The law aims to make companies responsible for violations in their supply chain.
This is an explanation of what companies operating in the EU need to know about this new law.
In trade and production, fundamental human rights are repeatedly violated in the course of global supply chains. These include child labour, exploitation, discrimination and a lack of labour rights. Environmental destruction is also in the spotlight, including illegal deforestation, pesticide emissions and water and air pollution. Companies in the European Union earn money from what is produced in other parts of the world, which is why they also bear responsibility for respecting
human rights throughout their supply chain. The “Act on Corporate Due Diligence in Supply Chains”
aims to compel companies to better fulfil their global responsibility. At the same time, the law will also reduce competitive disadvantages for companies that already voluntarily invest in sustainable supply chain management.
What is this new law all about?
Reports on child labour, exploitative working hours or chemicals that end up in sewage and rivers, human rights. Stakeholders are also becoming aware of this issue, with customers and investors increasingly demanding consistent reporting. Politicians have also taken action: on 11 June 2021, the Supply Chain Sourcing Obligations Act (LkSG) was passed in the German Bundestag and published in the Federal Law Gazette on 22 July. The aim is to strengthen the global enforcement of human rights and environmental protection and to give companies more legal certainty and security of action.
Who is affected by the law?
From 2023 onwards, European companies as well as organisations from other countries operating
in the EU with at least 3,000 employees must implement human rights and environmental due diligence in their supply chains. From 2024, the law will also apply to companies with at least 1,000 employees. In principle, small and medium-sized enterprises should also fulfil their due diligence obligations in supply chains. The law applies across the entire length of the entire supply chain. In addition to the company’s own business operations, the business relationships and production methods of its direct suppliers must also be taken into account. If a company has factual indications that suggest a possible violation of a human rights or environmental obligation at indirect suppliers, it must also take action.
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What due diligence obligations does the new law lay out?
The due diligence obligations are based on the five core elements of the National Action Plan on Business and Human Rights (NAP) and relate to the company’s own business operations, the actions of a contractual partner and the actions of other (indirect) suppliers.
Affected companies must introduce a management system that analyses human rights and environmental risks in their own supply chains and derives appropriate preventive measures from this, as well as remedial measures in the event of damage. At the same time, they are required to develop a complaints procedure: Affected persons who have knowledge of human rights violations or environmental violations must have the opportunity to point out these grievances. Furthermore, companies have the obligation to publish a policy statement on their human rights strategy and to report annually on the implementation of their due diligence obligations.
What happens when companies violate the law?
The Federal Office of Economics and Export Control (BAFA) checks whether the statutory due diligence requirements, including reporting obligations, are being complied with. Fines of up to 8 million euros can be imposed in the event of very serious violations, such as deliberate failure to take preventive or remedial measures. In the case of an annual turnover of more than 400 million euros, the fine can be up to 2% of the worldwide annual turnover. Furthermore, if a fine is imposed above a certain minimum level, it is possible to be excluded from the award of public contracts.
Are companies which operate in the EU at an international disadvantage?
Other countries already have legal regulations on due diligence, and an EU law has been drafted, with the presentation of a draft directive on sustainable corporate governance by the EU Commission on 23 February 2022. In addition to the protection of human rights, the proposal also includes environmental aspects and is intended to create uniform competitive conditions in the internal market. Germany supports the EUʼs legislative initiative and thus a binding international
standard of due diligence.
Sources/by kind permission:
Federal Ministry of Labour and Social Affairs (BMAS)
CSR in Germany (An initiative of BMAS)
The law aims to make companies responsible for violations in their supply chain.
This is an explanation of what companies operating in the EU need to know about this new law.
In trade and production, fundamental human rights are repeatedly violated in the course of global supply chains. These include child labour, exploitation, discrimination and a lack of labour rights. Environmental destruction is also in the spotlight, including illegal deforestation, pesticide emissions and water and air pollution. Companies in the European Union earn money from what is produced in other parts of the world, which is why they also bear responsibility for respecting
human rights throughout their supply chain. The “Act on Corporate Due Diligence in Supply Chains”
aims to compel companies to better fulfil their global responsibility. At the same time, the law will also reduce competitive disadvantages for companies that already voluntarily invest in sustainable supply chain management.
What is this new law all about?
Reports on child labour, exploitative working hours or chemicals that end up in sewage and rivers, human rights. Stakeholders are also becoming aware of this issue, with customers and investors increasingly demanding consistent reporting. Politicians have also taken action: on 11 June 2021, the Supply Chain Sourcing Obligations Act (LkSG) was passed in the German Bundestag and published in the Federal Law Gazette on 22 July. The aim is to strengthen the global enforcement of human rights and environmental protection and to give companies more legal certainty and security of action.
Who is affected by the law?
From 2023 onwards, European companies as well as organisations from other countries operating
in the EU with at least 3,000 employees must implement human rights and environmental due diligence in their supply chains. From 2024, the law will also apply to companies with at least 1,000 employees. In principle, small and medium-sized enterprises should also fulfil their due diligence obligations in supply chains. The law applies across the entire length of the entire supply chain. In addition to the company’s own business operations, the business relationships and production methods of its direct suppliers must also be taken into account. If a company has factual indications that suggest a possible violation of a human rights or environmental obligation at indirect suppliers, it must also take action.
![]()
What due diligence obligations does the new law lay out?
The due diligence obligations are based on the five core elements of the National Action Plan on Business and Human Rights (NAP) and relate to the company’s own business operations, the actions of a contractual partner and the actions of other (indirect) suppliers.
Affected companies must introduce a management system that analyses human rights and environmental risks in their own supply chains and derives appropriate preventive measures from this, as well as remedial measures in the event of damage. At the same time, they are required to develop a complaints procedure: Affected persons who have knowledge of human rights violations or environmental violations must have the opportunity to point out these grievances. Furthermore, companies have the obligation to publish a policy statement on their human rights strategy and to report annually on the implementation of their due diligence obligations.
What happens when companies violate the law?
The Federal Office of Economics and Export Control (BAFA) checks whether the statutory due diligence requirements, including reporting obligations, are being complied with. Fines of up to 8 million euros can be imposed in the event of very serious violations, such as deliberate failure to take preventive or remedial measures. In the case of an annual turnover of more than 400 million euros, the fine can be up to 2% of the worldwide annual turnover. Furthermore, if a fine is imposed above a certain minimum level, it is possible to be excluded from the award of public contracts.
Are companies which operate in the EU at an international disadvantage?
Other countries already have legal regulations on due diligence, and an EU law has been drafted, with the presentation of a draft directive on sustainable corporate governance by the EU Commission on 23 February 2022. In addition to the protection of human rights, the proposal also includes environmental aspects and is intended to create uniform competitive conditions in the internal market. Germany supports the EUʼs legislative initiative and thus a binding international
standard of due diligence.
Sources/by kind permission:
Federal Ministry of Labour and Social Affairs (BMAS)
CSR in Germany (An initiative of BMAS)
