In recent years, a series of laws have been passed in the European Union and Germany that focus on human rights and corporate supply chains: Since January 2023, the German Supply Chain Due Diligence Act (LkSG) has been in force. This obliges all German companies with more than 3,000 employees, and since 2024 also companies with more than 1,000 employees, to identify, minimize, and, if possible, exclude human rights and certain environment-related risks in their supply chains. Furthermore, in July 2024, the European Supply Chain Directive, the so-called Corporate Sustainability Due Diligence Directive (CSDDD), came into force, which must be transposed into national law within two years. For this purpose, the LkSG must be adapted. At the same time, companies will in the future be required to report on the fulfillment of their human rights and environmental due diligence obligations under the Corporate Sustainability Reporting Directive (CSRD).

To fulfill their due diligence obligations in global value chains, the question for companies thus comes into focus: How can we ensure that we meet the new requirements, are aware of human rights and environment-related risks or violations in our own business area and our supply chains, in order to derive prevention and remediation measures from them?

With our consulting services on supply chains and human rights, we support companies of various sizes and industries in the legally compliant implementation of the due diligence obligations formulated in the LkSG and the CSDDD. According to your company's capacities and risk disposition, we will create a customized consulting offer for you that is oriented towards legal requirements, includes all necessary measures, and enables reporting according to the CSRD.

Together with you, we conduct a Supply Chain Act risk analysis with reference to the specified appropriateness criteria, involving the relevant business units, and derive prevention and remediation measures from the analysis. This minimizes risks along the entire supply chain. To already account for the requirements of the CSDDD, we recommend considering the entire value chain and including both social and ecological aspects in the risk analysis.

Furthermore, we develop complaint mechanisms and support you in establishing steering committees to solidify the long-term implementation of the LkSG and to monitor the effectiveness of measures.

With our supply chain consulting, we guide you step-by-step through the implementation of the LkSG and the CSDDD. Our experts continuously monitor political developments in Germany and at the EU level. They know the details of the regulations, possess legal expertise, and have experience in purchasing processes and risk management.

We support companies with risk-based, appropriate, and effective approaches to implementing all due diligence obligations formulated in the LkSG and the CSDDD. We meet you where you are and integrate existing structures, policies, etc., within your company. We leverage our many years of expertise in developing processes and structures within the context of sustainability strategies and bring different departments together.

For which companies does the Supply Chain Act apply and when does the CSDDD apply?

The LkSG has applied since 2023 to companies with at least 3,000 employees in Germany, and since 2024 also to companies with at least 1,000 employees in Germany.

For the CSDDD, the following staggered application applies:

From 2027:

• For EU companies with more than 5,000 employees and more than 1.5 billion Euros net worldwide turnover.
• For third-country companies with more than 1.5 billion Euros net turnover in the EU.

From 2028:

• For EU companies with more than 3,000 employees and more than 900 million Euros net worldwide turnover.
• For third-country companies with more than 900 million Euros net turnover in the EU.

From 2029:

• For EU companies with more than 1,000 employees and more than 450 million Euros net worldwide turnover.
• For EU companies that generate at least 22.5 million Euros from licensing and franchising agreements and a worldwide net turnover of 80 million Euros.
• For third-country companies with more than 450 million Euros net turnover in the EU.
• For third-country companies that generate at least 22.5 million Euros from licensing and franchising agreements and a net turnover of 80 million Euros in the EU.

What must companies do to comply with the LkSG?

The law obliges companies in Germany to implement defined due diligence obligations to protect human rights in supply chains and ensure environmental protection. To do this, based on a risk analysis, they must implement measures for the prevention and remediation of human rights violations and environmental pollution in the global supply chain, measure and track their effectiveness, and regularly report on the implementation of their human rights strategy.

What relevance does the LkSG have for SMEs?

While the Supply Chain Act does not directly apply to small and medium-sized enterprises (SMEs), they are indirectly affected by its requirements. Larger players falling under the regulation must ensure that due diligence obligations are met both in their own business area and by their suppliers. They will therefore approach their partners and suppliers and pass on the requirements.

How do the LkSG and CSDDD differ?

In addition to the expanded scope, both regulations pursue a risk-based approach. The LkSG primarily focuses on direct suppliers, while the CSDDD considers almost the entire supply chain. Furthermore, the CSDDD contains, in part, more far-reaching requirements for the prevention and corrective measures to be implemented. The CSDDD also covers a broader range of topics: in addition to the 13 risk categories of the LkSG, the European Supply Chain Act includes additional human rights and environmental topics.

Both laws provide for official control through reviews, instructions, and fines, with the CSDDD additionally providing for civil liability of companies under defined circumstances.