The first complaint under the recently enforced German Supply Chain Act (LkSG) has landed. The way the oversight body responds to the claim could be a good indicator of things to come.
On 24 April, the National Garment Workers Federation (NGWF), the largest trade union federation in the garment sector in Bangladesh, accused the clothing manufacturer Tom Tailor, the global distributor Amazon, and the multinational furniture company Ikea of not meeting their obligations to carry out Human Rights due diligence. What the LkSG oversight body, the Federal Office of Economics and Export Control (BAFA), decides to do next will set the tone for what companies can expect to see going forward.
Following a series of apparently unsuccessful communication attempts, independent research into allegations, and an open letter to the three companies (as well as German retailer Deichmann), the NGWF - with support from the European Centre for Constitutional and Human Rights (ECCHR) and NGO FEMNET - decided to file the complaint alleging well-known problems including poor health and safety conditions, lack of freedom of association, and lack of monitoring. These companies are also accused of refusing to join the International Accord for Health and Safety in the Textile and Garment Industry.
While the complaint is not a legal claim, BAFA will need to assess whether it investigates the matter. In theory, this will mean determining the extent to which the companies have conducted their human rights and environmental due diligence as prescribed by the law, particularly around impacts on working conditions and labour rights. What BAFA decides to look at will be key: will it be mitigation actions taken to address the specific allegations in the complaint? Or will it look for a front-end risk mapping and due diligence process? Or both?
The risk of setting low or loose expectations is increased by the ‘best efforts’ approach underpinning the Act. If BAFA focusses on reviewing only the companies’ processes ‘on paper’, taking a checklist-style review (rather than assessing the implementation of those processes), then it could end up giving significant discretion and wiggle room to companies, and undermine companies’ accountability for impact.
If you consider this alongside the scale and level of resources BAFA will need to monitor companies in scope (which is set to increase in 2024), the agency will face a significant challenge to set a high standard. BAFA will need to strike a careful balance between substance and pragmatism.
In the meantime, BAFA seems to be moving at an encouraging pace. After a few months of silence since January 2023 when the Act came into force, BAFA has now reached out to 78 companies from the textile, electronics, and food sectors to enquire about their practices with regards to two questions: whether these companies have appointed a human rights officer (or equivalent) and whether they have a complaints procedure in place. According to the manufactured good association VFI, moreover, BAFA requested from numerous companies from the clothing sector to disclose their progress in implementing the LkSG before mid-April 2023. Although in-scope companies do not have to submit their obligatory progress reports until June 2024, it is likely that BAFA will continue to monitor companies’ progress throughout the year to make sure that they meet their milestones. After all, many eyes are watching whether the strict German supply chain law will succeed in setting a new global compliance standard in its first year.
The NGWF complaint could also have a potentially very interesting ramification in the longer term. BAFA is unlikely to recommend that the companies subject to the complaint sign up to the International Accord. However, sector and industry distinctions are important and in future BAFA could recommend the adoption of sector specific multi-stakeholder or industry initiatives as a standard for demonstrating accurate and relevant due diligence. There are already plenty of industry-specific initiatives aimed at addressing complex human rights issues including the Solar Stewardship Initiative, the Shifting Gears Initiative, or the Global Network Initiative, to name only a few.
In any event, companies hungry for practical guidance will be taking notes on the approach that BAFA takes to this complaint and to the inevitable other complaints that will follow.