Of morals and money Berlin tells German firms to clean up their supply chains — or else

The German government has instructed companies to address human rights and working conditions at their suppliers from abroad – or face legislation that forces them to do so.
Quelle: dpa
Tailormade to meet Germany's demands.

What Blackrock’s CEO Larry Fink can do, German ministers can do too — maybe even better.

The asset manager spends his days trying to persuade firms to consider long-term developments and social issues, such as climate change and diversity, in annual letters to executives. Now, five of Angela Merkel’s ministers are doing the same. They are writing to 7,000 companies in Germany, instructing them to protect human rights and the safety of workers throughout their supply chains.

The five ministers, including Finance Minister Olaf Scholz and Merkel’s confidante Peter Altmaier, have threatened to draft legislation if executives don’t comply — a power Larry Fink can only dream of.

“We want a commitment to human rights to be anchored in the principles and the practices of corporate management at all German companies,” the ministers wrote in the letter, which Handelsblatt has seen.

They called on companies to monitor their internal measures to honor human rights and to report back. Those reports will determine whether legislation is necessary, they wrote, adding that it was in the companies’ commercial interests to comply. After all, “a high degree of human rights credibility by German companies doesn’t just help the ‘Made in Germany’ brand but also boosts public confidence in open markets,” the ministers wrote.

Foreign Minister Heiko Maas, one of the authors, told Handelsblatt: “We want globalization that is fair and sustainable." A central part of that is companies active abroad respecting human rights, he said.

The government initiative may be admirable but it comes at a time of growing discontent among Germans about globalization. In elections this and last year, Merkel’s conservatives and their coalition partners, the Social Democrats, lost votes to the Alternative for Germany, an anti-immigrant, nationalist party critical of open borders and global trade. Two years ago, when Europe and the US were discussing a trans-Atlantic trade deal known as TTIP, only one in five Germans believed this was a good idea. Critics of the deal thought lower standards in other countries, be it in the form of lower pay or less environmental protection, result in worse products for German consumers or job losses at home.

Irrespective of political considerations at home, human rights and working conditions abroad have repercussions for German companies. Disastrous accidents in Asian factories run by local suppliers caused widespread criticism of Western companies for their lack of oversight. A fire that swept through a textile factory in Karachi, Pakistan, in 2012 killed more than 250 people. The plant supplied German discount clothing retailer Kik, and a court in Dortmund last week began hearing a case on whether KiK should be held responsible for working conditions at the supplier.

KiK, which operates 3,500 outlets in Europe, is in favor of human-rights legislation, not least to protect companies from being held liable in future. A law should clarify “what responsibility companies have for their suppliers and how companies should prove that they have lived up to their duty of care,” said Ansgar Lohmann, who heads corporate social responsibility at KiK. It was important that rules were coordinated at the European level to create a level playing field, he added.

Even if Berlin drafts a new law, it could take years before rules are agreed at the European level. The EU cannot match Larry Fink’s pressure as a shareholder, unfortunately.

Moritz Koch is a political correspondent, based in Berlin. To contact the author: koch@handelsblatt.com

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