prosustain – LkSG and CSDDD
The entry into force of the EU Supply Chain Act
On March 15, 2024, a majority of EU member states approved the “Corporate Sustainability Due Diligence Directive” (CSDDD), followed by the approval of the EU Parliament’s Legal Affairs Committee on March 19, 2024. The approval of the plenary of the European Parliament is still pending before the directive can enter into force.
The CSDDD aims to make value chains in Europe more sustainable and more compliant with human rights. While the Supply Chain Duty of Care Act (LkSG), which will be introduced in Germany in 2023, pursues similar goals, the question arises: how do the two laws differ and how can companies prepare for the challenges ahead?
CSDDD and LkSG
Both laws aim to oblige companies to identify, minimize and avoid human rights and environmental risks in their supply chain. While the LkSG mainly applies to German companies, the CSDDD has a much broader scope and covers all companies with more than 1,000 employees and a global annual turnover of 450 million euros in the EU.
German Supply Chain Due Diligence Act (LkSG)
- German companies with more than 1,000 employees since January 2024.
- Companies must identify and document human rights and environmental risks along their supply chains and minimize them through preventive and remedial measures.
- No civil liability for damage caused by suppliers.
- Fines of up to 2% of global annual turnover and exclusion from public tenders for up to 3 years.
European Supply Chain Directive (CSDDD)
- Companies with more than 1,000 employees and a global net annual turnover of 450 million euros. Companies not based in the EU are also affected if they generate this turnover in the EU.
- Companies must identify human rights and environmental risks, implement preventive measures and develop a climate plan that supports the achievement of the 1.5 degree target.
- Companies are liable under civil law for damage along their entire supply chain – from the procurement of raw materials to the delivery of the end product.
- Fines of up to 5% of net annual turnover and civil liability for cross-border violations.
The law will be introduced in several phases:
- Companies must have transposed the directive into national law by 2026, two years after it comes into force.
- From 2027, three years after it comes into force, companies with more than 5,000 employees and a turnover of over 1.5 billion euros will be affected.
- From 2028, four years after coming into force, reduced thresholds will apply: companies with more than 3,000 employees and a turnover of over 900 million euros will now fall under the regulation.
- From 2029, five years after coming into force, the directive will finally be extended to companies with more than 1,000 employees and a turnover of over 450 million euros.
What are the differences between the German Supply Chain Act (LkSG) and the EU Directive ( CSDDD)?
The German Supply Chain Due Diligence Act (LkSG) and the EU Directive on the Corporate Sustainability Due Diligence Directive (CSDDD) share a common goal:
They promote sustainable and ethical business practices. Both laws aim to ensure that companies conduct their activities in accordance with human rights and environmental protection. Nevertheless, there are differences that illustrate their respective scope and focus.
Focus and orientation
The LkSG focuses primarily on the protection of human rights in global supply chains. The CSDDD, on the other hand, expands this approach and also takes climate protection into account. While the LkSG focuses on sustainability and human rights, the CSDDD also requires concrete measures to combat climate change.
Scope and application
The LkSG applies to German companies and companies with a registered office or branch in Germany. The CSDDD, on the other hand, covers companies throughout the EU and also includes companies not based in the EU, provided they generate an annual turnover of at least 450 million euros in the EU.
Duties of care
The LkSG requires companies to monitor human rights and environmental risks along their direct supply chain. The CSDDD requires a more comprehensive review of the entire supply chain for human rights violations and environmental damage and also calls for the introduction of a climate plan.
Supply chain
A key difference is that the LkSG distinguishes between direct (immediate) and indirect (indirect) suppliers. The CSDDD, on the other hand, covers the entire value chain, including business partners at downstream levels.
Sanctions and liability
Under the LkSG, companies face fines of up to 2% of annual turnover and exclusion from public contracts. The CSDDD, on the other hand, relies on stricter sanctions, including fines of up to 5% of global net annual turnover and civil liability for violations, which is not provided for in the LkSG.
Company size
The LkSG applies to companies with more than 1,000 employees. The CSDDD affects larger companies with more than 1,000 employees and a global net annual turnover of at least 450 million euros. Companies outside the EU that generate a correspondingly high turnover in the EU are also affected.
Accountability
While the LkSG does not strongly involve stakeholders, the CSDDD requires companies to take greater account of stakeholder interests. Companies must also be accountable to external stakeholders when implementing their due diligence obligations.
Conclusion
The CSDDD goes in many respects beyond the LkSG in many respects. In particular, due to the additional focus on climate protection and the introduction of civil liability, the requirements and consequences for companies under the CSDDD are stricter. The directive thus creates a more comprehensive and stricter legal framework for sustainable supply chains in the EU.
With prosustain, you can easily implement the requirements of the LkSG and the CSDDD and make your supply chain sustainable. Get started now and secure the benefits of a comprehensive compliance solution – for more transparency and responsibility in your company!