder time implementing this."

A smaller company compared to Mercedes-Benz is Stihl. The chainsaw manufacturer from Waiblingen near Stuttgart employs around 20,000 people worldwide. The family business has already been working for several years on making sustainability an integral part of supplier management, says entrepreneur Nikolas Stihl. However, in order to comply with the regulations, considerable additional effort is required. Stihl also sees the risk of competitive disadvantages as a result of the German law, which is why he believes an extension to EU level or even globally uniform requirements would be helpful.

Criticism from trade associations

Criticism also comes from trade associations. "The ability of medium-sized industrial companies to act is being put at risk here," said Karl Haeusgen, President of the German Engineering Federation. He criticized the fact that companies would have to make reports accessible to everyone - including competitors. "This will lead to our companies withdrawing from entire countries, which will harm local people, not help them," said Haeusgen.

Dirk Jandura, President of the Federal Association of Wholesale, Foreign Trade and Services, criticized the list of questions on reporting by the Federal Office of Economics and Export Control (Bafa). The Bafa is supposed to check compliance with the law. The list of questions is "a purely theoretical construct and far removed from practice". The President of the Association of German Chambers of Industry and Commerce, Peter Adrian, also criticized the questionnaire. The Bafa was plaguing companies with 437 data fields during the worst crisis in decades. This is "an absurdity". The President of the Federation of German Industries (BDI), Siegfried Russwurm, demanded that the Bafa must now greatly simplify the procedures and the questionnaire on the reporting obligation.

The second chairwoman of IG Metall, Christiane Benner, described the law as a good start to the new year. "This makes it all the more difficult to understand the employers' attitude of refusal, which has tried to prevent the law from coming into force right up to the last meter," said Benner.

Environmental and human rights organizations criticize omissions

"The industry lobby has undermined the law to the extreme. It has become a toothless paper tiger," says Viola Wohlgemuth from the environmental organization Greenpeace. Above all, she criticizes "the fact that there are no independent environmental due diligence obligations". It is only possible to intervene if people suffer damage to their health as a result of companies destroying the environment. "And that is virtually impossible to prove in court, especially for those affected in the production countries," says Wohlgemuth.

Beate Streicher from the human rights organization Amnesty International criticizes the fact that the law only covers very large companies. In addition, there is no regulation of civil liability. The law is a start, but it is definitely not enough. The weaknesses must now be addressed at European level. The coalition agreement states that the German government is committed to an effective European supply chain law. "It must be measured against this claim," says Streicher.