The supply chain due diligence act in brief

On January 01 2023, the German Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz, or LkSG) came into law in Germany. The aim of the act is to prevent human rights and environmental violations in the supply chain through consistent risk management and is aimed at both the company’s own business activities and suppliers.

Who does the LkSG affect?

• The scope of the LkSG includes companies (with head office, principal place of business, administrative headquarters or branch office) in Germany
• The term “supply chain” refers to all products and services a company procures. This includes all related steps for production/provision at home & abroad.
• Different deadlines apply depending on the number of employees in a company:
  • More than 3,000 employees: Valid as of January 1st, 2023, reporting in April 2024 at the latest
  • More than 1,000 employees: valid as of January 1st, 2024, reporting in April 2025 at the latest
  • Further tightening can be expected within the framework of the EU variant of the Supply Chain Due Diligence Act

What are the consequences of non-compliance?

The law provides fines of up to 8 million euros / or up to 2% of annual turnover in the event of non-compliance.

In addition, if certain fines are issued, there is a risk of exclusion from public contracts for up to 3 years.

Does the LkSG affect me even if I do not yet fall within its scope?

The LkSG specifically requires that relevant companies address their requirements along the supply chain and thus pass on the requirements for dealing with human rights and the environment directly to their direct and indirect suppliers. Thus, even if not yet directly by law, one can also be affected by the LkSG.

What does the LkSG require?

The LkSG calls on companies to take concrete action when dealing with due diligence with regard to human rights and the environment, ranging from the establishment of internal processes, the implementation of risk analyzes and preventive measures to the establishment of a complaints procedure and an annual reporting obligation.

Specifically, the requirements can be divided into 9 key due diligence requirements:

1. Setting up risk management
2. Defining a responsible person or team
3. Conducting a risk analysis
4. Issuance of a policy statement
5. Implementation of preventive measures
6. Implementation of remedial measures
7. Establishment of a complaints procedure
8. Response to risks in the extended supply chain (indirect suppliers)
9. Documentation and reporting

For more information on the obligations: Click here.