Why financial experts reject a supply chain law - background and effects

Why financial experts reject a supply chain law - background and effects

According to a report by www.n-tv.de, EU states and the European Parliament have agreed on a supply chain law that aims to punish child labor, exploitation and environmental pollution by companies. While environmental and human rights organizations welcome the law, German economists express concerns about the impact on the international competitiveness of European companies. According to Tanja Gönner, managing director of the Federation of German Industries (BDI), the law threatens companies due to high requirements and legal uncertainty. Critics also complain that suppliers in many developing and emerging countries are not prepared for the requirements from Europe and that the law represents a major bureaucratic burden for companies.

The EU has decided that companies of a certain size are obliged under the Supply Chain Act to identify negative impacts of their activities on human rights and the environment and to counteract possible consequences. They also have to monitor compliance with environmental and social standards at their partner companies in the value chain. In the event of violations, companies face penalties of up to five percent of their global sales. Interestingly, the law does not initially apply to the financial sector, which some critics see as a missed opportunity to also make the financial sector responsible.

The impact of the Supply Chain Act could be significant. The bureaucratic burdens and potential penalties could lead to European companies not further diversifying their supply chains and withdrawing from third countries. This could affect the international competitiveness of these companies and free up Chinese companies in this area. In addition, the temporary exemption of the financial sector could lead to investments and loans continuing to contribute to human rights violations and environmental damage, which has been criticized by some organizations.

Overall, the supply chain law is a controversial topic that generates both supporters and critics. The final approval of the European Parliament and the Member States is still pending, but the potential impact on the market and the financial sector is already the subject of intensive discussions. It remains to be seen how the situation develops and what adjustments may be made to address critics' concerns.