Full Breakdown
Amendments to Germany's Supply Chain Due Diligence Act Impact US-Based Multinationals
9/3/2025, 10:20:16 PM
Overview of the German Supply Chain Due Diligence Act (LkSG)
The German Supply Chain Due Diligence Act, known as LkSG, mandates that larger companies, including German subsidiaries of US-based multinationals, assess and address human rights and environmental impacts within their supply chains. The law took effect on January 1, 2023, initially applying to companies with over 3,000 employees in Germany, with a threshold reduction to 1,000 employees set for 2024.
Proposed Amendments and Their Implications
Recently, Germany's Federal Ministry of Labor and Social Affairs proposed amendments to the LkSG that would eliminate the requirement for annual reporting and scale back enforcement measures. This proposal aligns with the coalition government's commitment to abolish the annual reporting obligation as part of the transposition of the EU-wide Corporate Sustainability Due Diligence Directive (CSDDD). The amendments suggest that companies will not face sanctions for failing to meet LkSG obligations unless severe human rights violations occur.
The proposed changes would retroactively apply to January 1, 2023, meaning companies that have not yet prepared annual reports for 2023 or 2024 would no longer be required to do so. However, the CSDDD still anticipates future reporting requirements, indicating that the reprieve may be temporary.
Compliance and Enforcement Landscape
Despite the proposed amendments, companies are still required to maintain a risk management system, appoint a compliance officer, conduct regular risk analyses, and document their due diligence efforts. The Federal Office for Economic Affairs and Export Control (BAFA) has recently sent out information requests to companies regarding their compliance practices, focusing on risk analyses and policy statements. Responses to these requests are due by September 19, 2025.
Criticism and Opposition
Critics argue that scaling back the LkSG could undermine efforts to hold companies accountable for human rights and environmental standards. The amendments have raised concerns among human rights advocates who fear that reduced enforcement may lead to a lack of accountability for companies operating in high-risk environments.
Official Statements & Responses
The German government has framed the amendments as necessary adjustments to align with broader EU regulations, emphasizing that companies will still be required to fulfill essential due diligence obligations. The coalition government has stated that these changes are intended to streamline compliance processes while still addressing critical human rights issues.
Conflicting Reports & Gaps
While the proposed amendments suggest a significant reduction in compliance burdens, there is uncertainty regarding the timeline and specifics of the CSDDD's transposition into German law. Ongoing negotiations within the EU regarding the CSDDD may further complicate the compliance landscape for multinationals.
What's Next
As the situation evolves, companies will need to prepare for potential changes in compliance requirements stemming from both the LkSG amendments and the CSDDD. The upcoming responses to BAFA's information requests will likely provide further insights into how companies are adapting to the current regulatory environment.
