Lieferkettensorgfaltspflichtengesetz

What is the Supply Chain Due Diligence Act?

The Supply Chain Due Diligence Act (LkSG) is a German federal law that obligates companies to observe due diligence requirements with regard to human rights and environmental standards in their supply chain. It applies directly to companies headquartered or established in Germany that exceed a certain number of employees. In terms of content, it is aligned with international guiding principles such as the UN Guiding Principles on Business and Human Rights. Its aim is to ensure that companies take responsibility not only for their own conduct, but also for that of their suppliers and subcontractors.

How does the LkSG work in practice?

The law prescribes a multi-stage process. First, both event-driven and regular risk analyses must be conducted to identify human rights and environment-related risks within the company's own business area as well as among direct suppliers. Based on this analysis, preventive measures must be implemented — such as contractual arrangements, supplier codes of conduct, or training programs. If specific violations occur, remedial action must be initiated. In addition, an accessible grievance mechanism must be established through which internal and external whistleblowers can report misconduct. All measures must be documented and recorded annually in a report submitted to the Federal Office for Economic Affairs and Export Control (BAFA). Obligations regarding indirect suppliers apply only on an event-driven basis — that is, when the company becomes aware of specific risks.

In logistics, this means in concrete terms: transport service providers, warehouse partners, and subcontractors are coming under greater compliance scrutiny. Working conditions for drivers, safety standards in third-country warehouses, and environmental requirements for disposal service providers are typical areas of review. In procurement, the LkSG contributes to a greater formalization of supplier selection and qualification: questionnaires, audits, certificates, and contractual clauses are becoming fixed components of the procurement process.

What matters when implementing the LkSG?

A critical first step is defining the scope: which suppliers are considered direct, and which are indirect? This classification determines the extent of the due diligence obligations. A practical risk classification — for example, based on country, industry, and product risks — helps to deploy resources in a targeted manner without scrutinizing every supplier relationship with the same intensity.

It is also important to distinguish the topic from ESG: the LkSG is a legally binding minimum framework. Voluntary ESG programs may go beyond it, but overlap with many of the same implementation measures. Companies that already operate a sustainability management system can often leverage existing structures, but must review them against the specific statutory requirements. Whether and how digital tools for supplier evaluation or monitoring are used depends on the vendor and is not legally prescribed — what matters is the demonstrable outcome, not the tool.