Germany: New Supply Chain Due Diligence Act (LkSG)

Jul 29, 2022 Benn-Ibler Rechtsanwälte

The new German Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz, LkSG) will come into force on 1 January 2023. This Act introduces new corporate due diligence requirements for corporate management as well as control duties for supervisory bodies. The Act also defines the scope of the responsibilities that companies of a certain size must comply with in their dealings with suppliers.

The objective of the LkSG is to strengthen human rights and environmental protection in global supply chains by requiring German companies to better meet their global responsibility to respect such rights. The intention is not to implement German social standards globally, but to achieve compliance with certain human rights standards such as the prohibition of forced labour and child labour.

The Act applies to companies that have their registered office or secondary offices in Germany and employ more than 3,000 workers in the country.

In this respect, the term 'supply chain' is rather broad and covers all relevant steps in the production of a product, from its raw materials to the final retail product. Hence, digital products can also be part of a supply chain. The term is restricted by a set, graduated scope of obligations for each company, depending on its ability to exercise control and influence. This means that there are higher requirements in a company's own business area and for its direct suppliers.

Under the new Act, companies are required to establish an adequate supply chain risk management system and to identify any risks through risk analyses; also to minimise such risks through preventive and remedial measures as the company deems appropriate. Additionally, companies are required to submit an annual report on their compliance with this law.

In essence, it should be borne in mind that companies only have a duty to minimise risks, which is deemed to have been fulfilled insofar as reasonable prioritisations and appropriate risk minimisation measures have been taken.

The competent supervisory authority is the German Federal Office of Economics and Export Control (Bundesamt für Wirtschaft und Ausfuhrkontrolle). In the event of violations of these requirements, companies face heavy fines of up to EUR 800,000.

The following should be noted: In February of the current year, the EU Commission presented a proposal for the EU Supply Chain Directive, which goes beyond the existing LkSG and provides for much stricter rules.

BGBl 2021 Teil I Nr.46 (German Federal Law Gazette 2021 Part I No.46) (22.06.2021)