The German Federal Cabinet has passed a law on corporate due diligence obligations in supply chains. The proposed legislation will be sent to the German parliament next and is to be adopted there by the middle of the year. Daimler AG welcomes this initiative – but there are also some points of criticism. Three questions and answers regarding the company's position on the plans of the German government.
What is the position of Daimler AG regarding the proposed legislation?
Daimler's position is: The respect for human rights is a central aspect of our sustainable business strategy. We therefore welcome the progress made on the Supply Chain Act. Although the regulations are very ambitious, the proposed legislation has a sound approach overall. It is based on internationally recognized human rights and on international agreements. And it gives companies more legal certainty in an area that has so far only been partially regulated.
Supply chains are not "chains" but rather exceedingly complex networks: Daimler alone has over 60,000 direct suppliers - and many more sub-suppliers. For this reason we also consider the proposed risk-based gradual model to be sensible. The responsibility of the companies lies primarily in their own business area and with their direct suppliers. Companies must then take action in the deeper supply chain if there are concrete indications of human rights violations. Daimler AG already does that today. Even though we support the proposed legislation in principle, we consider some aspects to be critical, e.g. the planned fines of up to two percent of the average annual turnover. Instead of threats of sanctions, we consider concrete measures, which companies must take in the event of deficits, to be more expedient. In addition, certain wordings are still vague and leave room for interpretation. Terms such as, e.g. "fair standard of living" should be phrased precisely in order to create legal certainty. Furthermore, documentation and reporting requirements should not lead to unnecessary bureaucracy and should be harmonized with existing rules. On the one hand, this does not help the people on the ground, and on the other hand it puts a burden on the companies – and the implementation can pose substantial challenges for smaller companies in particular.
What would such a law mean for Daimler? How are human rights already monitored today?
It’s clear to us that we will meet the requirements of the law - and for many of the requirements, we are already doing so. We only want raw materials and other materials in our products that have been mined and produced without human rights violations. It is therefore our demand and goal that human rights are respected in all our Group companies and are also observed by our suppliers. Our business partners should meet the same social and governance standards by which we measure ourselves. And we are already well positioned in this respect: for example, with our Human Rights Respect System (HRRS). In accordance with the principle of using leverage before withdrawing we deliberately do not exclude countries of origin viewed as high-risk as sources of supply in general, but rely on the application of strong sustainability standards.
How exactly does the Human Rights Respect System work?
With the HRRS, we are already taking responsibility for human rights due diligence beyond our direct suppliers. It aims to identify and avoid systemic risks and potentially negative impacts of our business activities on respect for human rights at an early stage. Thus, it primarily serves to protect third parties. We apply it based on risk both in our own business units and at our suppliers. In a preliminary risk assessment, we identified raw materials and services, the processing or provision of which could be critical from a human rights perspective. For us, it is about increasing transparency in the supply chains in order to identify concrete risks and about appropriate measures that minimize the risk of human rights violations. This effort to increase transparency and knowledge of the supply chain is also explicitly included in the draft law.
Changes do not happen at the push of a button. We see human rights advocacy as a marathon, not a sprint - we want to achieve lasting change for people on the ground.