Prominent German trade associations are calling for Germany’s Supply Chain Due Diligence Act (LkSG) to be suspended following a reading of a recent amendment to the legislation which they believe is insufficient in lightening the compliance burden on companies.
This week, 17 groups including the German Textile and Fashion Industry Association called upon Germany’s parliament, the Bundestag, along with the Federal Government, to halt the enforcement of the 2023 regulations. The law requires firms based in Germany employing a minimum of 3,000 people to perform at least one risk analysis a year of their own business activities and those of their direct suppliers to root out risks related to worker rights and the environment.
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As of January 2024, companies with 1,000 or more employees must take part in such self-imposed auditing and disclose the steps they’re taking to mitigate ecological impact and eradicate human rights abuses throughout their supply chains. In a situation where a company finds substantiated evidence of either type of violation carried out by an indirect supplier, they are mandated to perform an ad hoc risk assessment of that body, too.
Facing pressure from German industry players that say the law places undue and untenable pressure on their businesses, the law’s authors drafted an amendment—read for the first time last week—that unraveled external reporting obligations. The government said this would lessen the bureaucratic lift for companies and address concerns firms have expressed about being put at a commercial disadvantage to competitors due to their social and environmental performance.
Companies are still required to identify and address risks throughout their supply chains, but fines will be assessed on only very serious transgressions as stipulated under the LkSG.
Germany’s trade associations are unsatisfied with this outcome, however. In a letter to the government, they pointed to the stringent requirements for due diligence across supply chains and the persistent documentation burden, saying, “No noticeable relief is therefore to be expected,” from the amendment.
German Textile and Fashion Industry Association CEO Uwe Mazura said, “Germany must end its national go-it-alone approach and use the current amendment to the Local Tax Code (LkSG) to deliver tangible relief. Postponing this until 2029 is not an option. We call on the Bundestag and the Federal Government to implement the necessary measures immediately.”
The LkSG is widely expected to remain in effect until the European Union’s Corporate Sustainability Due Diligence Directive (CSDDD) is transposed into German law. Most of the trade bloc’s 27 member states are on a harmonized timeline that will see the region-wide legislation transposed into respective national laws by July 26, 2027, but it will be applied to companies in phases between 2028 and 2029.
The CSDDD has also been plagued by problems, with businesses calling for its strict standards to be eased—cries that have been heeded to a point where many environmental and labor experts believe that the first-of-its-kind, landmark legislation has now been rendered toothless.
The EU’s Omnibus I package, finalized early this year, amended the CSDDD as well as its companion, the Corporate Sustainability Reporting Directive (CSRD), to reduce the administrative load on companies and simplify compliance requirements. Reporting thresholds ticked upwards so larger firms with more than 1,000 employees (and 450 million euros-per-year turnover) are the key focus. The package also postponed the CSDDD’s application, setting the 2028-2029 timeline.
Germany’s trade associations are eager to see Omnibus I adopted and the LkSG unseated as national law. “This promise must now be kept,” they wrote in the letter.
If the LkSG isn’t suspended, they are in favor of at least adapting the scope of the CSDDD, which only covers large companies, swiftly. They believe that companies that are not subject to the CSDDD shouldn’t be subject to the LkSG, saying holding them to the current national standard risks legal uncertainty moving forward.
“Germany must end its special national path and use the current LkSG amendment specifically for tangible relief,” the associations wrote. “We call on the Bundestag and the federal government to initiate the necessary measures without delay.”
