German government wants to soften Supply Chain Due Diligence Act

The regulatory framework governing corporate supply chain responsibilities in Germany is set for significant changes. The German government has announced plans to modify the Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz – LkSG) with a view to reducing bureaucratic burdens for companies and implementing the EU Corporate Sustainability Due Diligence Directive (CSDDD). 

Reducing the number of in-scope companies

In a notable shift from the current rules, which in essence apply to companies with more than 1,000 employees in Germany, the amendments aim to reduce the number of companies directly subject to the LkSG. As of 1 January 2025, the act shall apply to less than a third of the currently affected entities according to the government’s plan. This adjustment would align with the impending implementation of the CSDDD, which the German government plans to implement “1 to 1“ and "as bureaucratically lean as possible" within this legislative period.

Making full use of the CSDDD implementation deadlines

According to the government, all rules of the CSDDD that go beyond the LkSG will be implemented at the latest possible date under European law (for details on the CSDDD transition periods, see our previous blog post). This will, in particular, apply to the rules on civil liability which the LkSG currently does not cover.

Transitional reporting flexibility

In an effort to mitigate the reporting load on companies, other key changes relate to the reporting obligations. When the Corporate Sustainability Reporting Directive (CSRD) takes effect on 1 January 2025, German companies shall have the option to replace the existing LkSG reporting requirements with reports under the CSRD. The interim period also features significant concession: Until 1 January 2025, the government will refrain from sanctioning non-compliance with the LkSG reporting obligations, thereby providing companies with a grace period to adjust to the new standards. In response to concerns about the extensive obligations under the CSRD, the German government also announced to actively engage in parallel at EU level for easing these requirements.

Setting standards for SME engagement

The updated LkSG will also set mandatory rules for how large companies can request information from SMEs in their supply chains. This measure is designed to offer significant relief to smaller companies, which are often indirectly affected by the due diligence processes of their larger counterparts.

Conclusion

The proposed revisions to Germany’s Supply Chain Act are the result of lengthy discussions and represent a dynamic intersection of national interests and EU-wide regulatory trends. The German government seeks to foster a regulatory environment that promotes corporate accountability and economic efficiency by focusing on reducing bureaucratic overhead, setting clear compliance timelines, and advocating for simplified reporting standards. As these changes unfold, they will undoubtedly influence how companies strategize their compliance and operational approaches in the evolving landscape of global supply chain management.