Master the German Supply Chain Act (LkSG)

The German Supply Chain Due Diligence Act (Lieferketten-sorgfaltspflichtengesetz/ LkSG) enforces corporate responsibility for human rights and environmental protection in global supply chains.

Effective since 2023, it requires companies to assess risks, implement preventive measures, establish grievance mechanisms, and report compliance activities. These obligations apply across the entire supply chain, including direct and indirect suppliers.

The Federal Office of Economics and Export Control (BAFA) monitors compliance, imposes penalties, and enables affected individuals to file complaints.

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LkSG Challenges: Risk Mitigation and Compliance

Compliance throughout the supply chain

Although the directive primarily targets large companies, its impact extends to smaller businesses within the value chain. This is because directly affected companies are required to address risks at all levels, including those posed by indirect suppliers. Achieving compliance demands extensive transparency and influence across global supply chains, a process that is both complex and costly.

Human rights and environmental due diligence

Obligations include analysing human rights risks, implementing preventive and remedial measures, establishing grievance mechanisms and reporting on these activities. Beyond human rights, companies must also address environmental risks related to international conventions. Reconciling these responsibilities with the business operations of small and medium-sized enterprises (SMEs) is a significant challenge.

Legal and financial consequences

Risks of non-compliance include fines, exclusion from public tenders and reputational damage, which underscores the need for robust systems to meet LkSG requirements and comply with BAFA oversight. BAFA reviews companies' reports, investigates complaints and has the authority to impose fines or exclude companies from public tenders in the event of non-compliance.

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