CSDD – The EU Supply Chain Act
On December 1, 2022, the EU member states agreed on an EU supply chain law. This directive is an important milestone for the protection of the environment and human rights both inside and outside of Europe. It obliges large companies to investigate potential and actual violations of human rights and the environment in relation to their own activities as well as those of their subsidiaries and business partners. This step is an important contribution to achieving a climate-neutral and green economy in line with the European Green Deal and the UN Sustainable Development Goals. Compared to the German Supply Chain Due Diligence Act, the EU directive is in some areas even stricter and more consistent and includes civil liability provisions for human rights violations.
How do the Supply Chain Due Diligence Act (in German, Lieferkettensorgfaltspflichtengesetz or LkSG) and the corporate sustainability due diligence (CSDD) relate to each other?
| Deutsches LkSG | CSDD – EU Directive (Draft) | |
| Scope | · Registered office or branch in Germany · >3,000 employees (from 2023) · >1.000 employees (from 2024) | · Registered office in the EU · > 1.000 employees & > 300 million euros in revenue (draft as of November 30th, 2022) · Not located in the EU but with EU revenue corresponding to the limits mentioned above |
| Depth of the supply chain | · Primary immediate suppliers · Tier-N with substantiated knowledge | · Entire supply chain up to Tier-N |
| Obigations, human rights, and environment | · 11 Human Rights Conventions · 3 Environmental Conventions | · 22 Human Rights Conventions · 7 Environmental Conventions · Climate Target Plan |
| Duties of corporate management | · Establishment and monitoring of due diligence obligations · Incorporation of due diligence obligations into corporate strategy and decisions | |
| Civil liability | · No | · Possible in case of fault |
The current draft of the guideline differs greatly from the LkSG, particularly with regard to the depth of the analysis and the liability of companies. Critics often describe the German LkSG as weak and toothless. It is primarily limited to direct suppliers and excludes civil liability of corporations.
Nevertheless, the German Federal Government is currently strongly committed to weakening liability rules. In an attached protocol declaration, the federal government is clearer and sets clear conditions: A so-called safe harbor regulation is to be inserted. Germany will only agree to a text “that meets these conditions.” It is therefore currently still unclear to what extent this point will develop further in the coming period.
The EU directive goes well beyond the German LkSG and it remains to be seen what the final directive will bring. Nevertheless, an early implementation according to the standard of the current German law provides a good basis for being prepared for the EU version.
More about the EU variant can be found directly at the European Commission.