Germany's parliament on Friday passed a supply chain act, paving the way for stricter regulation that will force large companies to pay fines of up to 2% of their annual global turnover if they violate the rules.
Under the act, companies in Germany above a certain size must establish due diligence procedures that prevent human rights and environmental abuses within their global supply chains and take action if they find violations at their foreign suppliers.
From 2023, only companies with more than 3,000 employees in Germany will be affected. From 2024, this expands to companies with more than 1,000 employees.
This means that in the first stage more than 900 companies would be affected, and in the second stage around 4,800.
According to the law, a fine of up to 2% of worldwide turnover would be possible in certain cases.
The bill enables the government to temporarily exclude from public tenders companies which received fines of €175,000 or more based on the new law.
Industry lobby groups and wholesale businesses have said the new law increases bureaucracy and have warned that it might result in rising prices.
"Incalculable risks arise for companies," said Joachim Lang, general manager at the Federation of German Industry.
Non-government organisation Oxfam was critical that companies would only have to take care of their immediate suppliers and that there was no possibility for forced labourers to file for damages in German courts.