The Supply Chain Due Diligence Act (LkSG), which came into force on January 1, 2023, obliges certain German companies to guarantee certain minimum standards in the supply chain. These due diligence obligations relate to both human rights and environmental factors. The UN Guiding Principles on Business and Human Rights (“Ruggie Principles”) and the EU’s CSR Reporting Obligations Directive already form similar starting points. The companies covered by the LkSG are therefore obliged to ensure that their suppliers also comply with these standards within their supply chain.
Who does the LkSG apply to?
The LkSG covers the following in accordance with § Section 1 para. 1 LkSG, German companies with at least 1000 employees in Germany are covered. The company must have its registered office, principal place of business, administrative headquarters or branch office in Germany, whereby the legal form of the company is irrelevant. Other factors, such as the company’s turnover, are also irrelevant under the LkSG.
What are the aims of the LkSG?
According to the explanatory memorandum, the LkSG is intended to ensure that German companies take responsibility for guaranteeing a certain human rights and environmental standard within their supply chains, particularly against the backdrop of globalization. The LkSG is intended to specify requirements for companies. The LkSG refers to this in Section 2 and is based on international agreements with regard to the definitions. According to § 2 para. 2 LkSG, a human rights risk within the meaning of this law is a situation in which there is a reasonable likelihood of a violation of one of the following prohibitions due to factual circumstances, including child labor, slavery, disregard for occupational health and safety or disregard for freedom of association. Environmental risks are defined in accordance with § 2 Abs. 3 include the use of mercury or the import and export of hazardous waste.
Obligations for companies
Pursuant to. § Section 3 of the LkSG requires companies to exercise human rights and environmental due diligence in their supply chains in an appropriate manner with the aim of preventing or minimizing human rights or environmental risks or ending the violation of human rights or environmental obligations. This includes the due diligence obligations differentiated in the following paragraphs, such as the establishment of a risk management system (§ 4 (1)), the performance of regular risk analyses (§ 5), the submission of a declaration of principles (§ 6 (2)), preventive measures in the company’s own business area (§ 6 (1) and (3)) and vis-à-vis direct suppliers (§ 6 (4)), the establishment of a complaints procedure (§ 8) and documentation (§ 10 (1)) and reporting (§ 10 (2)).
The term “supply chain” refers in accordance with § 2 Abs. 5, it refers to all products and services of a company. It includes all steps in Germany and abroad that are necessary to manufacture the products and provide the services, from the extraction of the raw materials to the delivery to the end customer and covers the actions of a company in its own business area, the actions of a direct supplier and the actions of an indirect supplier. According to § 2 para. 6 LkSG, the company’s own business area covers every activity of the company to achieve the company’s objective.
The concept of due diligence clarifies that the company is not obliged to ensure that no human rights or environmental obligations are violated in the supply chain. Instead, companies must implement the legally prescribed measures in a proportionate manner and thus minimize the risks and prevent human rights or environmental obligations from being violated along the supply chain. This always depends on the individual case and, among other things, on how much influence the company can exert.
Enforcement of the LkSG
If companies violate their obligations, they are liable in accordance with. § 3 Abs. 3, they are not liable under civil law. However, the Federal Office of Economics and Export Control (BAFA), as the competent authority in accordance with Art. § However, the Federal Office of Economics and Export Control (BAFA) can carry out inspections and impose fines or penalties if the obligations under the LkSG are breached. Sanctions can also be imposed. §§ 17, 18, companies have obligations to provide information and surrender data as well as obligations to tolerate and cooperate.