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LkSG

The “Lieferkettensorgfaltspflichtengesetz“ (LkSG) is a German law that aims to strengthen human rights and environmental standards in companies' global supply chains. It obliges companies to take responsibility for compliance with these standards not only in their own operations, but also at their suppliers.

According to Section 2 (5) LkSG, the supply chain includes “all steps in Germany and abroad that are necessary for the manufacture of products and the provision of services, from the extraction of raw materials to delivery to the end customer" and covers "1. the actions of a company in its own business area, 2. the actions of a direct supplier and 3. the actions of an indirect supplier“.

The LkSG is a significant step towards promoting sustainable and ethical business practices. It calls on companies to take their responsibility for human rights and environmental protection along their entire supply chain seriously.

Due diligence obligations of the LkSG

  1. Risk analysis: Companies must regularly identify potential and actual human rights and environmental risks in their supply chains.

  2. Risk management: Following the risk analysis, appropriate measures must be taken to prevent or mitigate the risks and to check their effectiveness.

  3. Preventive measures: With regard to their own business and direct suppliers, companies must take preventive measures to avoid human rights violations and environmental damage.

  4. Remedial measures: If violations are detected, immediate measures must be taken to end or minimize these violations.

  5. Complaints procedure: Establishment of a complaints procedure so that those affected can report breaches of due diligence obligations.

  6. Documentation and reporting: Companies must document and publicly report on their due diligence measures and their effectiveness.

Rules and requirements

  1. The law has affected companies with more than 3,000 employees in Germany since 01.01.2023 and those with more than 1,000 employees from 01.01.2024.

  2. The German LkSG will be tightened by the entry into force of the CSDDD: It is expected that companies in Europe with 250 or more employees will also be obliged to comply with the LkSG/CSDDD regulations from mid-2024.

  3. Companies must ensure compliance with the above-mentioned due diligence obligations.

Usage

  1. Companies must implement procedures and policies that ensure compliance with due diligence obligations.

  2. The requirements relate to the entire supply chain, including indirect suppliers.

Obligations for companies

  1. Compliance with the aforementioned duties of care.

  2. Regular review and adjustment of measures.

  3. Transparent reporting on the measures taken and their effectiveness.

Challenges

  1. Complexity of supply chains: Many companies have extensive global supply chains that can be challenging to monitor.

  2. Costs and resources: Implementing the necessary measures can be costly and resource-intensive.

  3. Lack of control over suppliers: Especially with indirect suppliers, it can be difficult to influence compliance with standards.

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