Procurement Glossary
Supply Chain Due Diligence Act: definition, implementation and compliance in Procurement
November 19, 2025
The German Supply Chain Due Diligence Act (LkSG) obliges German companies with 3,000 or more employees to comply with human rights and environmental standards in their global supply chains. This regulation is fundamentally transforming strategic Procurement and requires systematic due diligence processes to identify and minimize risks. Find out below what the Supply Chain Due Diligence Act covers, what obligations arise and how companies can develop compliance-compliant procurement strategies.
Key Facts
- Applies since 2023 for companies with 3,000 or more employees, from 2024 for companies with 1,000 or more employees
- Includes human rights and environmental risks along the entire value chain
- Fines of up to 2% of annual turnover possible for violations
- Requires risk analyses, preventive measures and complaint mechanisms
- Documentation and reporting obligations vis-à-vis the Federal Office of Economics and Export Control (BAFA)
Contents
What is the Supply Chain Due Diligence Act?
The Supply Chain Duty of Care Act establishes binding standards for sustainable supply chain management and corporate responsibility in Germany.
Core elements and area of application
The LkSG defines specific due diligence obligations to prevent human rights violations and environmental damage. Affected companies must implement systematic due diligence procedures and carry out regular risk analyses.
- Prohibition of child labor and forced labor
- Occupational health and safety standards
- Environmental regulations and avoidance of pollutants
- Freedom of association and collective bargaining rights
LkSG vs. EU Due Diligence Directive
While the German LkSG is already in force, the EU is developing a more comprehensive Corporate Sustainability Due Diligence Directive. This is expected to include stricter requirements and an extended scope of application.
Importance in strategic Procurement
The law is transforming procurement processes from cost-oriented to value-based decisions. Purchasing organizations must establish compliance structures and expand supplier evaluations to include ESG criteria.
Implementation, obligations and evidence
The practical implementation of the LkSG requires structured processes and systematic documentation of all due diligence obligations.
Risk analysis and supplier evaluation
Companies must carry out annual risk analyses and evaluate suppliers according to human rights and environmental criteria. Both direct and indirect suppliers must be taken into account.
- Geographical risk assessment by country and region
- Sector-specific risk analysis
- Supplier audits and certification requirements
Preventive measures and monitoring
Preventive measures include the integration of human rights and environmental standards into supplier contracts. A Supplier Code of Conduct defines binding standards of conduct for all business partners.
Complaints mechanism and remedies
Companies must establish accessible whistleblowing systems and take appropriate remedial action in the event of violations. This includes the termination of business relationships in the event of serious violations.
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Compliance key figures and quotas
Effective LkSG compliance requires systematic monitoring through meaningful key figures and regular performance measurement.
Supplier compliance rate
The percentage of suppliers that meet all LkSG requirements measures the effectiveness of the due diligence obligations. Target values are typically over 95% for critical Tier 1 suppliers.
- Proportion of audited suppliers by risk category
- Rate of successful certifications and verifications
- Average response time for compliance violations
Risk coverage and transparency
Covering the supply chain through risk analyses and transparency down to indirect suppliers are key indicators of success. Modern companies strive for transparency down to Tier 3 or lower.
Complaints mechanism effectiveness
Key figures on the use and effectiveness of whistleblowing systems show the accessibility and trust of stakeholders. Important metrics include the number of reports received, processing times and remedial measures.
Risks, dependencies and countermeasures
Non-compliance with the LkSG entails considerable financial, legal and reputational risks for companies and their supply chains.
Financial and legal consequences
Fines of up to 2% of annual turnover and exclusion from public contracts for up to three years pose existential threats. In addition, high implementation and monitoring costs are incurred.
- Direct fines by BAFA
- Exclusion from public procurement procedures
- Civil liability risks vis-à-vis injured parties
Supply chain disruptions and dependencies
The termination of business relationships with non-compliant suppliers can lead to supply bottlenecks. Dependencies on suppliers in high-risk countries without alternative procurement sources are particularly critical.
Reputational damage and stakeholder trust
Media coverage of human rights violations in the supply chain can cause lasting reputational damage. Investors and customers increasingly expect transparent ESG assessments and ethical business practices.
Practical example
A German car manufacturer implements LkSG compliance using a three-stage process: First, a risk assessment of all 2,500 direct suppliers is carried out based on geographical and industry-specific criteria. High-risk suppliers in countries such as Bangladesh or Myanmar undergo mandatory audits by external auditing companies. If violations are identified, 90-day improvement plans are agreed, the implementation of which is monitored by follow-up audits.
- Digital supplier platform with integrated risk scoring
- Quarterly update of country ratings
- Training programs for purchasing teams on human rights issues
Current developments and interpretation of the Supply Chain Due Diligence Act
The interpretation and application of the LkSG is constantly evolving, shaped by case law, official practice and technological innovations.
Digitalization of compliance processes
Artificial intelligence and machine learning are revolutionizing risk detection in global supply chains. AI-based systems analyze millions of data sources in real time and automatically identify potential human rights and environmental risks.
- Automated media monitoring and risk alerts
- Predictive analytics for supplier risks
- Blockchain-based transparency and traceability
Tightening up enforcement
BAFA is intensifying controls and increasingly imposing fines for violations. Companies must continuously professionalize and document their corporate sustainability due diligence.
Integration with EU taxonomy and CSRD
The dovetailing with the EU taxonomy and the Corporate Sustainability Reporting Directive creates uniform sustainability standards and significantly increases the reporting effort.
Conclusion
The Supply Chain Due Diligence Act marks a paradigm shift in German procurement towards value-oriented supplier selection. Successful compliance requires systematic due diligence processes, digital monitoring tools and close cooperation between Procurement, legal and sustainability. Companies that proactively implement LkSG requirements create competitive advantages through risk minimization and stakeholder trust. Integration with upcoming EU regulations makes a future-oriented compliance strategy essential.
FAQ
Which companies are affected by the LkSG?
The law applies to companies with their head office, main branch or registered office in Germany. Since 2023, companies with 3,000 or more employees have been affected, and from 2024 those with at least 1,000 employees. The total number of employees worldwide is decisive.
How far does the duty of care extend in the supply chain?
Companies must fully monitor direct suppliers (Tier 1) and take action with indirect suppliers as soon as they gain substantiated knowledge of violations. Complete monitoring of all stages of the supply chain is not required, but appropriate risk analyses are mandatory.
What are the sanctions for violations?
BAFA can impose fines of up to 2% of the average annual turnover. In addition, there is an exclusion from public contracts for up to three years. Repeat offenders and serious violations are punished particularly severely.
How do I effectively document LkSG compliance?
Annual risk analyses, supplier contracts with human rights clauses, audit reports and documentation of all remedial measures are required. A central compliance management system makes it much easier to provide evidence to BAFA.
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