German Supply Chain Due Diligence Act - Lieferkettensorgfaltspflichtengesetz (LkSG)

According to the German Supply Chain Due Diligence Act Lieferkettensorgfaltspflichtengesetz (also called LkSG or Lieferkettengesetz), the following firms are subject to the law:

1. Businesses with their head office, major location of business, administrative headquarters, or registered office in Germany, regardless of legal structure.
2. Enterprises with at least 3,000 employees (including temporary workers), i.e. around 600 enterprises in Germany, will be eligible beginning in 2023.
3. Firms having at least 1,000 employees (including temporary workers), about 2,891 firms in Germany, starting in 2024.
4. Foreign enterprises with a seat or main office in Germany, as defined in section 13d of the German Commercial Code, if this seat or office employs at least 3,000 or 1,000 people.

The LkSG (lieferkettensorgfaltspflichtengesetz) not just applies only to German companies, certain foreign companies are also subject to the LkSG, provided that they have a branch office in Germany and employ over 3,000 individuals in the country. Operating and distributing products in Germany alone does not fall under the Act. Although the Act doesn’t offer a specific definition of a branch office, it generally refers to a legally and financially separate business location from the parent company, with a designated area of responsibility, and intended to operate for a significant period. Starting in 2024, the employee threshold will be lowered to 1,000.

Companies that are legally required to adopt LkSG compliance with the law may face financial or trade limitations as a result of noncompliance. The supply chain act Germany presently states that the following consequences may occur:

1. Fines of up to EUR 800,000, or up to 2% of the company’s annual global revenue.
2. Administrative enforcement actions may result in a pecuniary penalty of up to EUR 50,000.
3. Exclusion from securing governmental contracts in Germany for up to three years.

The Germany Supply Chain Act specifically outlaws the following human rights breaches:

1. Child labour for minors under 18 per the ILO Convention on the Worst Forms of Child Labour, 1999 (No. 182).
2. Forced labour.
3. All types of slavery or comparable forms of dominance or oppression at work.
4. Ignoring the local relevant regulations on workplace safety and working conditions if it may result in workplace accidents or work-related health concerns.
5. Affecting freedom of association.
6. Discrimination at work.
7. Discrimination in pay.

The German supply chain due diligence act lieferkettengesetz prohibits several environmental risks such as:

1. The contamination of the land, water, and air, noise pollution, and exploitation of water.
2. Producing products with additional mercury, using mercury and its compounds, and dealing with mercury waste (Minamata Convention).
3. Persistent organic pollution production and consumption (POPs Convention, Stockholm Convention).

According to the German Supply Chain Act – LkSG, companies must carry out human rights and environmental due diligence in their supply chains to prevent, reduce, and resolve any risks or actual negative consequences discovered. Risks that businesses must consider include:

1. Forced labour
2. Child labour
3. Unsafe or unhealthy working circumstances
4. Unethical employment practices
5. Freedom of association
6. Environmental degradation

MeRLIN’s supply chain due diligence act solution allows you to integrate responsible sourcing practices across the supplier ecosystem to comply with the German supply chain act. It includes extensive capabilities such as making policy statements, conducting supplier surveys, keeping a risk registry, supporting in-person audits, bespoke reports for LkSG compliance, and more, making it simple for enterprises to fulfil the act’s responsibilities.