Corporate (Ir)responsibility made in Germany - Part I: The National (In)Action Plan 2016-2020 - By Mercedes Hering

Editor's note: Mercedes is a recent graduate of the LL.B. dual-degree programme English and German Law, which is taught jointly by University College London (UCL) and the University of Cologne. She will sit the German state exam in early 2022. Alongside her studies, she is working as student research assistant at the Institute for International and Foreign Private Law in Cologne. Since September 2020, she joined the Asser Institute as a research intern for the Doing Business Right project.

On the international stage, Germany presents itself as a champion for human rights and the environment. However, as this blog will show, when it comes to holding its own corporations accountable for human rights violations and environmental damage occurring within their global supply chains, it shows quite a different face.

In recent years, German companies were linked to various human rights scandals. The German public debate on corporate accountability kickstarted in earnest in September 2012, when a factory in Karachi, Pakistan, burned down killing almost 300 people. The factory had supplied KiK, Germany’s largest discount textile retailer with cheap garments. Then, over a year and a half ago, a dam broke in Brazil, killing 257 people. The dam had previously been certified to be safe by TÜV Süd Brazil, a subsidiary of TÜV Süd, a German company offering auditing and certification services. There are many more examples of incidents in which German companies were involved in human rights violations occurring within their supply chains, yet eight years after the factory in Pakistan burned down, and nine years after the unanimous endorsement of the UN Guiding Principles on Business and Human Rights by the UN Human Rights Council, there is still no binding German legislation imposing some type of liability onto companies that knowingly, or at least negligently, fail to uphold human and labor rights in their supply chain.

This is despite the fact that Germany, the third-largest importer worldwide, with its economic power and negotiation strength on the international stage, could have a dramatic impact on business practices if it were to embrace a stronger approach to business and human rights.  

In the coming two blogs I am to take a critical look at Germany’s recent policies related to corporate accountability and discuss the current developments (and roadblocks) linked to the potential adoption of a Lieferkettengesetz (Supply Chain Law). In this first post, I focus on the effects of the National Action Plan 2016-2020, building on recently released interim reports. In my second blog, I will then turn to the various proposals and political discussions for mandatory due diligence regulation (Lieferkettengesetz).


National Action Plan 2016-2020

In 2011, the European Commission in its communication paper “A renewed EU strategy 2011-2014 for Corporate Social Responsibility” called on all EU Member States to develop their own national action plans for the implementation of the UN Guiding Principles.

The German Government followed the Commission’s call. In 2013, the following statement was included in the coalition agreement between the CDU (Christian Democratic Union) and the SPD (Social Democratic Party):

“We are working towards the consistent implementation of the National Action Plan for Human Rights and the Economy (NAP), which also includes public procurement. If an effective and comprehensive review of the NAP in 2020 finds that companies’ voluntary commitment is insufficient, we will introduce appropriate legislation at the national level and advocate an EU-wide regulation.” 

After a two-year consultation and drafting process, the Cabinet adopted the National Action Plan implementing the UN Guidelines on Business and Human Rights on 21 December 2016.

The National Action plan rests on four pillars: (1) Germany’s obligation to protect human rights; (2) the Government’s expectations vis à vis the private sector; (3) access to remedies and redress; (4) a monitoring process.

The fourth pillar, the monitoring process, is distinct from the companies’ reporting obligation and goes further than any other European NAPs did. ‘Monitoring’ entails a process in which, from 2018, a third party will review the effectiveness of the NAP by conducting three surveys. It was to provide an objective benchmark and timeframe, that is to serve as basis for the government to decide if it will take further steps towards mandatory regulation.

Nevertheless, NGOs have accused the Government of lacking true commitment. The main criticism of the NAP centers around the hope (or wishful thinking) that companies would implement human rights due diligence regulation voluntarily: the NAP does not include any possibility to impose fines or other sanctions. This is reflected in the NAP’s wording: It merely formulates certain expectations towards businesses. Corporate social responsibility, as envisaged by the NAP, relies on businesses to implement the following voluntary measures: (1) a declaration to respect human rights; (2) a procedure for identifying real and potential negative effects of corporate activity and human rights risks in supply chains; (3) measures to be taken to prevent negative effects and monitoring thereof; (4) reporting; (5)  a complaints mechanism. NGOs did welcome the clear language the Government used to formulate its expectations towards enterprises. However, on certain crucial points the actual content of the companies’ duties is left to their imagination. Examples include that companies should apply an “appropriate standard of care” when respecting human rights; the extent of duties depends on “size and position in supply and value chain” –  with no further details on what this means in practice for multinational groups or medium-sized companies. 

The policy statement is intended to make companies reflect on human rights issues their businesses face with reference to particular human rights frameworks. In the policy statement they should also include the internal processes they utilize to realize human rights due diligence. In order to fulfil this due diligence requirement itself, businesses need to identify risks generated directly by the enterprise itself, or any direct and indirect contractual relationship (e.g. in the case of numerous intermediary dealers). Once this analysis is completed, businesses ought to optimize their processes; proposed measures comprise specialist training, changes in supply chain and participation in sectoral initiatives. These are, however, limited to preventive measures only – identification, prevention and mitigation. There is no mention of any remediation or compensation for those affected. The NAP also includes some important caveats: Businesses must not suffer from a disproportionate bureaucratic burden; financial services between banks or insurance companies are out of its scope of application.

Furthermore, companies are not required to submit reports on their progress to the Government. They are merely required to keep information “at their disposal”. This is regrettable because gathering information could help to identify difficulties companies face when implementing due diligence into their global value and supply chains. Companies are advised to issue reports to demonstrate that they are aware of their human rights impact; and only companies that operate in particular high-risk sectors are advised to issue public reports.

