Which companies does LkSG apply to?

Since January 2024, LkSG applies to companies with their registered office, principal place of business, or administrative headquarters in Germany that employ at least 1,000 workers (including temporary workers). This covers approximately 4,800 companies. The law also applies to foreign companies with a branch in Germany meeting the employee threshold.

What's the relationship between LkSG and the EU CSDDD?

The EU Corporate Sustainability Due Diligence Directive (CSDDD) will eventually supersede or complement national due diligence laws like Germany's LkSG and France's Duty of Vigilance Law. CSDDD is broader in scope (covering environmental impacts more extensively and introducing civil liability) and will apply across all EU member states. Companies should comply with LkSG now while preparing for CSDDD.

Does LkSG require action on indirect suppliers?

LkSG primarily requires due diligence for direct (tier 1) suppliers with risk-based due diligence for indirect suppliers. However, when a company obtains 'substantiated knowledge' of human rights or environmental violations at indirect suppliers, it must take appropriate action — including investigating, developing a remediation plan, and potentially suspending or terminating the business relationship.

German Supply Chain Due Diligence Act (LkSG)

What Is the LkSG?

The German Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz, LkSG), effective since January 2023, requires large companies in Germany to establish due diligence processes to prevent human rights and environmental violations in their supply chains.

Germany was one of the first major economies to enact mandatory supply chain due diligence legislation, following France's Duty of Vigilance Law (2017). The LkSG reflects growing global expectations that companies are responsible for conditions throughout their value chains.

Who It Applies To

From January 2023: Companies with 3,000+ employees in Germany
From January 2024: Companies with 1,000+ employees in Germany
Applies to companies with registered office, principal place of business, or administrative headquarters in Germany
Foreign companies with a German branch meeting the employee threshold are also covered
Employee count includes temporary workers

Key Requirements

Due diligence obligations (based on UN Guiding Principles):

Risk management system: Establish a risk management process integrated into business functions
Risk analysis: Conduct regular and ad hoc risk assessments for your own operations and direct suppliers
Preventive measures: Implement policies, training, procurement practices, and contractual assurances to prevent violations
Remedial action: Take corrective measures when violations are identified — from requiring corrective action plans to suspending or terminating supplier relationships
Grievance mechanism: Establish an accessible complaints procedure for affected persons and whistleblowers
Documentation and reporting: Document due diligence activities and submit an annual report to BAFA (the Federal Office for Economic Affairs and Export Control)

Covered risks:

Human rights: forced labor, child labor, slavery, discrimination, unsafe working conditions, freedom of association, living wages, land rights
Environmental: mercury, POPs, hazardous waste (specifically referenced conventions), plus environmental violations that lead to human rights impacts

Scope of obligations:

Own operations: Full due diligence obligations
Direct suppliers: Full due diligence obligations including contractual assurances
Indirect suppliers: Risk-based due diligence when "substantiated knowledge" of violations exists

Timeline

January 2023: Law took effect for companies with 3,000+ employees
January 2024: Extended to companies with 1,000+ employees
Annual: Companies must submit due diligence reports to BAFA by April 30 of the following year
Ongoing: BAFA can initiate investigations based on complaints or its own initiative

Compliance Steps

Appoint a human rights officer: Designate a responsible person for supply chain due diligence
Establish risk management: Integrate supply chain due diligence into existing risk management processes
Conduct risk analysis: Map direct suppliers, assess country and sector risks, prioritize high-risk relationships
Develop policy statement: Publish a human rights policy covering your own operations and supply chain
Implement preventive measures: Training, procurement guidelines, contractual clauses, supplier audits
Set up grievance mechanism: Accessible, confidential, and effective complaints procedure
Develop remedial action processes: Clear procedures for responding when violations are identified
Document and report: Maintain records and submit annual reports to BAFA

Penalties

Fines: Up to €8 million or up to 2% of average annual worldwide turnover (for companies with >€400M turnover)
Exclusion from public procurement: Companies can be excluded from public contracts for up to 3 years
BAFA enforcement: BAFA can order specific measures, conduct inspections, and impose coercive fines
No civil liability: LkSG explicitly does not create a new basis for civil liability (unlike the upcoming CSDDD)

How Council Fire Can Help

Council Fire supports companies in implementing LkSG-compliant supply chain due diligence systems — from risk analysis and supplier assessment through grievance mechanisms and annual reporting. Contact us for LkSG compliance support.