The Supply Chain Due Diligence Act
(LkSG)
Who is subject to the LkSG?
FAQ
Frequently Asked Questions about the LkSG briefly explained.
The Federal Office for Economic Affairs and Export Control (BAFA) verifies whether companies comply with the law. Additionally, BAFA verifies corporate reports and investigates submitted complaints. If it identifies omissions or violations, it has the authority to impose fines or exclude companies from public procurement.
The law monitors violations by German companies in supply chains worldwide. For the law to apply to a company, it must have its main management, main branch, administrative headquarters, statutory seat, or a branch in Germany. Additionally, the size of the company plays a crucial role: Companies with 1,000 or more employees are subject to the Supply Chain Due Diligence Act.
Companies must adhere to nine defined due diligence obligations. These include:
1. Establishing a risk management system Defining internal responsibilities
2. Defining internal responsibilities
3. Conducting regular risk assessments
4. Issuing a fundamental statement
5. Embedding preventive measures (within the company and with suppliers)
6. Taking corrective measures
7. Establishing a complaint Procedure
8. Implementing due diligence obligations in relation to indirect suppliers
9. Documentation and reporting
The Supply Chain Due Diligence Act (LkSG) was introduced to obligate companies to prevent human rights violations and environmental impacts along their supply chains. It aims to promote responsible corporate practices and protect labor and environmental standards globally. An example is the requirement for companies to take measures to ensure that child labor is not present in their supply chains.
The Supply Chain Act (LkSG) in Germany applies to companies based in Germany or those whose business activities have significant connections to the German market. Initially, the law primarily targeted larger German companies with more than 3,000 employees. In 2024, the law was expanded to include companies with 1,000 or more employees. It applies to all industries and covers the entire supply chain of the company, including direct and indirect suppliers. The law mandates companies to prevent and address human rights violations and environmental offenses in their supply chain. Companies must demonstrate compliance with the law and can face fines and other sanctions for violations.