The new German Supply Chain Due Diligence Act (the “Act”) introduces compliance obligations to prevent human rights and certain environmental risks along the entire value chain, from exploiting raw materials until delivering the final product to end customers. The Act follows a global trend of requiring companies to monitor their compliance with human rights and environmental core values.

While only a fraction of the corporate entities in Germany is directly covered by the Act, the legislator intended to create a ripple effect along the supply chain by forcing large German-based companies to scrutinize risks in their business, and to oblige their direct suppliers worldwide to do the same. This means that Japanese subsidiaries of German companies as well as Japanese suppliers should expect requests from their German headquarters or business partners to adopt certain prevention measures in relation to the supplied goods or services. Despite coming into effect only in 2023/2024, the new rules create considerable reporting obligations that call for immediate attention.