Newsroom / News / Media / Info Magazine LGP NEWS 02/2021 / Supply chain legislation is on the way in Austria

Supply chain legislation is on the way in Austria

Supply chain legislation is on the way in Austria

Several initiatives in Austria are calling for supply chain legislation based on the German model, to ensure that companies supplying Euro- pean firms comply with human rights regulations and environmental standards. LGP’s Managing Partner Julia Andras spoke about this with Petra Bayr, the spokesperson for global development of the Austrian Social Democratic Party. 

Julia Andras: Why do we need supply chain legislation? What are the issues that people hope it will eliminate, or at least minimise? 

Petra Bayr: The Supply Chain Act would oblige companies that sell goods in Austria, anything from food to furniture, cars, clothing to smartphones and many others, to carry out regular checks along their supply chains to determine where there might be risks with regard to human, labour and environmental rights. A federal law, which is yet to be formulated, is intended to impose a higher standard of obligation on them in this regard. 

The local and regional impact of our production methods, along the entire production chain, are devastating: they destroy ecosystems and, by extension, local people’s livelihoods, to say nothing of plants and animals. Cutting down rainforests, prospecting for rare-earth metals, fracking for oil and gas, overfishing the oceans, pumping out groundwater and destroying soil through endless monoculture are just a few examples. Toxins enter the groundwater, the rivers and, ultimately, the sea, the air is polluted and primeval forests are cut down to gain more land that can be used for agriculture. Last but not least, CO2 emissions are increasing around the globe. This poses a serious risk to the health of the local population, who can sometimes no longer grow food to satisfy their own needs. The local, indigenous population is evicted from their land. 

Sometimes this displacement even takes place through brute force, persecution and ruthless land-grabbing. The workers themselves suffer from exploitation and miserable living conditions, a lack of safety precautions and wages that are miserably low. Slave labour and child labour are still widespread in some parts. In many countries, people are still forbidden or prevented by the companies from coming together to form a trade union or a works council, to stand-up against these situations. 

Could you please briefly explain your motion for a resolution? What are your primary demands? 

Bayr: The motion calls on the government to submit a legislative proposal for a Supply Chain Act and sets out the standards for it. These include due diligence obligations and due diligence verification obligations that are to apply to all companies that market products or offer services in Austria and reach a minimum turnover that is yet to be defined. All the internationally recognised human and labour rights, as well as environmental and climate standards, are to be observed. The steps are to be carried out annually and before any new international economic activity is commenced. These include a risk analysis, follow-up measures on the part of the company and an effectiveness review to ensure that the measures are successful. 

In addition, local farmers and independent interest groups, or human rights and environmental protection organisations, must be involved in the process so that they can contribute their perspectives. Furthermore, an early warning system should be set up, so workers and other affected individuals and organisations can anonymously report damage to the environment, climate and people directly. Any reports received must be included by the company in its risk analysis, follow-up measures and effectiveness reviews and they must be published in the annual report, too. Companies must set out how they will deal with violations or complaints in advance. 

What do you say to members of the business community who are critical of your proposed legislation? 

Bayr: Nobody wants to arbitrarily put obstacles in the way of companies. There will be an additional organisational and financial outlay, but the costs of human rights violations and environmental destruction are far higher. In addition, it will even out the inequalities in relation to companies that already operate sustainably. In any case, any price increases would be limited. It costs companies a maximum of 0.6 percent of their turnover to keep their supply chains free from human rights violations, as a study by the Handelsblatt Research Institute has demonstrated.

The German Supply Chain Act Initiative calculates that, of the average price of a chocolate bar (0.89 euros), between four and five cents currently go to cocoa farmers. If the price were raised so cocoa farmers made a living wage, a chocolate bar would be about five cents more expensive for consumers. 

It is obvious that voluntary commitments are not enough. What steps do you want to take to ensure that companies take on the additional costs of a sustainable production chain and supply chain? 

Bayr: Companies should not only be liable for damages that occur through their own entrepreneurial activities: they should also be liable for damages that occur along their entire supply chain. This concerns subsidiaries, subcontractors and suppliers – provided there is a direct connection to the products, services or activities offered by the company in question. 

