News

• 17 May, 2024
• Posted by: EuroCham Cambodia

We recently had the pleasure of interviewing Mr. Reinhard Junker, Acting Head of Unit Transformation of Sustainable Supply Chains at the Federal Ministry for Economic Cooperation and Development (BMZ). Mr. Junker is based in Germany and traveled to Cambodia to discuss the implications of the Corporate Sustainability Due Diligence Directive with Cambodian stakeholders.

EuroCham: It’s a pleasure to have you visiting Phnom Penh so soon after the CSDDD was passed. How are you finding Cambodia?

Mr. Junker: It’s very dynamic. You see it right from the beginning when you get here to Phnom Penh, a very dynamic city. Everywhere you see skyscrapers under construction. So very, very exciting to be here and to see how Phnom Penh and Cambodia is developing. Everybody I'm talking to says 10 or 15 years ago, Phnom Penh was a sleepy city, and now it's changing so much.

Yesterday I was at the National Museum of Cambodia. It was very interesting, for me it's very important to go to such places to better understand the culture, the tradition, the history of the country that I'm visiting. I learned that Angkor Wat used to be the biggest city in the world at that time, that's impressive. The second thing that I learned is that Cambodia holds the Guinness World Record for producing the longest handwoven scarf in the world. That’s impressive, too.

EuroCham: What was your role in the creation of the German Supply Chain Act that preceded the CSDD?

I started to work on this issue four years ago, that was when we drafted the cornerstones for this act that should one day become the so-called “Lieferkettensorgfaltspflichtengesetz”.

At the time, I didn't know much about due diligence, along with many others. I had to do my research on the internet. What is due diligence in the context of human rights protection? So I started from zero. And now look where we are today. What a journey!

From the beginning, a big part of my job has been ensuring communication channels are open. I’m constantly explaining what is this all about, explaining to business associations, companies, governments and rights holders what the implications are and: “What’s in it for you!?”

I also took part in the negotiations. First, on the German level, we negotiated the Lieferkettensorgfaltspflichtengesetz. It’s important to note that the initiative to set up this legislative process came from my ministry, the Ministry for Development Corporation. We did so because for us, this legislation was really a systematic lever to improve the working conditions at the beginning of supply chains in our partner countries.

I think it's important to stress this, because there are lots of misunderstandings in our partner countries that we may introduce such legislation to exclude suppliers from our supply chain or to gain competitive advantages for our companies by setting the social standards so high.

But that's not true at all. We are coming from a development perspective, and the basic idea was to support workers and farmers at the beginning of our supply chains so that we get to a more just global exchange of goods and commerce.

The challenge in this legislative process was to achieve the right equilibrium between efficiency on the ground for the workers and the farmers on the one hand and making it manageable for our companies on the other.

And I think in the end, we did well. We reached a fair compromise between efficiency on the ground and manageability in our headquarters at German companies.

EuroCham: Has it been effective or is it still too early to tell?

Reinhard: It is still too early even one year after it came into effect. The gears are starting to turn now, however. First of all, the companies have to organize at their headquarters, and I think sooner or later it will trickle down the supply chain to tier one, two, and three. But we're only at the beginning. What we see is our companies are reacting and they’re recruiting new personnel. They do their general risk analysis and try to understand their supply chains, first.

EuroCham: How do the high-level ministries cooperate with the business sector in Germany?

Mr. Junker: We do already have a well-organized helpdesk for business and human rights in Germany that was installed five years ago, long before we had the legislation. The helpdesk was created to assist companies who were already working on due diligence on a voluntary basis. And then when the legislation came into force, we already had this support structure in place which was able to inform and advise when it came to the implementation of the German Lieferkettensorgfaltspflichtengesetz.

So that is our main structure to cooperate with companies, but we also try to cooperate more and more with the business associations. For a long time, they have been in opposition. Only now, and I think it's becoming even more true when EU legislation is really settled, that they move from opposition to become a service provider for their adherence.

Now we strive to have a fruitful exchange with them and we also try to do capacity building in those business associations via our national helpdesk, working on online formats for instructions, webinars, so that they can also play a role when it comes to the transmission of all the information and guidance that we have.

Besides of course, we have also our national authority, the BAFA, that is supposed to supervise the implementation and provides information and helps guide the capacity building in our company's headquarters.

EuroCham: What was the process for getting the CSDDD approved like?

Mr. Junker: We as Federal Government also pushed the European process right from the beginning under the 2020 German EU presidency when we drafted council conclusions where the member states asked the EU Commission to set up a comprehensive legislative proposal.

