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  • Writer's pictureChristian Schefold

The German Supply Chain Act (“LkSG”) becomes European!


Quite recently, the EU legislative institutions (the EU Commission, the EU Council and the EU Parliament) agreed about extending the concept of the German Supply Chain Act (Lieferketten-Sorgfaltspflichten-Gesetz - “LkSG”) over the entire EU – and, hence, also the EEA.

 

Now, all companies seated in Germany and employing 1,000 associates have to undertake due diligence procedures and measures in regard to their entire supply chain. The threshold of 1,000 employees, however, does not apply vis-á-vis the direct or indirect suppliers. So, the implementation of measures to avoid human rights and environmental risks within the supply chain concerns all entities throughout the chain – and also very small companies in and outside Germany may have to comply.

 

The German supervisory authority for supply chains, the Federal Office for Economic Affairs and Export Control (Bundesamt für Wirtschaft und Ausfuhrkontrolle – “BAFA”) has now started its monitoring activities. The BAFA looks at webpages of relevant companies and checks their Grundsatzerklärung (basic declaration or supplier code) as well as the description and processes of the whistleblower hotline dedicated to supply chain matters. If they identify gaps or inconsistencies, the BAFA will address this towards the companies in question. Within the next months, the first compulsory reports will be handed over to the BAFA, which quite certainly will cause a rise of monitoring activities.

 

As the EU aims to avoid distortions of the EU market like a national supply chain law with effects on the EU economy, the EU decided to take over this topic and form its own supply chain standard: the EU Corporate Sustainability and Due Diligence Directive (“EU CS3D”). This new EU Directive will be most likely enacted in May 2024 before the elections for the new EU Parliament will start in June. An EU Directive will have to be implemented into the national laws of the EU Member States by their legislators. The transposition period will be two to five years (the major obligations to be enacted within two years). Only with effective transposition, the EU CS3D requirements will come into force. However, the German LkSG will continue to apply but will have to be adapted to the EU CS3D within the next two years.



Partner and Co-Head German Compliance Group, Dentons Europe (Germany)

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