Complying with Mandatory Human Rights Due Diligence Legislation Through Shared-Responsibility Contracting: The Example of Germany's Supply Chain Act (LkSG)

Abstract

Contracts are key instruments for companies to carry out human rights and environmental due diligence (HREDD). Policymakers know this and are now including express references to contracts in new and far-reaching mandatory HREDD laws, such as Germany’s new Act on Corporate Due Diligence in Supply Chains (LkSG) and the still-draft European Union legislation, the Corporate Sustainability Due Diligence Directive.

While contracts are critical components of HREDD, this Chapter explains why traditional, risk-shifting approaches to commercial contracting are not appropriate for this purpose. Specifically, rather than supporting buyer-supplier relationships that encourage open communication and cooperation between the parties to effectively prevent adverse human rights and environmental impacts, risk-shifting contracts incentivize suppliers to pretend to be in compliance to get the contract and then to conceal problems to keep the contract.

This Chapter argues that a new approach must be adopted to contractually operationalize the shared-responsibility principles enshrined in the United Nations Guiding Principles on Business and Human Rights and relevant guidance from the Organization for Economic Cooperation and Development. It explains why a shared-responsibility approach to contracting is needed to achieve both legal compliance and better human rights and environmental outcomes in supply chains.

In explaining the content of shared-responsibility or responsible contracting, this Chapter draws heavily on the Model Contract Clauses Version 2.0 (the MCCs 2.0), developed by the ABA Working Group to Draft Model Contract Clauses to Protect Human Rights in International Supply Chains. The MCCs 2.0 now serve as the basis for the European Model Clauses (EMCs) being developed by a European Working Group, as well as for the responsible contracting toolkit that is now being expanded and implemented by the Responsible Contracting Project (RCP).

Keywords: Human rights due diligence, HREDD, CS3D, compliance, LkSG, responsible contracting, shared responsibility