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The German Supply Chain Act

Overview of the German Supply Chain Law

What companies need to know about the new law

On June 11, 2021, the German Bundestag passed the Supply Chain Law (Lieferkettengesetz, LkSG). The law creates a framework for companies to fulfil their due diligence obligations along their supply chain and implement human rights and environmental requirements in an adequate way. Non-compliance with the law is subject to severe penalties.

The law applies to companies that

  • Have their head office or a branch office (parent company) in Germany
  • Generally employ more than 3,000 employees in Germany (effective from 01/2023)
  • Generally employ more than 1,000 employees in Germany (effective from 01/2024)

What does the Supply Chain Law include?

Companies in Germany are obligated to observe due diligence obligations with regard to human rights and the environment in their supply chain in an adequate manner. The intention on the one hand is to strengthen the rights of people affected by company activities in the supply chains, and on the other hand to take into account the companies' legitimate interests in legal certainty and fair competitive conditions. The law defines nine due diligence obligations, such as the establishment of a risk management system and a complaints body, as well as the implementation of requirements regarding risks at suppliers.

More information in our FAQ below:

General Information about the German Supply Chain Law

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Most urgent topics for 2024

From 1 January 2024, the German Supply Chain Act will also apply to companies with more than 1,000 employees. In our view, these are the most urgent issues for these companies:

  • Identify high risk operation / sourcing countries
  • Update contracts for largest / highest risk suppliers
  • Publish policy statement / human rights declaration
  • Implement complaint management
  • Inform and train critical employee groups (e.g. procurement)

Initial Report

Initial reports in line with the LkSG must be submitted to the competent authority no later than four months after the end of the financial year that ends during the calendar year 2023 (for enterprises with 3,000 or more employees) or 2024 (for enterprises with 1,000 or more employees). The reporting period does begin 01.01.2023 (or 01.01.2024).

Scope of responsibility in the supply chain

The corporate responsibility spans the entire supply chain, with corporate responsibility tiered according to the degree of influence. The human rights elements apply first to the companies themselves as well as to direct / immediate suppliers. Human rights risks at indirect suppliers, i.e. in the lower tiers of the supply chain, must be analyzed and addressed if companies become aware of them in a substantiated manner.

Scope of application

Starting January 1, 2023, companies with at least 3,000 employees will be affected, and starting January 1, 2024, the law will apply to companies with 1,000 employees. Employees of all domestic subsidiaries must be included in the calculation. Temporary workers must be included in the calculation, if they are employed for longer than six months.

Human rights and environmental requirements

  • Prohibition to employ children under the statutory minimum age
  • Prohibition of all forms of slavery and forced labor
  • Prohibition to disregard applicable duties of labor protection
  • Prohibition to disregard the freedom of association / trade unions
  • Prohibition of unequal treatment (based on ethnic descent, social origin, age, gender, sexual orientation, religion, etc.)
  • Prohibition to deprive someone of an adequate wage
  • Prohibition to cause harmful soil changes, water or air pollution or excessive water consumption
  • Prohibition of unlawful expropriation / eviction
  • Prohibition to produce mercury-added products
  • Prohibition to produce persistent organic pollutants
  • Prohibition to export hazardous waste (Basel Convention)

Strengthening the rights of people affected

In the future, affected parties will have the ability to have non-governmental organizations and trade unions represent them in German courts and to authorize them to take legal action if they feel that their paramount legal positions have been violated by a breach of the corporate duty of care.

Sanctions - Procurement suspension and fines

The law provides for two sanctioning options under public law: A serious violation can lead to exclusion from participating in public contracts for up to three years. Furthermore, violations of the due diligence obligations can be punishable by fines of up to two percent of the average annual turnover generated worldwide.

Federal Office of Economics and Export Control - BAFA

A control authority will ensure the enforcement of the legal requirements. For this purpose, the Federal Office of Economics and Export Control (BAFA) will be given a mandate to support industries with concrete information for implementation and will at the same time be given the following rights: report review, right of investigation, right of ordinance, right of entry, right of sanction/exclusion, right to impose fines and penalty payments.

Additional links of interest

German Supply Chain Law (LkSG) in German

German Supply Chain Law (LkSG) in English

Questionnaire for reporting (LkSG) in German

We can support you with implementing the German Supply Chain Law

Given the complexity of supply chains that include both domestic and international suppliers, a testing service provider like TÜV Rheinland serves as a useful support for companies that need to comply with the requirements of the Supply Chain Law. Here are some reasons that speak for us:

  • In-depth industry knowledge, including the textile, electronics, pharmaceutical, retail and automotive industries
  • In-depth practical experience with supply chain audits, having conducted more than 50,000 supplier audits
  • Market leader for supplier audits according to amfori BSCI
  • More than 270 APSCA registered auditors worldwide

We will be happy to support you with the implementation of the Supply Chain Law. Please contact us to discuss your individual needs.

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