German Supply Chain Due Diligence Act (LkSG)
The German law on human rights and environmental due diligence obligations in global supply chains.
The German Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz, LkSG) entered into force on 1 January 2023. It requires large German companies to identify, prevent, and remedy human rights and environmental risks in their own operations and throughout their supply chains. The law is based on the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises.
Companies subject to the LkSG must implement a risk management system covering their own operations and direct suppliers (Tier 1), with additional obligations triggered by substantiated knowledge of risks at indirect suppliers (Tier 2 and beyond). Specific due diligence obligations include establishing a complaints procedure, conducting regular risk analyses, defining preventive measures, and preparing an annual report to the Federal Office for Economic Affairs and Export Control (BAFA).
From 2023, the LkSG applied to companies with at least 3,000 employees in Germany; from 2024, this threshold was reduced to 1,000 employees. Non-compliance can result in significant fines and exclusion from public procurement. The LkSG has since been partially superseded at EU level by the Corporate Sustainability Due Diligence Directive (CS3D/CSDDD), which extends similar obligations across the EU with broader scope.
Legal Basis
Lieferkettensorgfaltspflichtengesetz (LkSG) of 16 July 2021; UN Guiding Principles on Business and Human Rights; OECD Guidelines for Multinational Enterprises; Corporate Sustainability Due Diligence Directive (CSDDD) (EU) 2024/1760
Practical Example
A German mechanical engineering company with 1,200 employees sources components from suppliers in India and Vietnam. Under the LkSG, it must conduct an annual risk analysis of these direct suppliers covering human rights issues such as child labour, forced labour, and unsafe working conditions, as well as environmental risks. When a risk analysis reveals inadequate safety measures at a Vietnamese supplier, the company issues a corrective action plan, documents the process, and reports on it in its BAFA annual report. A digital compliance platform helps manage supplier questionnaires, risk scores, and audit documentation.