German Supply Chain Due Diligence Act - Lieferkettensorgfaltspflichtengesetz (LkSG)

Minimize Supplier Risks and Ensure Compliance with the German Supply Chain Due Diligence Act Requirements

What is the German Supply Chain Act or German Supply Chain Due Diligence Act (in German Lieferkettensorgfaltspflichtengesetz or Lieferkettengesetz or LkSG)?

The German Supply Chain Due Diligence Act was passed by the German Federal Government to regulate human and labor rights violations in supply chains. As per the German Supply Chain Law, beginning on January 1, 2023, companies in Germany with 3000 or more workers will have to perform substantial supply chain due diligence by incorporating supplier risk management and compliance mechanisms within their supply chains. From January 1, 2024, businesses with over 1000 employees will also come under the scope of the Supply Chain Act, Germany.

The companies under the scope of the German Supply Chain Due Diligence Act (LkSG) should take the below steps to ensure compliance.

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How can MeRLIN help to comply with The German Supply Chain Due Diligence Act (LkSG)?

MeRLIN's LkSG solution enables you to implement sustainable sourcing practices across the supplier ecosystem and perform the due diligence required to comply with the German Supply Chain Act. Its comprehensive features allow businesses to meet the obligations of the Act easily.

Contract-Management

Risk Management

Maintain risk register to consolidate risks associated with suppliers, track and monitor them

Compliance

Policy Statement

Issue policy statements with supplier invites or publish them in supplier portal and mandate its acceptance for onboarding

Supply-Management

Supplier Surveys & Questionnaires

Request information from supplier regarding compliance to the law using configurable surveys or questionnaires that can be associated with sourcing

Sourcing-Events

In-Person Audits

Facilitate audits to supplier sites by a designated person/compliance officer who can answer to audit questions and add observations in the system

Supplier

Whistleblower Functionality

Any internal or external party can report human rights violations by anyone in the ecosystem

Analytics-and-Reports

Dashboards & Reporting

Analyse and track noncompliance and risk exposure using intuitive dashboards and generate reports on due diligence activities

Are you LkSG ready?

If not, Act Now!

Webinars and Blogs

German Supply Chain Act| LkSG

German Supply Chain Act (Lieferkettensorgfaltspflichtengesetz) – What it Means to SCM & Procurement Professionals

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How COVID-19 will change the design planning & operation of global supply chains

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Panel Discussion : Agile Procurement Practices in Dynamic Business Scenarios

Frequently Asked Questions

Which companies are affected by the German supply chain due diligence act?

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.

Does the lieferkettensorgfaltspflichtengesetz act apply only to German companies?

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.

What happens if a business does not comply with the supply chain act Germany?

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.

What Human Rights does The German Supply Chain Act protect?

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.

What environmental harm would the German supply chain due diligence act lieferkettengesetz prohibit?

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).

What must enterprises do to comply with the German supply chain due diligence act?

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

How can MeRLIN help in achieving LkSG compliance?

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.

Factsheet

To know more about how MeRLIN LkSG Solution can help you ensure compliance with the German Supply Chain Act, download factsheet.

German Supply Chain Due Diligence Act Factsheet | MeRLIN Sourcing