Since 1 January 2023, the German Supply Chain Due Diligence Act (LkSG) has required companies with 3,000 or more employees in Germany to systematically identify and address human rights and environmental risks in their supply chains. Since 1 January 2024, this also applies to companies with 1,000 or more employees. The Act is grounded in the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct – and transfers these into binding German law.
The LkSG aims to protect the rights of people who may be affected by your business activities along global supply chains – while providing legal certainty for companies committed to acting in a responsible way.
Does the LkSG Apply to Your Company?
The LkSG applies to companies with their principal place of business, main establishment, registered office or statutory seat in Germany. All companies with at least 1,000 employees in Germany are covered by the law. Temporary workers are counted towards the headcount of the hiring company.
The LkSG also applies to foreign companies with a principal establishment or branch office in Germany that meet the employee threshold.
What Do You Need to Do?
The due diligence process under the LkSG is not a one-time exercise – it is a continuous improvement process. The Act does not require a perfect supply chain – but an appropriate, effective and genuine effort. The due diligence process in six steps:
Step 1: Establish Responsibilities
The starting point is organisational anchoring for an appropriate and effective risk management: appoint a responsible person – for example, a Human Rights Officer – who coordinates and monitors the risk management system and reports to senior management at least once a year.
This does not necessarily require a new position: existing functions in procurement, compliance, sustainability or quality management can be integrated. What matters is that responsibilities are clearly assigned and embedded in your organisation.
Step 2: Adopt a Policy Statement
The policy statement is your public commitment to your company's human rights strategy. It must be approved by senior management and made publicly available.
The policy statement contains the identified and prioritized risks from your risk analysis, describes the prevention and remediation measures derived from them, and outlines the grievance mechanism you have established. It also sets out concrete expectations for your employees and suppliers.
The policy statement is not a marketing document – it is a binding management tool with external impact that creates transparency and makes accountability visible.
Step 3: Conduct a Risk Analysis
The risk analysis is the cornerstone of your due diligence process. You must regularly and on an ad hoc basis – for example when entering new business relationships, when supply chains change, or when specific concerns arise – identify, assess and prioritise human rights and environmental risks.
The LkSG contains a specific catalogue of protected legal positions – including the prohibition of child labour and forced labour, the right to adequate remuneration, freedom of association and protection from environmental harm.
The risk analysis covers your own business operations and your direct suppliers (Tier-1). Indirect suppliers (Tier-N) are integrated once there is a substantiated concern – meaning actual indications pointing to a risk or violation.
Step 4: Implement Prevention and Remediation Measures
Based on your risk analysis, develop and implement targeted prevention measures to minimise identified risks before violations occur. Possible measures include contractual human rights clauses, adjustments to your sourcing strategies, supplier training or monitoring of agreed measures.
If a violation has occurred or is imminent, you must take remediation measures without delay. The LkSG does not require an immediate, complete solution – but genuine, plausible and documented action.
Your own purchasing practices also matter: fair pricing and reliable order cycles can reduce pressure in the supply chain – they are are therefore a form of prevention themselves.
Step 5: Establish a Grievance Mechanism
The grievance mechanism is one of the most effective early-warning instruments the Act provides. Establish an accessible reporting channel for all potentially affected persons – your own employees as well as people throughout your entire supply chain.
Access must be low-threshold and confidential. You can build on existing whistleblower systems or use external providers. Important: the grievance mechanism must be set up from the outset in such a way that it is accessible to potential complainants throughout the entire supply chain.
Step 6: Document your actions
Document the fulfilment of all your due diligence obligations on an ongoing basis. Records must be retained for at least seven years from the date of their creation.
Documentation serves not only your legal compliance – it is also a management tool. Systematic documentation allows you to make progress visible, identify gaps and continuously improve your due diligence process.
Note on the potential LkSG amendment (as of June 2026): The reporting obligation to BAFA and the public is set to be abolished retroactively. The internal documentation obligation is intended to remain fully in place.