There should be criminal law consequences for violations of the due diligence verification obligation, irrespective of violations of the due diligence obligation itself, ranging from fines to exclusion from public procurement processes. Individual victims of human rights violations and environmental damage should be able to pursue cases under civil law and seek appropriate remedy: to this end, they should be enabled to access the Austrian courts. 

How should national developments be assessed, compared to other countries? Are the regulations in other countries stricter or more relaxed, and what influence could this have on Austria? 

Bayr: At the national level, Austrian laws are not developed by means of resolutions, unlike in Germany. A bill by Alois Stöger and myself, which is to ban child labour and slave labour in the textile, clothing and leather sector, has been assigned to the National Council’s Social Committee. 

At the international level, the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises have laid the groundwork for the introduction of supply chain legislation. However, the Guiding Principles and Guidelines are, unfortunately, completely non-binding. At EU level, the development of a proposal for legislation to this end has been announced for winter 2021, in the form of a directive. 

In Germany, a Supply Chain Act has now been launched and, from 2023, will oblige large companies to prevent harm being done to people and the environment along their supply chain by taking precautionary measures, at least with their direct suppliers and, if necessary, with indirect suppliers, too. 

Violations can result in fines of up to two percent of a group’s global annual turnover and exclusion from public contracts. 

At EU level, Commissioner Reynders has announced that a supply chain law is in the works. What do you think about this? 

Bayr: The EU Commission did not present a draft for a European supply chain law in June 2021 as planned: it will only be unveiled in winter 2021. In any case, I am very pleased the EU Parliament vote in March 2021 marked a key step towards an effective European supply chain law. A remarkable number, 504 out of 695 EU Parliamentarians, have laid foundations that mean the EU Commission has to take action. 

The broad consultation process in the winter has also shown how much interest there is in this topic among the general populace: consumers simply do not want child labour and slave labour to be involved in the products they buy, nor do they want environmental pollution. However, it is not reasonable for consumers to research every single product to see if it is ‘clean’. 

Your proposal for supply chain legislation will give people affected by these issues the opportunity to launch proceedings to uphold their rights in Austrian courts. But how can it be ensured that farm workers
in Ethiopia will know their rights and legal remedies at all, on the
one hand, and can exercise their rights here in Austria on the other? What steps need to be taken and who should feel responsible? 

Bayr: As far as the issue of the difficulties for those affected to launch proceedings to uphold their rights before Austrian courts goes, we have already made provisions in our motion to guarantee access to Austrian courts. The Austrian state must provide procedural assistance in the form of financial support for those affected who wish to appeal. This support includes, among other things, legal costs, costs for the provision of evidence, expenses necessary for travel to and from Austria as well as stays in Austria, and fees for (legal) expert opinions and interpreters. 

As far as informing those affected about their rights and legal remedies goes, on the one hand, companies are called upon to get involved here: it is up to them to inform everyone involved about the prospect of civil action, what support is available and where and how this can be done. On the other hand, we will have to work with other organisations that are already doing valuable education and awareness-raising work in other countries. And ultimately, it is also the responsibility of the state to support these companies and organisations. 

The supply chain legislation is intended to apply to companies with a minimum annual turnover that is yet to be defined. 

What scale do you have in mind and why? 

Bayr: From my point of view, this connects to section 221 (1) of the Austrian Commercial Code. Companies that meet two of the three criteria listed there are considered small corporations and should fall under this regulation. These criteria are having a balance sheet total of 5 million euros, a turnover of 10 million euros in the twelve months before the balance sheet date, or an annual average of 50 employees. 

What would you expect or request from the government, companies and the population, too, in terms of addressing issues along the supply chain? 

Bayr: I want companies to take an interest and assume responsibility, and to stop telling us the fairy tale of the oh-so-great ‘voluntary commitment’ – which means nothing at all, and has nothing of substance behind it, either. I want the government to not pass blame to other countries or supranational organisations and I want it to stop placing responsibility for ethical consumption on consumers, who are hopelessly overburdened with it. 

I want people in general to articulate their broadly supported desire for products and services without human rights violations and to put pressure on the government to finally act and set out clear legal requirements for companies in terms of how they are to fulfil their corporate responsibility along the entire supply chain. 


Dr. Julia Andras, Attorney-at-Law and Managing Partner at LANSKY, GANZGER + partner
Petra Mayr, MA MLS, Member of the National Council and SPÖ Spokesperson for Global Development

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