The Supply Chain Due Diligence Act

The German Bundestag passed the Supply Chain Due Diligence Act.  It will come into force on 1 January 2023.

The Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz – LkSG) at the beginning will have immediate effect for companies with 3,000 and more employees. From 1 January 2024, however, it will also affect companies with 1,000 employees and more. The prerequisite is that the main administration, the main branch, the administrative seat or the statutory seat are located in Germany.

The affected companies are obliged to analyze compliance with human rights and environmental obligations within their supply chains (procurement & sales) and to take preventive and remedial measures in case of detected violations.  The human rights and environmental obligations to be observed by companies are defined in the Act (they are listed in an appendix to the Act and comprise among others, several international conventions).

Companies affected by the Act should get ready as quickly as possible in order to meet the legal requirements from 1 January 2023. Incompliance may result in significant penalties and fines as well as the exclusion from public procurement procedures. Also smaller companies, not directly affected by the Act, should be careful: big companies addressed directly by the Act may try to involve their suppliers in compliance with the obligations of the Act as well.