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Germany’s new Supply Chain Due Diligence Act: What you need to know

In 2022 the German parliament passed a new law requiring large companies to conduct supply chain due diligence activities. Learn about which companies the law covers and what those businesses need to do. 

This German supply chain law (LkSG) requires large companies to make sure social and environmental standards are observed in their supply chain. 

Companies within the scope of the law must monitor their own operations and their direct suppliers worldwide, and take action if they find sustainability violations. 

Who does it apply to? 

  • From 2023: Companies based in Germany with more than 3,000 employees, or German-registered branches of foreign companies with more than 3,000 employees 
  • From 2024: Companies based in Germany with more than 1,000 employees, or German-registered branches of foreign companies with more than 1,000 employees. 

What do businesses need to do? 

The Supply Chain Due Diligence Act requires these companies to identify, assess, prevent and remedy human rights and environmental risks and impacts in their own operations and supply chains. Companies must also provide ways for workers at indirect suppliers (suppliers they don’t have a direct commercial relationship with) to file complaints about social or environmental violations. 

The risks that companies must address include: 

Companies must also publish an annual report outlining the steps they’ve taken to identify and address these risks. 

Consequences and penalties if companies don’t comply with this law 

If the companies covered by the German supply chain law LkSG don’t meet its requirements, possible consequences include: 

  • Fines of up to €800,000, or up to 2% of their average annual global turnover. 
  • Exclusion from winning public contracts in Germany for up to three years. 

Practical next steps if the law applies to your business 

  • The most important first step in a responsible sourcing system is to map all of your direct suppliers. Look at the information you already have on your direct suppliers to understand whether you have a complete list. 
  • Work with your procurement and buying teams to create a full list of your direct suppliers, including their locations, the nature of these businesses, the nature of their workers and contact details for each supplier 
  • Conduct a basic risk assessment, considering where suppliers are located and the types of people they employ. Certain countries of location, and certain types of workers such as migrant workers, are considered more vulnerable to risks. 

Practical next steps for suppliers 

If your business supplies companies that will have to comply with this law, you may start to receive more requests for information from them. 

  • Read more about the law and what it asks companies to do. This will help you to prepare for requests from large customers in Germany. Learn about the information your customers will need from you, so that you know what to have ready. 
  • Check that you’re compliant with labour, health and safety, and environmental legislation. Make sure your paperwork is up-to-date and ready to share with customers, to help them comply with the new law. 

How Sedex can help your business 

Prepare for and meet the requirements of the Supply Chain Due Diligence Act with Sedex’s solutions: 

  • Our Radar risk assessment tool enables you to analyse human rights and environmental risks across your own and your suppliers’ operations. Compare risks across countries, sectors and individual work sites, to help you prioritise where to focus next. 
  • The Sedex Self-Assessment Questionnaire asks suppliers to provide information about their work sites, operations, working conditions and workers. 
  • Our data platform helps businesses to store, share and report on supply chain information. Suppliers can share data with several customers at once, and buyer companies can store information about all their direct suppliers in one place to simplify analysis and reporting. 
  • Our Consulting team helps companies identify what laws they must meet and build an efficient, centralised programme to comply with the various requirements. 

More than 75,000 businesses around the world use Sedex’s solutions to gather and share information about the people, processes and practices in their supply chains.  

Learn more about how we can help you!  

Sedex perspective 

The German supply chain law was a welcome development when it was passed. However, it joins what is currently a patchwork of regulation including the French Corporate Duty of Vigilance Law, the UK Modern Slavery Act, and the Californian Transparency in Supply Chains Act. 

Businesses also need to consider upcoming legislation, the most important of which is the European Union’s proposed law for corporate due diligence. Learn more about each of these laws here

Navigating these different regulations can be challenging. For international companies trying to address various laws, following the basic principles of human rights and environmental due diligence will be the most effective approach. These outline steps for companies to identify, prevent, mitigate and remedy labour abuses and environmental damage in their own operations and supply chain. 

These steps also prepare your business for the more rigorous requirements in upcoming EU legislation for corporate sustainability due diligence.