The lieferkettengsetzes (LkSG) is the German Supply Chain Act aiming to hold companies accountable for their human rights risks throughout the supply chain. The act directly impacts businesses that are based in Germany who employ more than 1000 people as of January 2024 to comply. These companies must disclose due diligence measures they have created to prevent human rights violations and environmental damage. The LkSG is similar in content to the CSDDD, making German businesses compliant with the LkSG prepared for the new Due Diligence requirements. This act is currently affecting companies and their direct suppliers, however, indirect suppliers can be affected as well. If businesses are found not complying with the LkSG, fines of up to 2% of annual turnover can be issued.
Supply Chain Act Compliance
The LkSG requires businesses to carry out regular, annual human rights and environmental risk analyses of their operations and those of direct suppliers.
Businesses must carry out regular risk analyses of their operations and those of their direct suppliers. This analysis must address, prevent and mitigate human rights violations and environmental damage risks. Although the act explicitly requires companies and their direct suppliers to complete due diligence, indirect suppliers can also be affected in certain circumstances.
Businesses must establish a risk management system to standardise their risk management processes
A responsible person(s) in the company must be assigned to oversee the compliance
The business must conduct regular (at least annual) risk analyses and issue a policy statement
Businesses must create preventative measures to mitigate these risks
If any human rights or environmental degradation violations occur, businesses must take remedial action and have a procedure for lodging complaints
Finally, businesses are required to document and report on all relevant risks and human rights and environmental violations.
Indirect suppliers are not directly affected but some may be indirectly affected as a result of these risk procedures. Additionally, if businesses find substantiated knowledge that there are possible violations of human rights or environmental degradation in their supply chain, they must include these in their risk assessments. Businesses are also required to include indirect suppliers when changes occur in business activities or in their supply chains, this is in the case of large investments or product diversification.
Reporting Requirements
The LkSG is focused on human rights and company due diligence in mitigating violations of human rights. The topics considered are a mixture of common human rights issues and environmental issues where they can lead to human rights violations. These include:
Human rights issues | Environmental issues |
Prohibition of child labour | Pollution |
Protection against slavery and forced labour | Substances dangerous to humans and the environment |
Freedom from discrimination | Hazardous wastes |
Protection against unlawful taking of land | Organic pollutants |
Occupational health and safety | |
Living wage | |
Right to workers representation |
The LkSG has been under fire in recent months, as some parties in the German Bundestag argued that the LkSG should be repealed in light of the European-wide Corporate Sustainability Due Diligence Directive (CSDDD). This motion was not passed as opposing parties argued that the LkSG gives German businesses an advantage in the European landscape, having already fulfilled some of the requirements by the time the CSDDD is transposed into national law.
Agriplace’s role in LkSG compliance
Here at Agriplace, we can help with your LkSG compliance through our Supply Chain Approval (SCA) system and our Sustainability Risk Assessment (SRA) tool.
Our Supply Chain Approval tool allows you to set up requirement rules for your suppliers, ensuring you only source from suppliers who have obtained certain social certificates that you can choose. This ensures that you have the most up to date knowledge about your suppliers’ operations. With the SCA tool you can ensure that you are prepared for audits, with all current and past supplier information easily accessible in your Agriplace account.
The SRA tool can help you easily assess your supplier risk profile based on product and region. It aids with your risk assessment and prevention and can notify you of any potential high-risks that need to be addressed.
Agriplace can give you a substantiated foundation for your due diligence reporting, specifically for compliance with the LkSG through our supply chain approval and sustainability risk assessment tools.
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