Supply chains

Supply chains play a key role in established standards such as the Global Reporting Initiative (GRI) and the Science Based Targets initiative (SBTi) and are gaining increasing importance in regulations such as the EU Taxonomy and the Corporate Sustainability Reporting Directive (CSRD). Additionally, specific reporting requirements have been introduced to enhance sustainability within supply chains. One of these is the German Supply Chain Due Diligence Act (LkSG) at national level and the Corporate Sustainability Due Diligence Directive (CSDDD) at European level. These regulations aim to encourage companies to adopt sustainable and responsible supply chains while thoroughly documenting their ESG strategies.

The German Supply Chain Act (LkSG)

The German law on corporate due diligence obligations in supply chains (Supply Chain Due Diligence Act) entered into force on 1 January 2023. It initially obliged all companies based in Germany with more than 3,000 employees to comply with due diligence obligations and carry out annual audits along their supply chain. Since 1 January 2024, this obligation applies to companies with 1,000 or more employees.

The aim of the LkSG is to strengthen human rights and environmental protection within supply chains. For example, child and forced labor are to be prevented and fair pay ensured.

The law is to be implemented by introducing a risk management system within the company to assess, identify and priorities risks. Based on these results, a policy statement will be published and measures will be taken to minimize and avoid risks. In addition, complaints procedures are to be set up for people within the supply chain. These are to be used e.g. to draw attention to cases of human rights violations. The law and the associated measures apply to a company's entire supply chain, both direct and indirect suppliers alike. Perspectively, the reporting obligation according to Section § 10 LkSG can also be met by publishing a sustainability report on the company's website in accordance with Section § 289b HGB-E.

The European Supply Chain Directive (CSDDD)

The relevance of value chains is recognized at a global level as well. On 24 April 2024, the EU member states voted in favor of the introduction of the Corporate Sustainability Due Diligence Directive (CSDDD). This directive obliges companies operating within the EU to comply with human rights and environmental protection measures in their supply chain.

The CSDDD must be implemented into national law by June 2026. In Germany, the compliance is planned to be met through an amendment to the Supply Chain Due Diligence Act. However, the content of the CSDDD goes beyond that of the LkSG. While the supply chain at LkSG-level only includes the stages and actors involved in the manufacture of a product or service, the value chain at CSDDD-level also includes the downstream value chain from the company to the consumer.