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The German Supply Chain Due Diligence Act – What should Finnish companies expect?

On 23 February 2022, the European Commission published its proposal for the Corporate Sustainability Due Diligence Directive to protect human rights and the environment in global supply chains. While the legislative process is still ongoing at the EU level, similar provisions already apply in Germany: On 1 January 2023, the Supply Chain Due Diligence Act came into effect.

The Act sets out human rights and environmental due diligence obligations that companies must observe in their own operations and in their supply chains. Violations of the Act are punishable by fines of up to 2% of the annual global turnover of the company and its group. Companies found to have violated the Act may also be excluded from public tenders.

Finnish companies doing business in Germany or with German customers may now wonder what the new German legislation means for them.

Relevance of the Act for Finnish companies acting as suppliers to German customers

Companies based in Finland will not be caught by the Act unless they maintain a subsidiary or branch office in Germany with more than 3,000 (or, as of 1 January 2024, 1,000) employees in Germany. However, the Act may still be relevant to Finnish companies even if they are not themselves subject to the Act. If they are a direct or indirect supplier to a German company that is subject to the Act, they will form part of the German company’s supply chain and the German company will have to take certain measures with respect to them in order ensure its own compliance with the Act.

Specifically, in order to meet its obligations under the Act, the German company will have to conduct a risk analysis to determine whether there is a risk that the Finnish company might violate any of the human rights or environmental standards that the Act seeks to protect, or whether there is a risk that such violations might occur further up the supply chain (i.e., at the Finnish company’s suppliers, or its suppliers’ suppliers, etc.). To carry out its risk analysis, it is likely that the German company will approach the Finnish company for information regarding the Finnish company’s operations and supply chain.

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Daniel Stein, Partner, Osborne Clarke
Daniel Stein advises companies on trade and competition law issues, primarily in the areas of distribution and agency. He has extensive experience in cross-border commercial transactions. His clients include numerous brand-name manufacturers, mostly from North America and Europe, whom he regularly assists in structuring and fine-tuning their European franchise or dealer networks
Dr. Timo Karsten, Partner, Osborne Clarke
Dr. Timo Karsten is an employment law specialist and advises on collective and individual employment law with a focus in the TMC, Financial Services Sector and on clients from the engineering industries. He is a member of Osborne Clarke’s Nordic Desk, which assists clients from Finland and Scandinavia and supports his clients with their business activities in Germany and in cross-border legal issues.

Daniel Stein, LL.M. (UNSW)
Partner | Commercial
+49 211 5108 4150
daniel.stein@osborneclarke.com

Dr. Timo Karsten
Partner | Employment
+49 211 5108 4114
timo.karsten@osborneclarke.com

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