German Supply Chain Act (LkSG) Explained

Who Is Affected?

Since January 2024, the law applies to companies with 1,000 or more employees in Germany, including subsidiaries. This also affects foreign companies with German branches that meet the employee threshold. Indirectly, smaller suppliers are affected through requirements from their larger customers.

Core Obligations

The law establishes five core due diligence obligations: establish a risk management system, conduct regular risk analysis, implement preventive measures, take remedial action when violations occur, and create a complaints mechanism for affected persons.

The 5 Due Diligence Obligations

1. 1Risk Management: Establish clear responsibilities and processes for identifying and addressing supply chain risks
2. 2Risk Analysis: Systematically assess human rights and environmental risks in your own operations and with direct suppliers
3. 3Prevention: Implement measures to prevent or minimize identified risks, including supplier contracts and training
4. 4Remediation: When violations occur, take immediate action to end, minimize, or prevent recurrence
5. 5Complaints Mechanism: Establish accessible channels for affected persons to report violations

Own Operations vs. Suppliers

The law distinguishes between own operations, direct suppliers (Tier 1), and indirect suppliers (Tier 2+). For own operations, companies must address all identified risks. For direct suppliers, they must conduct regular risk analysis and take appropriate action. For indirect suppliers, action is only required when there's 'substantiated knowledge' of potential violations.

Documentation and Reporting

Companies must document their due diligence efforts continuously and report annually to the Federal Office for Economic Affairs and Export Control (BAFA). Reports must cover risk analysis methodology, identified risks, measures taken, and effectiveness assessment. Reports are publicly available.

Protected Human Rights and Environmental Concerns

• Prohibition of child labor and forced labor
• Freedom of association and collective bargaining
• Occupational health and safety
• Prohibition of discrimination
• Fair wages (at least minimum wage)
• Mercury, persistent organic pollutants, hazardous waste handling
• Land rights and forcible evictions

Implementation Tips

Start with your highest-risk suppliers: which countries, which industries, which materials? Create standardized assessment questionnaires. Build contractual provisions into supplier agreements. Consider industry initiatives and certification schemes. Invest in digital tools that can aggregate supplier data and flag risks automatically.