Supply Chain Act (LkSG): Everything important at a glance
The German Supply Chain Duty of Care Act, or Supply Chain Act for short, is intended to protect human rights and environmental standards in global supply chains. Having come into force in 2023, it is repeatedly under scrutiny - not least due to the new EU CSDDD Directive. Here you can find out how the Supply Chain Due Diligence Act defines your responsibility in the global supply chain and what steps you need to take now.
What does the Supply Chain Due Diligence Act (LkSG) say?
The Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz, LkSG), or Supply Chain Act for short, regulates the due diligence obligations of companies along their supply chains. These can be quite extensive with many suppliers and service providers. It creates a clear framework for responsible conduct in global supply chains and aims to minimize human rights and environmental risks. These include, for example, precarious working conditions, child labor and environmental pollution. Companies must carry out a regular risk analysis to identify potential violations and take measures to minimize risks.
The LkSG also contains clear definitions for "direct" and "indirect" suppliers. While the due diligence obligations primarily relate to direct business partners, companies must also take action along the deeper supply chain in the event of specific indications. This is intended to increase transparency along global supply chains and promote international cooperation on compliance with environmental and social standards.
Origin: Supply Chain Due Diligence Act
The Supply Chain Act is a result of growing social and political awareness of human rights violations and environmental problems along global supply chains. Reports of child labor, environmental disasters and precarious working conditions are often the result of inadequate standards in uncontrolled supply chains.
In 2016, Germany implemented the "National Action Plan for Business and Human Rights" (NAP), which initially defined due diligence obligations for companies on a voluntary basis. An evaluation showed that only around one in five companies met these requirements. The German government therefore created a new, binding legal framework. In June 2021, the Bundestag passed the Supply Chain Due Diligence Act, which has been in force since January 1, 2023. The LkSG is considered to be one of the first national legal frameworks that obliges companies to take more responsibility along the entire value chain.
Current status: Uncertain future of the LkSG
The future of the Supply Chain Due Diligence Act (LkSG) is currently uncertain. After much criticism from the business community and political players, changes were to be made to the law. However, following the break-up of the "traffic light" coalition in November 2024, the project remained blocked for a long time, and the CDU/CSU and SPD want to abolish the law in the coming legislative period. In any case, expectations are focused on the upcoming European Corporate Sustainability Due Diligence Directive(CSDDD). It will replace the LkSG in the medium term, but is more comprehensive and stricter in many respects. However, the CSDDD will initially only apply to large companies and will only be effective for companies at the level of the LkSG from 2029.
Update by the Omnibus Initiative
In February 2025, the EU Commission presented the Omnibus Initiative, a package of measures that also significantly changes the EU Supply Chain Directive (CSDDD). The aim is to reduce bureaucracy and give companies more time and planning security. For the German LkSG, this means that it could remain stricter than its European counterpart for the foreseeable future - at least in areas such as liability, implementation obligation and scope of application. It remains to be seen what will happen with the new black-red government and whether the LkSG will remain in place in the future or be incorporated into a simplified implementation of the CSDDD.
The Supply Chain Due Diligence Act applies here
The LkSG applies to companies with their registered office or main branch in Germany with more than 3,000 employees, and since 2024 also to companies with more than 1,000 employees.
The law includes:
- Risk management: Companies must systematically record risks along their supply chains.
- Risk assessment: An in-depth analysis of potential human rights and environmental violations.
- Preventive measures: Training for employees and formulating clear expectations of suppliers.
- Remedial measures: Response to identified violations, e.g. through contract amendments or sanctions.
- Reporting obligations: Companies must publicly report on their due diligence obligations.
The regulations also include specific reporting obligations, e.g. for environmental disasters or human rights violations that indicate breaches of due diligence obligations. It is particularly relevant in industries with complex and international supply chains, such as the textile industry, the electronics sector or food production.
How to successfully implement the Supply Chain Act
The implementation of the LkSG comprises three basic pillars:
- Risk management system: The basis for recording and evaluating potential risks in order to identify and minimize problems in your supply chain at an early stage.
- Training and further education: Targeted training for employees and suppliers creates a common understanding of due diligence obligations. Your sustainability and compliance management can play a central role in this.
- Involvement of stakeholders: A dialog with your external stakeholders (if any) can increase the effectiveness of the measures.
Even if the law can mean a lot of administrative work, sustainability managers should take the opportunity to show a clear commitment to social and environmental responsibility. Rely on digital tools such as supplier audits to increase transparency. Supplier management platforms help you to prioritize risks and implement measures efficiently.
Checking the implementation
Compliance with the LkSG is monitored by the BAFA (Federal Office of Economics and Export Control). Your compliance team should play a central role in the documentation. Make sure that all measures and reports are complete and verifiable. This minimizes the risk of sanctions by BAFA. Violations may result in fines or exclusion from public tenders.
Criticism of the Supply Chain Due Diligence Act
Despite its positive approaches, there is also criticism of the LkSG:
- High administrative burden for SMEs: The LkSG does not currently apply to small companies. However, they are indirectly included in the implementation if their customers meet the requirements. Many SMEs do not have the human or financial resources for comprehensive risk management.
- Limited scope: As smaller companies are largely excluded, human rights violations or environmental risks could persist in smaller supply chains.
- Complexity of global supply chains: It is often difficult for companies to create full transparency in their deeper supply chains. Reliable data is often lacking, especially for raw materials from crisis regions.
- Insufficient international harmonization: While the LkSG is an important step in Germany, comparable regulations are lacking in many other countries. This could put German companies at a competitive disadvantage. The forthcoming EU CSDDD Directive could - despite being weakened by the Omnibus Regulation - harmonize European regulations. Due to the elimination of civil liability and the focus on direct business partners in the CSDDD, the German LkSG is still stricter than its European counterpart.
- Unclear liability: The distinction between "direct" and "indirect" suppliers creates uncertainty. Clear guidelines are needed on how far a company's responsibility actually extends.
- Effectiveness of monitoring: Although BAFA is responsible for monitoring, there are doubts as to whether the authority has sufficient capacity to effectively monitor all the companies concerned.
Excursus: CSDDD and LkSG
Conclusion - seeing the LkSG as an opportunity
The Supply Chain Due Diligence Act is an important step towards greater transparency and environmental protection as well as strengthening human rights. Due to the complex requirements, companies are faced with the challenge of making their supply chains more transparent and sustainable. The LkSG offers your company the opportunity to act competitively and responsibly in the long term. Thanks to clearly defined processes and strong risk management, you not only meet legal requirements, but also assume responsibility and improve your market position. Last but not least, a transparent supply chain can strengthen your customers ' trust in your company and therefore also in your services and products.
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