Supply chains – how can they be made transparent and secure?

The corona pandemic is just as much of a wake-up call as the major disasters of 2012/2013 that occurred in production facilities in countries such Pakistan and Bangladesh. The interrelationships in global supply chains are once again attracting increased attention. This is particularly true for the safety and health of workers in countries where goods are manufactured. The call for a supply chain law is growing louder; the first cornerstones are in place, but critics question the point of such an initiative and would rather have more support to continue with existing regulations. One thing is certain—the security and transparency of supply chains will play a key role during the German EU Presidency.

For Federal Minister of Labour Hubertus Heil and Federal Minister for Economic Cooperation and Development Gerd Müller, a uniform regulation in Europe as regards the framework conditions for global business is one of the important goals for the recently commenced German Presidency of the EU Council. The two ministers made this announcement at a recent press conference, reiterating views they had already expressed at the 5th Forum for the Future on ‘Making globalisation fair’ in 2019. The aim is to implement the basic standards which the Member States of the United Nations, as well as companies, are expected to comply with—including the core labour standards of the International Labour Organization (ILO). These are based on four fundamental principles: freedom of association and the right to collective bargaining; the elimination of forced labour; the abolition of child labour; and the elimination of discrimination in respect of employment and occupation. In order to implement these standards, the Federal Government has adopted a National Action Plan for Business and Human Rights (NAP).

‘Good Work Worldwide’ was also the focus of one of the events at the A+A Congress 2019, with delegations from manufacturing countries. Together with companies from Pakistan, Myanmar and Bangladesh, the International Labour Organization (ILO) and the International Social Security Association (ISSA) discussed strategies for fair global supply chains that reconcile economic, political and humanitarian needs. ‘The event was such a success because it created an understanding and trust in the views of the various stakeholders in an open and honest social dialogue’, said Dr Christian Bochmann, co-organiser from the Institute for Occupational Safety and Health of the German Social Accident Insurance (DGUV). Ultimately, everyone is working together towards ethical global supply chains, namely Vision Zero, a world without fatal and serious work accidents and occupational diseases.

In July 2020, the first results from the NAPs implementation were presented to the Federal Government’s Interministerial Committee on Business and Human Rights. 7,300 large German companies with more than 500 employees were assessed in two rounds of surveys in order to identify how they ensure human rights and minimum social standards in their value chains. However, according to the Federal Ministry of Labour and Social Affairs (BMAS), of the approximately 2,250 companies surveyed in the second round of surveys, only 455 companies reported valid answers. The result shows that significantly less than 50% of companies comply with their corporate due diligence obligations. In the first round of monitoring—after the sample had been extended and expanded twice—only 465 of the 3,300 companies contacted had completed the questionnaire. Of these, only around 18% met the requirements.

The second round of surveys has now confirmed these results. The BMAS said: ‘The group of companies that fulfilled the requirements has not changed significantly in size compared to the 2019 company survey. This means that the required compliance rate is clearly not being met’. Ministers Heil and Müller expressed their disappointment. Hubertus Heil: ‘The results of our survey show that a voluntary approach is not enough. We need a national law to ensure fair competition.

The Federal Government now intends to discuss and decide on possible follow-up measures during the current legislative period. There have also been extensive discussions concerning a supply chain law. For example, more than 200,000 people have already signed a petition set up by the Supply Chain Act Initiative. The initiative is calling on Chancellor Angela Merkel to create a legal framework that requires companies to respect human rights and environmental standards not only in Germany but also in other countries. The initiative is backed by numerous organisations such as Bread for the World, Greenpeace, Friends of the Earth Germany (BUND) and the German Trade Union Federation (DGB). They believe that companies are not fully meeting their responsibilities. In contrast, the leading pro-business associations are vehemently opposed to such a law. ‘Should a supply chain law be passed in Germany, local companies would be put at a disadvantage in international competition’, warned the BDA, BDI, DIHK and ZDH in a letter to CDU faction leader Ralph Brinkhaus, according to report by the Handelsblatt newspaper.

