Supply chain legislation
Globally, more and more countries are establishing binding standards for corporate due diligence obligations in supply chains. The aim is to protect human rights, uphold environmental standards, and create greater transparency in value creation.
Germany introduced clear regulations in 2023 with the German Supply Chain Due Diligence Act (LkSG). The European Union followed in 2024 with the adoption of the “Corporate Sustainability Due Diligence Directive” (CSDDD).
Brief Overview of Supply Chain Laws
On 1 January 2023, the German Supply Chain Due Diligence Act (LkSG) came into force. This law obliges companies in Germany to review their supply chains for human rights violations and environmental damage. A reporting obligation to the Federal Office for Economic Affairs and Export Control (BAFA) is currently suspended until the final integration of the European CSDDD into German legislation.
Furthermore, it has been announced that violations of the law – aside from "severe human rights violations" – are currently not to be sanctioned. However, the statutory due diligence obligations remain in place.
The EU Supply Chain Directive, known as the Corporate Sustainability Due Diligence Directive (CSDDD), came into force on 25 July 2024. Member States now have until 26 July 2027 to implement it into national legislation and bring it into effect starting from July 2028.
Negotiations are still ongoing at the EU level regarding the so-called "Omnibus I Package". These discussions include simplifications such as focusing on direct business partners, reduced information obligations for small and medium-sized enterprises, and restrictions on liability regimes.
You can find the latest updates about this in our topic “Supply Chain Due Diligence Act”.
Supply Chain Due Diligence Act (LkSG) in Germany
The German Supply Chain Due Diligence Act (LkSG) aims to hold companies accountable for respecting and protecting human rights and environmental standards throughout their global supply chains. It was introduced to identify, minimise, and ideally prevent human rights and environmental risks across the entire supply chain.
The key objectives of the LkSG are:
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Protection of human rights
It seeks to ensure that supply chains are free from child labour, forced labour, discrimination, inadequate working conditions, or other human rights violations.
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Environmental protection
The law also obliges companies to comply with certain environmental standards, such as the handling of hazardous substances or the disposal of waste.
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Responsible corporate governance
Companies are required to establish a risk management system, conduct regular risk analyses, implement preventive and remedial measures, and set up a complaints mechanism.
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Implementation of international standards
The law is based on the UN Guiding Principles on Business and Human Rights and the German Federal Government’s National Action Plan on Business and Human Rights.
Corporate Sustainability Due Diligence Directive (CSDDD)
The European Corporate Sustainability Due Diligence Directive (CSDDD) – also known as the EU Supply Chain Directive or CS3D – aims to obligate companies within the EU and beyond to take responsibility for human rights and environmental due diligence, particularly along their upstream value chains.
The key objectives of the CSDDD are:
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Protection of human rights and the environment
The directive requires companies to identify and address risks such as child labour, forced labour, environmental pollution, or land grabbing.
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A unified legal framework in the EU
The CSDDD establishes a harmonised set of rules that provides legal certainty and ensures fair competition within the internal market.
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Strengthening competitiveness and capacity for innovation
Sustainable business practices are intended to make companies more resilient, more attractive to investors, and more innovative in the long term.
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Contribution to climate neutrality
Large companies must present a climate plan that aligns with the goal of achieving climate neutrality by 2050.
Discussions in Politics and Business
The debates surrounding the German Act on Corporate Due Diligence Obligations in Supply Chains (LkSG) and the European Corporate Sustainability Due Diligence Directive (CSDDD) are intense and multifaceted in both politics and business. Here is a summary of the key arguments, positions, and developments.
Political Discussions
LkSG – Between Pioneering Role and Criticism
The collapse of the Rana Plaza textile factory in Bangladesh (2013) exposed serious shortcomings in global supply chains. In response, the German government initiated the "Monitoring for the Implementation of the National Action Plan for Business and Human Rights" to assess voluntary compliance with human rights due diligence by companies. However, only around 40 to 45 per cent of the surveyed companies participated, and merely 13 to 17 per cent fully met the requirements. This increased political pressure to establish binding regulations through the LkSG.
The LkSG was passed in 2021 and has been in force since 2023 for companies with at least 3,000 employees, and from 2024, for companies with at least 1,000 employees. Upon its introduction, the legislation was celebrated by civil society as a German initiative aimed at enhancing human rights and environmental protection in global supply chains.
