FAQ about the German Supply Chain Due Diligence Act (LkSG)
What is the LkSG?
The LkSG (Supply Chain Due Diligence Act) is a German law that requires companies to comply with human rights and environmental due diligence obligations in their supply chains.
It came into effect on January 1, 2023, and aims to ensure that German companies take responsibility for upholding human rights and environmental standards throughout their entire supply chain.
You can find the full text of the LkSG from the German government here.
Who is affected by the LkSG?
Since 2023, the Supply Chain Due Diligence Act applies to companies with at least 3,000 employees.
From 2024 onwards, the threshold was lowered to 1,000 employees, meaning that more companies now need to meet due diligence requirements in their supply chains.
What are the sanctions for companies that do not (correctly) implement the LkSG?
Companies that fail to comply with the LkSG can face fines of up to €800,000 or 2% of their annual turnover (for large companies).
They may also be excluded from public tenders.
How do companies implement the LkSG?
Companies implement the LkSG by establishing a risk management system to identify human rights violations and environmental violations in their supply chains.
This includes a self-disclosure, where companies request information from their suppliers about human rights and environmental risks and verify their compliance. They must also conduct a risk analysis to systematically assess potential and actual risks and evaluate their impacts on human rights and the environment. Additionally, companies must provide a grievance mechanism that allows affected parties to report issues. If violations are identified, appropriate preventive and corrective measures must be taken. Finally, companies must report annually on their actions and results.
Fundamental tasks for compliance with the German Supply Chain Act
Human rights violations like child labour, modern slavery and environmental damage occur in many high-risk industries and high-risk countries on a daily basis in global supply chains. Hence, many global governments published laws to protect vulnerable people and contain the pressing global issue.
Companies shall be included in the obligation to source and produce more responsibly. They need to make their supply chain transparent so that risks and violations become visible and can be fixed.
bizpando is the platform that helps companies to implement the following requirements.
The due diligence measures required by the German Supply Chain Act are composed of three initial tasks to build the fundament and six provisions for the ongoing risks and complaints process.
Introduce a complaints procedure
The company has to ensure that a complaints
procedure is in place. It enables persons to
point out human rights and environmental
risks and violations that have arisen as a
result of the economic activities of a
company in its own business operations or
those of a direct or indirect supplier.
Place responsibility on someone in-house
A person within the company needs to be
assigned to be responsible for the risk management. Such a person should have a good understanding
and a transparent view on the company's global overall supply chain.
Establish a
risk management system
Measures have to come into effect to minimize the risk of violations and to stop their occurences in the case of the company having caused or contributed to them within the supply chain. Such measures are
managed through a risk management
system.
Process tasks for compliance with the German supply chain law
Identify
risks &
complaints
The company has to identify the human rights and environmental risks and complaints in its own business area as well as those of its suppliers.
Analyze
risks &
complaints
The company has to analyze, priories and weigh up the identified risks and complaints and then communicate the results internally to the decision makers.
Create
reports
The company shall prepare a report on the fulfilment of its due diligence obligations in the previous financial year and make it publicly available free of charge.
The company has to take action for analyzed risks by issuing a policy statement on its human rights strategy and by implementing preventive measures in its own business and with its suppliers.
Take
preventive
action
Take
corrective
action
The company has to take corrective actions for existing violations reported through the complaint’s procedure and other information sources.
Write
documentation
The company has to document the fulfilment of due diligence obligations on all process steps and store documentation for at least seven years.
Full text of the LkSG
Please click on the following button to then choose the text box of the LkSG:
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