German Supply Chain Act yet to impact Sri Lanka’s apparel and tea industries: Policy paper

•  While act aims to enhance ethical standards, paper states that it has not yet led to measurable improvements within Sri Lanka’s tea and apparel industries
•  Policy paper advises both industries to address these risks, as act establishes reporting channels for ethical compliance among indirect suppliers
•  Report recommends tightening compliance requirements for indirect suppliers and introducing economic incentives for adherence among others

Sri Lanka’s apparel and tea industries have not yet seen shifts in demand or pricing, following the enactment of Germany’s Supply Chain Act, despite their strong ethical reputations, a policy paper released by the Friedrich Naumann Foundation highlighted.
The act, which came into effect in 2023, mandates large German companies and their direct and indirect suppliers to comply with human rights and environmental sustainability standards. From 2024, the law applies to all Germany companies with more than 1,000 employees.
“This is conspicuous, given that theoretically, a law of this nature should benefit the industries of high ethical repute such as the tea and apparel industries of Sri Lanka,” the paper noted. 
The limited impact so far was attributed to the industries’ unique characteristics and brief period since the act’s enforcement, which has not allowed the German companies sufficient time to adjust their sourcing patterns.
Despite this, some Sri Lankan apparel companies required to comply have accepted the costs of audits, due to the importance of the German market for their businesses.
While the act aims to enhance ethical standards, the paper stated that it has not yet led to measurable improvements within Sri Lanka’s tea and apparel industries. The report warned that certain vulnerabilities exist in the informal segments of these industries’ supply chains, including concerns about child labour, ethical sourcing and labour rights.
The policy paper advised both industries to address these risks, as the act establishes reporting channels for ethical compliance among indirect suppliers. Failure to do so could pose challenges in the future.
To enhance the effectiveness of the act, the report recommended tightening compliance requirements for indirect suppliers, introducing economic incentives for adherence, raising awareness among vulnerable communities about the law’s protections and streamlining the overlapping compliance demands from private organisations and governments.