German Supply Chain Due Diligence Law

The German Act on Corporate Due Diligence to Prevent Human Rights Violations in Supply Chains (LieferkettensorgfaltspflichtenG – LkSG) places a direct obligation on large companies (companies with more than 3,000 employees from 01.01.2023 and more than 1,000 from 01.01.2024), but smaller companies are also indirectly responsible via their business relationships.

The aim is to improve the protection of human rights in global supply chains by ensuring compliance with basic human rights standards such as the prohibition of child labour or forced labour.
The (large) companies are obliged to monitor compliance with their own due diligence obligations. For this purpose, a specific responsible person must be appointed within the company. The management must regularly inform itself   the work of this person and its results.

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companies’ duty of care extends to their own operations and their direct and immediate suppliers. Therefore, the law is also relevant for companies that do not fall within its direct scope. This is because they can be indirectly affected, for example, as suppliers of a company that is subject to the legal responsibility.

Under the new Due Diligence Act, companies must introduce appropriate risk management along the entire supply chain that analyses human rights risks in all relevant internal business processes. The law identifies forced labour, child labour, discrimination, violations of freedom of association, problematic employment and working conditions, and environmental damage as relevant risk areas.

Suitable remedial or preventive measures must be taken to prevent violations. This can be, for example, the agreement of appropriate contractual human rights clauses with the supplier. Likewise, appropriate measures must be taken to end or minimise a violation that has already occurred (remedial measures). Human rights risks at indirect suppliers, i.e., in the downstream stages of the supply chain, must also be analysed, observed and, if necessary, dealt with. In addition, companies must establish a complaints procedure that enables those directly affected, as well as those who have knowledge of possible violations, to point out human rights risks and violations.