Recognizing the importance of corporate sustainability reporting, especially for the supply chain, governments are implementing human rights and environmental due diligence obligations for companies.
European countries like Germany, France, Norway or The Netherlands have already implemented their own supply chain legislations. To harmonize these efforts across the European Union has been working on implementing the Corporate Sustainability Due Diligence Directive (CSDDD).
A timeline of the regulatory struggle around the CSDDD:
- 23rd of February 2022: EU Commission presents a proposal for a directive
- 14th of December 2023: EU Parliament announces agreement on a draft text
- 9th of February 2024: Vote in the council of the EU member state was postponed, after Germany announced it would abstain from voting
- 14th of March 2024: Following mediation, a compromise was developed and a majority of EU member states (without Germany) supported the weakened CSDDD
- Next steps: Final approval of the EU Parliament, expected in April or May 2024
The effect of the CSDDD on the German LkSG
After the approval of the CSDDD in the EU Parliament, the EU member states must transpose the CSDDD into national law within 2 years. In Germany, this is likely to be done by amending The Act on Corporate Due Diligence Obligations in Supply Chains “Lieferkettensorgfaltspflichtengesetz” (LkSG), that went into affect in 2023.
German companies that already comply with the LkSG will be able to use synergies from the LkSG for the CSDDD. However, the content of the CSDDD goes beyond that of the LkSG. So German companies can expect the corresponding LkSG regulations to be tightened. In this blog post, we’ll explore the most important similarities and differences between the two reporting directives.
Comparison of LkSG and CSDDD
| LkSG | CSDDD | |
| Scope of Application | German and foreign companies with at least 1.000 employees in Germany | EU companies with at least 1.000 employees and more than 450 million € turnover worldwide Additional rules apply for: Non-EU companies, parent companies, companies with franchising or licensing agreements Important: There is a phased implementation over the coming years depending on the size of the company, to give them more time to adjust: From 2027: > 5.000 employees + 1.5 billion € turnover From 2028: > 3.000 employees + 900 million € turnover From 2029: > 1.000 employees + 450 million € turnover |
| Due diligence obligations | Actual and potential negative impacts must be identified, reported and, where possible, remedied or minimized. | Many similarities to LkSG: Actual and potential negative effects must be identified, reported and eliminated or minimized. |
| Scope of responsibility | The supply chain is limited to due diligence measures within the company’s own business area and its suppliers | Broader scope called “chain of activities”, covering a company’s own business activities, its subsidiaries and upstream and downstream business partner activities |
| Thematic focus | Focus on human rights topics and only a few environmental topics | Additional environmental and climate concerns, such as: – harmful soil changes – water or air pollution – excessive water consumption – Protection of flora and fauna – harmful emissions – climate transition plan for climate change mitigation in line with the paris agreement (for companies that don’t fall under the CSRD already) |
| Sanctions | – Fines of up to 800.000 € – Fines up to 2 % of the net turnover for companies with a turnover of over 400 million € | – Fines up to 5 % (or more) of the net turnover – Publication of the infringement and the name of the company |
| Civil liability | No civil liability | Affected parties can file claims against companies for damages stemming from violations of their obligations |
As a result, the extended obligations of the CSDDD can be a challenging task for companies. German companies that are already compliant with the LkSG can use the learnings and implemented processes to prepare for the CSDDD.
DFGE as an expert in the field of ESG reporting and compliance can help companies to navigate German and European supply chain regulations. For more information, visit https://dfge.de/en/lksg-strategy/ or contact us via or phone +49 8192 99 7 33-20.
Sources:
General Secretariat of the Council: Proposal for a Directive of the European Parliament and of the Council on Corporate Sustainability Due Diligence and amending Directive (EU) 2019/1937: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52022PC0071
The Act on Corporate Due Diligence Obligations in Supply Chains (Lieferkettensorgfaltspflichtengesetz, LkSG): https://www.csr-in-deutschland.de/EN/Business-Human-Rights/Supply-Chain-Act/supply-chain-act.html
