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Expansion of the scope of the German Act on Corporate Due Diligence Obligations in Supply Chains

The Act on Corporate Due Diligence Obligations in Supply Chains (Lieferkettensorgfaltspflichtengesetz, LkSG), which regulates corporate responsibility for observing human rights in global supply chains, was expanded in scope, as of 1.1.2024, to cover companies with at least 1,000 employees.

Expansion of the scope of application 

The LkSG requires companies to identify, evaluate and prioritise risks in their supply chains. On the basis of the results the companies have to take measures to prevent or minimise human rights violations and environmental damage. 

The Act, which came into force on 1.1.2023, initially only applied to companies with at least 3,000 employees. By reducing the limit on the number of employees to 1,000 – as a result of the expansion of the scope of application which has now taken place – the intention is to further bolster human rights and the protection of the natural environment in global supply chains. When calculating the number of employees of the parent company it is necessary to include all the employees of the affiliated companies.

Implementation of the requirements under the LkSG – Policy statement, complaints body and implementation report 

The implementation of the many obligations under the LkSG necessitates a close examination of all the business relationships in the course of carrying out the above-mentioned risk analyses. Building on the analyses, first of all, a policy statement then has to be issued in which the company acknowledges that it has obligations under the LkSG and describes how the safeguarding of human rights and protection against environmental risks will be implemented in the company.

Secondly, at the same time, a complaints body has to be set up for potential violations. This complaints body has to be open to anyone who would be able to identify a violation of the provisions under the LkSG. Here, a human rights officer then has to be appointed at the company to track the corresponding reports. 

In addition, thirdly, four months after the end of the financial year, at the very latest, a report on the implementation of the LkSG and the monitoring of the obligations has to be published. The report then also has to be published on the company’s website. 

Please note: If the implementation is not completed by the deadline then there would be a risk of heavy fines of up to €800,000; in the case of companies with annual revenues of more than €400m the fines could even be up to 2% of annual revenues.

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