Taking a Risk-Based Approach – Not a Bureaucratic One
Global supply chains are often long and complex. The LkSG therefore explicitly follows a risk-based approach: you should and may prioritise in order to deploy your resources in a targeted manner. A widespread misconception: many companies believe the LkSG requires them to send questionnaires to all suppliers, conduct blanket audits and exhaustively control every single supplier. This is not what the Act requires. The Act does not require blanket control of all suppliers – rather, it requires an obligation of means: genuine, systematic and continuous.
LkSG Amendment 2026: What May Change – and What Should Remain
The German government is planning a targeted amendment to the LkSG. The aim of these changes is to reduce administrative burden without abandoning the core of human rights due diligence.
Planned changes:
- Reporting obligations to be abolished retroactively: The obligation to report publicly and to BAFA is to be fully abolished – retroactively from 1 January 2023.
- Sanctions to be restricted: Fines will only be imposed if companies fail to implement specific prevention or remediation measures or do not establish a functioning grievance mechanism.
What remains: Risk analysis, risk management, prevention and remediation measures as well as internal documentation obligations remain fully in place. The LkSG is not being abolished – it is being targeted for relief.
The amending act has not yet entered into force. We will keep you informed.
Frequently asked questions
What does the EU Corporate Sustainability Due Diligence Directive (CSDDD) mean for the German Supply Chain Act?
The CSDDD will harmonise due diligence obligations across the EU and will likely lead to an adaptation or replacement of the LkSG as part of its transposition into German law. This process it will take some time. The obligations under the Directive will only apply from 26 July 2029. Member States have until 26 July 2028 to transpose the Directive into national law. Until then, the LkSG remains the applicable legal framework in Germany.
Our company only has suppliers from the EU. Do we still have obligations under the LkSG?
Yes – because human rights and environmental risks can also exist in EU-based suppliers. In sectors such as logistics, agriculture or construction, significant sectoral risks exist within Europe. If you prematurely exclude EU suppliers from concrete risk assessment, you risk to systematically overlook potential and actual risks and violations.
Does the LkSG also apply to the deep supply chain?
The LkSG generally provides for obligations throughout the entire supply chain. However, concrete due diligence obligations towards indirect suppliers (Tier-N) only arise upon substantiated concern. An exception is the grievance mechanism: this must be set up from the outset in such a way that it is accessible to potential reporters throughout the entire supply chain.
What does "substantiated concern" mean under the LkSG?
A substantiated concern exists when there are actual indications pointing to a human rights or environmental violation. In practice, such indications can arise from reports through your grievance mechanism, notifications from BAFA or other supervisory authorities, or from media or NGO reports.
How far do your obligations extend when a risk or violation has been identified?
A core principle of the LkSG is the obligation of means. The Act does not require you to guarantee that your supply chains are free of risks or violations. If you cannot immediately and fully end a violation, this does not automatically constitute a breach of your obligations.
What room for manoeuvre do you have when indirect suppliers are not known to you by name?
Your direct leverage over indirect suppliers is often limited – but you can still act preventively even without knowing the specific names of indirect suppliers: by adjusting your purchasing behaviour, requiring direct suppliers contractually to pass on standards, and joining industry or multi-stakeholder initiatives to pool collective leverage.
What does appropriateness mean under the LkSG?
The principle of appropriateness gives you a legally enshrined margin of discretion. Four criteria apply: the nature and scale of your business activities, your leverage, the severity and likelihood of a violation, and your causal contribution. The criteria must always be considered holistically.
Does the LkSG require companies to withdraw from high-risk areas?
No. The principle is ‘leverage before exit’. Terminating a business relationship is only envisaged as a last resort. Withdrawal is only warranted if the violation is classified as very severe, a jointly developed remediation plan shows no demonstrable effect and no milder escalation steps are available.
The LkSG requires the involvement of potentially affected rights-holders. Who does this mean?
The LkSG requires you to take into account the interests of your own employees, the employees throughout your supply chains, and all persons who may be directly affected in a protected legal position by your economic activities – for example indigenous peoples, local residents or communities. Rights-holders can be consulted through legitimate representative bodies such as local trade unions, works councils or recognised local NGOs.