ESG Supply Chain Due Diligence Act

The German Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz, LkSG) has been in force since January 2023 and requires companies based in Germany to uphold human rights and environmental due diligence across their supply chains. Since 2024, the law applies to all companies with 1,000 or more employees. Foreign companies with a branch in Germany are also covered if they meet the threshold. Obligations extend to the company's own business operations, direct suppliers and — where substantiated concerns arise — indirect suppliers as well.

The LkSG defines nine specific due diligence obligations: 1) Establishing a risk management system, 2) Appointing a responsible person (human rights officer), 3) Conducting regular risk analyses, 4) Issuing a policy statement, 5) Implementing preventive measures in the company's own business area, 6) Preventive measures towards direct suppliers, 7) Taking remedial action when violations occur, 8) Setting up a grievance mechanism and 9) Documentation and annual reporting under Section 10 LkSG. ADVISORI supports the systematic implementation of all nine obligations.

Non-compliance with the LkSG can result in fines of up to EUR 8 million or up to 2% of global annual turnover — whichever is higher. Companies may also be excluded from public procurement for up to three years. Enforcement is handled by the Federal Office for Economic Affairs and Export Control (BAFA), which can conduct both complaint-based and proactive audits.

The German LkSG has been in effect since 2023 and applies to companies with 1,000 or more employees. The EU Corporate Sustainability Due Diligence Directive (CSDDD) was adopted in 2024 and must be transposed into national law by 2026. The CSDDD goes beyond the LkSG in several respects: it covers the entire value chain (not just suppliers), introduces civil liability and requires a climate transition plan. Companies that are already LkSG-compliant have a solid foundation but should expect additional requirements.

An LkSG risk analysis consists of three steps. First, all relevant human rights and environmental risks are identified — both within the company's own operations and among direct suppliers. Then risks are weighted and prioritised by severity, likelihood and the company's ability to influence outcomes. Finally, measures are derived and documented. The risk analysis must be conducted at least annually and on an ad-hoc basis when triggers arise. ADVISORI uses proven methodologies and digital tools to make the process efficient and auditable.

Under Section 10 LkSG, companies must prepare and submit an annual report to BAFA. The report must describe whether and which human rights or environmental risks were identified, what preventive and remedial measures were taken, how the grievance mechanism is designed and how the effectiveness of measures is evaluated. The report must also be published on the company's website and retained for seven years.

ADVISORI provides end-to-end LkSG implementation support. We start with a gap analysis that benchmarks your current maturity against legal requirements. Based on the findings, we develop a compliance roadmap, implement due diligence management systems, conduct risk analyses and set up grievance mechanisms. We also support regulatory reporting and prepare your organisation for the upcoming EU directive (CSDDD). Our interdisciplinary team of compliance, ESG and technology specialists ensures that the implementation is both legally sound and operationally efficient.