Supply Chain Act in medium-sized industrial companies: Contents and those affected (1/2)
published on
10.4.2025
Since 2023, the Supply Chain Due Diligence Act (LkSG) passed by the German Bundestag has been in force and entails severe penalties in the event of violations.
Medium-sized companies are also affected by the indirect reporting obligation and an even more far-reaching EU directive for all companies along the supply chain.
Not only the name of the Supply Chain Act is complex, but also the exact contents of the law and its implementation are difficult to interpret for many affected medium-sized industrial companies.
We shed light on the darkness with a two-part blog post series from medium-sized companies for medium-sized companies:
Find out now in our two-part blog post series whether you are affected at your company, what requirements you will face and how you can implement the minimum requirements of the Supply Chain Act quickly and easily.
You will also receive a free Supply Chain Act checklist for use in your company with our final blog post.
Affected by indirect reporting obligation and upcoming EU directive
concerns companies with > 250 employees and €40 million turnover
of human and environmental rights
The Supply Chain Due Diligence Act (LkSG for short) is an effective law for Germany that is intended to contribute to environmental protection and the protection of human rights.
The law is based on the UN Guiding Principles on Business and Human Rights adopted by the UN Human Rights Council in 2011. These were taken up in Germany in 2016 with the National Action Plan for Business and Human Rights (NAP). The aim of the NAP was for at least 50% of German companies with more than 500 employees to voluntarily comply with certain due diligence obligations by the end of 2020. However, subsequent monitoring showed that this voluntary commitment was unfortunately insufficient and only about 13-17% of the sample of 7,400 companies met the requirements. The failure to meet the target consequently resulted in the need for a legal regulation - the Supply Chain Due Diligence Act, which has been effective since January 01, 2023.
The legal framework aims to ensure that companies based in Germany source their goods from suppliers who value good working conditions and environmental protection.
In order to protect people and the environment, the Supply Chain Act describes a human rights risk (§ 2(2)) and an environmental risk (§ 2(3)), the avoidance of which has the highest priority. The risk areas include, among others:
Human rights
Child labour, forced labour and slavery, violation of occupational health & safety, violation of freedom of association, discrimination, payment according to minimum wage, unlawful expropriation
Environmental
Production and use of mercury, use / production of harmful chemicals, disposal and handling of (harmful) waste
With the aim of identifying and eliminating risks, the Supply Chain Act prescribes various duties of care in its § 3 para. 1 sentence 2:
The Supply Chain Act affects everyone - not only larger companies, but also medium-sized companies are affected by the indirect reporting obligation and a possible new EU directive.
Who exactly is affected by the Supply Chain Act?
The Supply Chain Act will apply to companies with more than 3,000 employees from January 01, 2023, and to companies with more than 1,000 employees from 2024.
How is the industrial medium-sized sector affected?
On June 01, 2023, the EU Parliament voted in favor of a more far-reaching directive at the EU level, in which medium-sized industrial companies with more than 250 employees and €40 million in sales will also be affected by supply chain law due diligence obligations. This summer the trilogy negotiations between EU Council, EU Commission and EU Parliament will start.
From this point onwards at the latest, companies must check all direct suppliers for compliance with minimum social and ecological standards. Companies that procure intermediate goods or finished products abroad must take responsibility for production processes and working conditions at their suppliers, trace abuses and avoid or remedy them from the outset or as soon as they become known.
Due to the indirect reporting obligation along the supply chain and the increased demands of customers on their suppliers, the backbone of the German economy - the industrial medium-sized sector - is also affected and must position itself future-proof in order to remain competitive as a supplier. Violations of this legal obligation may result in fines or damages from competitors.
Civil law
A violation of the Supply Chain Act does not entail any civil penalties (§ 3 paragraph 3).
Penalties from the Supply Chain Act
In the event of a violation of the provisions of the Supply Chain Act, a penalty payment of up to € 50,000 (Section 23) and fines depending on the size and turnover of the enterprise may be imposed (Section 22(2), Section 24).
Exclusion from public tenders for up to three years may also be a consequence (section 22).
Learn now in our Whitepaper which obligations the Supply Chain Act contains, whether you are affected and how you can easily and intuitively control the Supply Chain Act within your supply chain and comply with the minimum requirements with the help of Tacto.
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