Lastly, there is little to no guidance when it comes to the grievance mechanism companies should set up. The guidelines state that companies must have their own grievance procedures or participate in external (sectoral) procedures. The grievance mechanism should be fair, balanced, and predictable – but apart from the elimination of linguistic or technical barriers, there is no explanation of what such a system might look like. 

The German Institute for Human Rights criticizes that the Government’s NAP fails to capture the realities of global supply and value chains, and even ignores the hurdles individuals face when they try to enforce their rights before German courts. According to the Government, individuals affected enjoy access to the judicial system, remedies and redress. It only deemed necessary to issue a multilingual leaflet containing information on the German court system in order to help potential claimants to navigate the system.


Monitoring process and interim reports 

The monitoring process comprises three surveys, followed by three reports. In the first one, stakeholders were consulted to agree on a methodology and assessment criteria for the next two (substantive) surveys.  Just like the National Action Plan, the monitoring process turned out to be a disappointment. From the very beginning of the consultations, lobby groups tried to tailor the monitoring process according to their needs and it seems they succeeded in doing so. In an official letter, obtained by Initiative Lieferkettengesetz in the course of a freedom of information request, Peter Altmaier (Minister for Economic Affairs and Energy, CDU) thanked the International Chamber of Commerce for their input regarding the monitoring process, which, as explicitly stated in the letter, led to the questions and requirements being amended. Companies, which had failed to fill out the form or had left the survey incomplete, were taken out of the statistic. EY, the auditing firm that had been instructed to conduct the survey, first intended to categorize these companies as “non-compliant” with the due diligence standards set out by the NAP. The Ministry for Economic Affairs and Energy assured lobby groups (particularly the Federation of German Industries) that the changes to the monitoring process they had demanded were included, and praised the compromise reached.

The methodology and assessment criteria can therefore be described as business-friendly, to say the least. NGOs were very outspoken against the survey methodology adopted by EY. In particular, they criticized the fact that companies that have not yet implemented the guidelines as set out in the NAP are still considered “companies with implementation plan” and even “companies on the right track”. The survey did not consider “non-responders”.

The first quantitative survey was completed on 31 October 2019. In February 2020, its findings were published in the second interim report. Only 465 of 7,285 companies with over 500 employees took part in the survey and only 17-19% of responders had implemented the NAP requirements. Companies performed the worst in assessing potential or existing risks to human rights in their supply chain and in adopting measures to prevent those. When looking at these numbers, it must be borne in mind that business lobby groups were actively involved in drawing up the framework of the survey. Because non-responders were excluded, it is even more disappointing that the numbers stem from companies that arguably are already receptive to the benefits of human rights due diligence. 

After the damning report had been published, business associations suddenly showed strong sentiment against the surveys that previously had been labelled a good “compromise”. They criticized, with the support of government officials from the Ministry of Economic Affairs, the very monitoring process that they had been closely involved in setting up. And pointed out that even though the “comply-or-explain-mechanism” allowed companies to deviate from the requirements set out in the NAP, it still counted them as “compliant” only if they were able to prove the implementation of an equivalent measure. This meant, according to business associations, that there was no margin of error for companies that were not yet fully compliant with the NAP but had taken substantive steps to align their business practices with the government’s guidelines, which were not considered of equivalent nature.

On 2 March 2020, the second and final phase of the quantitative survey began. The final report was presented to the public on 5 October 2020. Even fewer companies responded and roughly 13-17% implemented the NAP requirements. The coalition agreement envisaged the drafting of the Lieferkettengesetz to begin after the final report had been published. The fact that companies are so far below the 50% threshold set out in the coalition agreement shows that human rights due diligence is not in itself a priority for German companies; binding legislation seems needed for them to take it seriously.

Business lobby groups are now playing for time. They first argued that the whole survey period until the end of 2020 must be exhausted; as a precise picture of the situation can only be drawn if companies that plan to implement human rights due diligence towards the end of the year are included. However, in light of the fact that not even 20% of the respondents to the survey have so far implemented the NAP guidelines, it is highly doubtful that we would reach the 50% threshold by the end of the year. The Corona pandemic provided lobby groups with another excuse as businesses pleaded with politicians not to burden them with additional costly regulatory obligations. Actually, it is likely that businesses would oppose any form of binding regulation, irrespective of the outcome of the monitoring process. From the beginning they spoke out strongly against any type of Lieferkettengesetz.



In December 2015, Michael Addo, member of the UN Working Group on Business and Human Rights, when participating in the last NAP plenary session at the Federal Ministry for Development and International Cooperation, emphasized that the international spotlight was on Germany and its NAP. Its European and international partners were scrutinizing the drafting and implementation process – and rightly so. Germany could have taken the lead with an ambitious NAP, providing mandatory measures to impose human rights due diligence to its companies, but it did not. Germany’s NAP joins the ranks of other European NAPs that have been proven to be of limited impact. As of now, 23 countries have adopted a National Action Plan. All of them rely primarily on voluntary commitments. The companies’ responsibilities are not formulated as “obligations” but as mere moral responsibilities, derived from social expectations. None of them include specific guidelines, concrete enforcement measures or objective parameters to monitor corporate activity.  Even Germany’s independent monitoring process was not able to drive German businesses to implement human rights due diligence throughout their operations and supply chains.

It seems that absent some form of binding legislation, there is no way for effective progress in the realm of business and human rights. That is why civil society (76% of the German public) is putting pressure on Germany’s political class to stop waiting (like Godot) for companies to voluntarily comply with the UN Guiding Principles. Even some companies and investors signed a collective statement in support of binding due diligence legislation. Hence, some form of Lieferkettengesetz will have to be adopted – the only remaining (crucial) questions (for my next blog) are when will it occur and what will it look like.

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