The aim of a supply chain law is to oblige German companies that have their products manufactured abroad to ensure good working conditions in these countries. The aim is to prevent child labour, guarantee a living wage and prevent environmental damage. The first key points of this due diligence legislation became known at the end of June 2020 (also through a report in the Handelsblatt). According to the article, the draft provides for a comprehensive duty of care and sanctions, but limits liability to intent and gross negligence if companies join and implement a government-recognised industry standard. Civil society organisations welcomed the work on the key points, but called for improvements, especially regarding the proposal for a limitation of liability.

However, it remains unclear whether the law as a whole is suitable to achieve the ambitious goals of the National Action Plan. According to a report in the Frankfurter Rundschau, Vice Union Faction Leader Hermann Gröhe is putting pressure on the government and believes he is backed up by an analysis of the Konrad Adenauer Foundation (see Basi interview). ‘The evaluation of the company surveys is currently being done. But I think that we need a supply chain law to strengthen due diligence obligations to protect human rights’, he told Redaktionsnetzwerk Deutschland. ‘We still have every chance of getting the law passed during this legislative period. So, it’s important that we don’t postpone it until the next coalition negotiations’, said the CDU politician, according to the report.

The topic of sustainability, in terms of safe and healthy working conditions and products that last as long as possible, has been an issue that has occupied Thomas Lange for more than ten years. He is CEO of the association GermanFashion and a member of the A+A Trade Fair advisory board. Many members of GermanFashion produce protective clothing and are long-standing A+A exhibitors. ‘Even before the disasters in Bangladesh and Pakistan, German cities and municipalities had taken the initiative to ask us for workwear that was produced under fair and decent conditions. This has always been about adhering to the core labour standards of the ILO’, said Lange.

However, according to Lange, the road to producing and selling protective clothing manufactured under these conditions is proving to be rocky and full of detours: ‘At first, local government authorities were unable to order such clothing because public procurement law required them to spend money thriftily. This changed when an EU directive allowed social working conditions during manufacture to be set as a criterion for buying textiles. And the introduction of a code of conduct that was supposed to specify sustainable shopping, did not come about several years ago. The Partnership for Sustainable Textiles was founded to achieve this. The Alliance has set itself the goal of improving conditions in global textile production—from raw material production to disposal of textiles. This is done through joint projects on site. Each member takes individual responsibility.

‘The market also wants this’, stressed Thomas Lange. ‘Companies in the workwear and occupational clothing sector are very vigilant about complying with ILO labour standards and are often members of the Alliance for Sustainable Textiles or the Fair Wear Foundation.’ Lange sees this commitment in many of his member companies – within the scope of their possibilities as family businesses. ‘We don’t have the large forms of commerce and retail, which place huge orders in countries like Vietnam, Cambodia or Pakistan. Our members are medium-sized clothing businesses that generally cultivate close, long-term relationships with their suppliers. Lange believes that this and the highest possible level of transparency within supply chains are a key to improving working conditions. In his opinion, initiatives such as the Fair Wear Foundation and the Business Social Compliance Initiative (BSCI) can make a difference. Members of the BSCI commit themselves to applying a certain code of conduct in their supply chains. Suppliers are reviewed by independent auditing organisations at least once every two years. Lange is critical of projects such as the Green Button (a government seal of approval for sustainable textiles): ‘This type of meta-seal restricts companies through too much bureaucracy and you have to ask yourself whether it fits in with branding’.

Lange is reluctant to comment on a supply chain law until a draft is available. The German Social Accident Insurance Institution for Trade and Logistics Industry (BGHW) has also released a statement on this issue. Thomas Lange wants to make sure that medium-sized companies are not adversely affected by a new law. Notwithstanding this, he doubts that a national regulation can be effective internationally. He is of the belief that it is more a question of strengthening existing initiatives and thinking about what the textile alliance can do even more. In Lange’s opinion, it is also a matter of better monitoring the implementation of ILO labour standards through audits. Lange is fully aware that this is a herculean task. ‘A major reason for this is the complex make-up of companies. It’s still quite easy to monitor tailoring, i.e. sewing clothing together. But where do the cotton and other fabrics come from? Where do the buttons come from? Where are the jeans washed and perforated?’ Lange says that the hoped-for transparency in the supply chain is well on its way; although, for traceability purposes, the number of upstream suppliers should remain manageable.

How to organise transparency in supply chains to achieve decent working conditions will be discussed by experts at the A+A Congress 2021. Save the date: 26-29 October 2021 in Düsseldorf