The German government reached a hard-fought compromise Friday on new legislation that would force companies to comply with social and environmental rules all along their global supply chains.

Labour Minister Hubertus Heil called the proposed law a "historic breakthrough" that would respect human rights and prevent exploitation.

He said it would protect those such as the "50 million children in forced labour worldwide, whether in textile factories in Bangladesh or gold mines in Burkina Faso."

The planned legislation is the result of months of discussion and compromises between the labour, development and economy ministries.

Chancellor Angela Merkel's coalition government is expected to formally approve the bill next month.

Heil said he hoped it would be adopted by parliament before September's general elections, allowing the law to come into force from 2023.

The so-called Lieferkettengesetz -- meaning "supply chain law" -- obliges companies to track workers' rights and environmental standards, not just in their own structures but also at their sub-contractors or suppliers at home and abroad.

Companies will have to verify possible standards violations in their supply chain and take corrective measures.

Though businesses will not be made systematically liable for any shortcomings, NGOs and trade unions will be able to bring lawsuits against German companies on behalf of foreign workers.

Germany's economy ministry will also establish a controlling body to carry out checks and impose fines if necessary.

- 'Most ambitious' -

Heil said the German legislation would be "the most ambitious" in the world and would hopefully "set a standard" for the rest of Europe.

It will at first apply only to companies with over 3,000 employees, before being rolled out to include those with 1,000 employees from 2024.

The development and labour ministries initially wanted the law to also target smaller companies, but backed down in the face of strong opposition from the economy ministry and industry voices.

A similar French law adopted in 2017 covers only companies with more than 5,000.

German environmental and human rights groups, who have long campaigned for the law, accused Merkel's government of "watering down" the initial proposal.

The platform Lieferkettengesetz.de, which collected over 200,000 signatures while petitioning for the law last year, said that Friday's announcement was an "important and overdue step" with "urgent room for improvement".

But industry lobbyists called for less stringent rules.

"The supply chain law puts the burden on the wrong people," said the Kiel Institute for World Economics.

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