German business wins concession on CSDDD

German business appears to have persuaded the government to replace the existing German Supply Chain Act (Gesetz über die unternehmerischen Sorgfaltspflichten in Lieferketten) that came into force on 1 January 2023 with the less onerous EU Corporate Sustainability Due Diligence Directive (CSDDD).

The CSDDD finally came into force 25 July after much political debate and wrangling, and stiff opposition from business groups across Europe that think the rules will put European businesses at a competitive disadvantage.

Germany led the political opposition to the CSDDD, which at one point in May seemed to be doomed. Some last-minute concessions. including a notable tightening of its remit to include fewer companies, however, enabled the directive to cross the line.

The next key question facing Europe’s risk and insurance managers is how will the directive actually be transposed into national law.

This was complicated in Germany because it already has its own supply chain due diligence act. German businesses feared that they may actually wind up being regulated twice and face a myriad of complex and inconsistent rules, leading to serious compliance and liability challenges.

NGOs have argued that the arrival of the CSDDD should not water down the responsibilities of German companies for the supply chains, in what remains Europe’s biggest exporting economy.

The CSDDD did have a wider scope of civil liability before the political horse-trading in April and May, through which it was watered down to only include companies with more than 5,000 employees.

Although firms with more than 1,000 employees and a total revenue of €450m per year will be held accountable after five years, the legislation would reduce the number of already obliged companies under the German law by up to two-thirds now, according to the NGO Initiative Lieferkettengesetz, reported Bloomberg this week.

The news agency said that the German cabinet formally approved measures of the government’s so-called growth initiative, which include details on the implementation of the CSDDD into German legislation.

According to the economy ministry, the European law will be implemented within this legislative period, and double reporting obligations will be prevented by suspending the original report duties foreseen by the German law. The reports for 2023 won’t be due until the end of 2025, said Bloomberg.

“The long-awaited agreement from the federal government is a positive signal. The law must now be passed in the Bundestag as soon as possible in order to give companies legal and planning certainty as quickly as possible,” said Tanja Gönner, managing director of the Federation of German Industries (BDI), said in a statement.

“The expansion of sustainability reporting presents companies with major challenges. The economy is burdened with €1.58bn annually. That is almost half of the relief effect of the Growth Opportunities Act that has just been passed,” added Gönner.

The BDI head said that an apparent decision has been made to ensure that double reporting for both the national act and CSDDD is avoided, reducing auditing requirements.

“In some places, politics now has to simplify quickly. The electronic reporting format should only be mandatory for the disclosure of management reports. The limitation of the audit obligation exclusively to auditors, as envisaged in the cabinet decision, is also a missed opportunity. By choosing between auditors and independent third parties, capacity bottlenecks and high costs for external audits could be avoided. It makes sense that double reporting obligations for companies should be waived, with a view to the Supply Chain Due Diligence Act,” added Gönner.

NGOs criticised the measures as a breach of EU law, reported Bloomberg. Under the CSDDD, there is a requirement that existing national standards should not be weakened by the law.

Experts agree that this is exactly what would happen should the German legislation be adapted as planned in the growth incentive, according to a statement from the NGO Germanwatch.

“The Federal Government is bowing to the business associations,” said Heike Drillisch of the NGO Initiative Lieferkettengesetz in a statement.