EU Supply Chain Act from 2026 at the latest

Several European countries have already passed national legislation to improve human and environmental rights along the supply chain - including Germany. Now the European Commission has also published an initial proposal for a European Supply Chain Act. What regulations now apply to companies in Germany?

A uniform European regulation can fundamentally be welcomed. It would basically relieve the burden on many companies. However, the European Commission's proposal for a "European Supply Chain Act" (Corporate Sustainability Due Diligence Directive) provides for more stringent requirements compared to the German Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz - LkSG). The member states must transpose the Directive into national law by 2026. The German LkSG is already coming into force in January 2023. The following changes, in particular, can be expected.

Greater number of companies affected

The draft European Supply Chain Act that has now been presented stipulates that companies must monitor compliance with human and environmental rights along the entire supply chain. Compared to the LkSG, this obligation will affect considerably more companies. This is because the relevant thresholds of the LkSG of initially 3,000 and later 1,000 employees in the Federal Republic are to be lowered to up to 250 employees in particularly risky sectors - at least insofar as the annual sales of the company in question exceed EUR 40 million worldwide in the last preceding financial year and at least half of these sales are generated in risk sectors. Even in non-risk sectors, the relevant thresholds are being lowered to 500 employees or EUR 150 million in global annual sales.

Scope of application

The draft directive provides for a considerably broader scope of application than the LkSG. The limited responsibility that would then apply in Germany, depending on the stage of the supply chain, would cease to apply. Rather, the scope of application of the new European Supply Chain Act goes considerably further. It covers the entire value chain, i.e. the company's own business operations, subsidiaries and all activities along the value chain of suppliers with whom they at least have an established business relationship.

Due diligence

The required implementation measures ("due diligence") correspond in essence to those of the LkSG. These include risk management and analysis, preventive and remedial measures against or in the event of violations, as well as adequate complaint and monitoring instruments.

Civil liability

The question of civil liability, which was hotly contested in Germany when the LkSG was passed, will become superfluous. The European Directive calls for the introduction of civil liability for violations along the entire supply chain, at least as long as these were foreseeable and could have been foreseen through reasonable due diligence measures.

Criminal liability

On the other hand, the feared criminal liability has not materialised (status as of today). Instead, there will be fines based on turnover, as before. What is new - apart from an already possible exclusion from procurement procedures - is the possibility of an exclusion from public funding. The detailed structuring of the liability and sanctions regime is the responsibility of the member states.

Special duties of conduct for the management

Finally, special behavioural obligations for the management are worth mentioning. The management also needs to take sustainability considerations into account when making decisions. Otherwise, it risks a breach of duty.

Outlook

We expect that several points of the draft directive will still be amended in the course of the forthcoming political debate. Nevertheless, a clear strategy is emerging. From 2026 at the latest, the requirements for obligations to monitor human and environmental rights along the supply chain will be tightened and extended to many more companies than ever before.

More information about the Supply Chain Act:

Supply Chain Due Diligence Act (LkSG) and compliance management systems

Sustainability: Federal Government presents draft bill on Supply Chain Act

You can find more articles on our Compliance-Site. 

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