With the German Supply Chain Due Diligence Act (LkSG) and the EU-wide Corporate Sustainability Due Diligence Directive (CS3D), companies are facing new legal challenges to ensure compliance with human rights and environmental standards along the supply chain. These regulations aim to minimise risks in global supply chains and promote sustainable business processes.

The LkSG, which has been in force since 1 January 2023, requires companies in Germany to monitor compliance with human rights and environmental standards in their supply chains. From 2024, this will also apply to companies with more than 1,000 employees. The requirements include the introduction of risk management, regular risk analyses, and measures to prevent and remedy violations.

The CS3D, which will be implemented in the EU from 2026, extends the requirements of the LkSG at the European level. Companies must take responsibility across their entire supply chain, including measures to prevent and remedy human rights and environmental violations. The CS3D requires companies throughout the EU to comply with even stricter sustainability and compliance requirements.

While the LkSG initially affects large German companies, the CS3D extends the obligations to all companies in the EU, including smaller companies in certain sectors. Both regulations require companies to identify and remediate risks along their entire supply chain, including indirect suppliers.

Companies must implement the following measures under both regulations:

• Risk management and risk analysis: Annual analysis to identify human rights and environmental risks.
• Preventive and remedial measures: Measures to minimise risks in the supply chain and immediate response to violations.
• Complaint mechanisms: Implementation of a system for reporting violations.
• Reporting: Annual reports on due diligence.

These measures are crucial to ensure compliance and control risks within the supply chain.

Companies that fail to meet the requirements of the LkSG and CS3D face substantial fines and exclusion from public tenders. To minimise these risks, they must continuously monitor and adapt their compliance processes.

The LkSG and the CS3D require companies to monitor their supply chains comprehensively and to have strict compliance programmes in place. By implementing these requirements early on, companies can not only avoid legal risks but also secure competitive advantages. Contact us to make your supply chain legally compliant and sustainable.