Alongside the implementation of the LkSG by the initial wave of the largest affected companies, the political discourse was reflected in publications by BAFA (Federal Office for Economic Affairs and Export Control). With several guidelines, such as those addressing the principle of "adequacy," the enforcement authority urged a bureaucracy-light implementation of the LkSG. For instance, the guidelines emphasised that suppliers are not required to respond to every general LkSG-related information request from their customers. Most recently, in June 2025, the Helpdesk on Human Rights, a federal government advisory body particularly for SMEs, encapsulated criticism surrounding the LkSG’s implementation in a "practical guide." It stated there is an "overreliance" on automatically and widely distributed questionnaires for risk analysis and mitigation.
At the same time, companies subject to the LkSG have voiced criticism towards BAFA: Regular and extensive BAFA inquiries regarding LkSG compliance reportedly result in significant bureaucratic burdens for companies, exceeding the requirements of the law.
Positions of Federal Politics
In 2024, the then-opposition CDU/CSU demanded the immediate repeal of the LkSG (German Supply Chain Due Diligence Act), arguing that it jeopardised the competitiveness of German businesses. However, the motion was rejected by the Bundestag on 17 October 2024.
The positions within the traffic light coalition government (SPD, Greens, FDP) were divided: while the SPD and parts of the Greens defended the law, the FDP and other sections of the Greens criticised its bureaucracy. The former Minister for Economic Affairs, Robert Habeck (Greens), even suggested "scrapping" the law entirely. Ultimately, an amendment was implemented to suspend reporting requirements, aiming to reduce the burden on affected companies.
The current federal government states in its coalition agreement that the LkSG will be repealed in favour of the CSDDD (Corporate Sustainability Due Diligence Directive), with the requirement to implement the CSDDD in a "bureaucracy-efficient and enforcement-friendly" manner.
To avoid duplication, the reporting obligations of the LkSG are to be integrated into the reporting requirements of the CSRD (Corporate Sustainability Reporting Directive), as is currently being negotiated and determined within the so-called Omnibus I package.
CSDDD – EU-wide Harmonisation with Potential for Conflict
The CSDDD was adopted in 2024 and must be transposed into national law by 2027. Conceptually, it is comparable to the LkSG and is intended to replace it from the perspective of the federal government. However, as of July 2025, it is more extensive in certain areas, particularly concerning protected legal interests, especially in environmental law.
The directive has been, and continues to be, sharply criticised and widely debated at the political level. Resistance has come especially from economically liberal member states such as Germany (under FDP influence), Italy, and some Eastern European countries.
Since February 2025, political negotiations over the Omnibus I package have been ongoing. This package includes proposals to simplify companies’ ability to meet their due diligence obligations under the CSDDD. For example, merging it with the directive on sustainability reporting (CSRD) aims to significantly reduce reporting obligations.
According to the coalition agreement, the German federal government plans to transpose the CSDDD into German law through the "Act on International Corporate Responsibility". This is likely to occur once the Omnibus I package is concluded and must be completed by July 2027. Companies would then be required to comply with the regulations a year later. Upon the CSDDD coming into force, the LkSG will be repealed.
The CSDDD is a compromise-laden but significant legislative project that could redefine the legal framework for sustainable business practices in Europe. Despite resistance, a common European standard has been established, which could have a long-term impact both within Europe and internationally.
Economic Perspectives
Criticism from Corporate Practice
Many businesses complain about high levels of bureaucracy, particularly due to reporting obligations and the multitude of questionnaires across the supply chain. Small and medium-sized enterprises are often indirectly affected, as they are pressured by larger clients to comply with the obligations, even though they themselves are not subject to the law.
Uncertainty and Planning Issues
The transition phase between the German Supply Chain Due Diligence Act (LkSG) and the Corporate Sustainability Due Diligence Directive (CSDDD) is causing confusion, as it is unclear which obligations apply and when. Companies are calling for clear guidelines and support to efficiently implement the new requirements.
Opportunities Through Early Adaptation
Businesses that already implement robust risk management systems could secure a competitive advantage—particularly in an international context.