We were working on a two-track approach: we're doing national legislation but in parallel we were also pushing for European legislation. In the end, both processes were supposed to come together again, and this is what is going to happen now.

We've got the Lieferkettensorgfaltspflichtengesetz that's already in place. We want the regulations to be implemented by member states and of course, we will adapt our national legislation to those requirements from the EU level. In the end we will have only one national law – as all other EU Member States, too.

For us, it was important right from the beginning to also have this European approach because we didn't want our German companies to have a competitive disadvantage in meeting the additional requirements compared to other European companies.

We wanted to have a level playing field on the EU level - that was the business perspective. From the development perspective, it was also important to have a European approach because the lever is much bigger when all big European companies ask for the same requirements.

It's very important to understand that in the first place, we are only setting requirements for a certain management procedure of our companies. It's only about management, a management system that has been already endorsed on the international level in 2011, when we adopted the UN Guiding Principles.

And second, we do not set any new social standards or environmental standards. We are not copying our German social law book and make it binding for all companies outside Germany. We are only referring to international standards that have already been in place for a long, long time. I think the Cambodian government has also ratified all the ILO conventions, UN pacts, and all the other international frameworks we’re referring to.

EuroCham: What are the differences between the CSDDD and the German Supply Chain Act?

Mr. Junker: The differences are basically in the scope. The scope of the EU legislation in the end has been raised to only very big companies. It will lower down after a few years.

The second main difference is that with EU legislation we will introduce civil liability. But this is only a question of what happens if someone does not comply with the requirements. The basic requirements are the same because both legal frameworks refer to the same international standards and conventions, especially the UN Guiding Principles and the ILO conventions.

EuroCham: What would you say to detractors of the acts?

Mr. Junker: I would say: Working on the implementation of due diligence is not a cost, it's an investment! And I would say: You will get a return on investment in the long-term. Because if you do well, then you have a competitive advantage.

It’s very important to understand: In the future, not only will pricing be decisive, but also due diligence management. Because our companies and the European ones, they will look for business partners where they can be sure that there are no risks in the supply chain, so that they do not run the risk in Europe to be punished and sanctioned, be it through fees or civil liability.

If Cambodian companies can present a package of good pricing and reliable due diligence management, then we have a winner in this new game. I understood from the first meetings that I already had here on the ground that Cambodia altogether is rather well-positioned in terms of implementing social standards compared to other competitors. So, this can become really a competitive advantage for the whole Cambodian industry, especially the textile sector that is already very much advanced. 

EuroCham: Are you concerned that currently the CSDDD only covers large companies?

Mr. Junker: Even if the threshold of the scope has been raised quite a lot, it doesn't mean that smaller companies won't be affected at all. Many smaller companies who may have only 250 or 500 employees, are often also in the supply chain of the bigger ones. So they will have to deal with those due diligence requirements anyway.

From this point of view, it would be smarter for those companies to set up their proper due diligence system, because then it would be much easier for them to deal with the big companies who will try to push down the obligations by contractor relationships to the smaller ones.

EuroCham: The CSDDD barely made it across the finish line. Why was it so difficult to pass?

Mr. Junker: There’s already a lot of bureaucracy in Europe – and even more new regulations and requirements for companies are being adopted.

We needed to make sure that our companies do not get overburdened and lose competitiveness in the international market. And I think that's fair, it's understandable. This is why not only when it comes to due diligence regulation but also other Green Deal regulations, we need to find, let's say, a well-balanced legislation.

And this has been part of the negotiation process the whole time. It’s very elementary that we respect human rights everywhere in the world. But it needs to be done in a digestible way for our companies.

And this is also why we are discussing in Germany how we can relieve our companies in terms of reporting, for example.

But that is not the essence or the spirit of the law. It is really to work with your suppliers to make sure that risks don’t materialize in the supply chains. And I like to call this legislation, when you implement it correctly, a B-2-B development program. Our companies have to help their suppliers by being more flexible than prices, by working together.

EuroCham: What would you recommend to companies as a first step to compliance?

Mr. Junker: I would say: Go to the Responsible Business Helpdesk at EuroCham first, get some general orientation. As a second step, the RBH can also refer to providers for individual advice, because then of course you have to apply those general recommendations to your individual case.

But my second piece of advice would be: Do your job and then advertise it. Take advantage of your good performance in terms of due diligence and use it for acquisition. It may also be an asset in negotiations with buyers when discussing new orders.