Webinar recording: Status update on the Supply Chain Act: Review of the first year of application and outlook for the CSDDD

Overview of the Supply Chain Due Diligence Act (LKSG)

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Since the beginning of 2023, the LKSG has applied to German companies with over 3,000 employees. In 2024, this threshold will be lowered to 1,000 employees. The aim of the law is to prevent human rights violations and environmental damage along the entire supply chain. It forces companies to take responsibility not only for their own activities, but also for those of their direct and indirect suppliers.

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Core elements of the LKSG:

• Directly affected: Companies that are above the above-mentioned thresholds are obliged to comply with the LKSG.
• Indirect impact: Smaller companies that operate as suppliers can also be indirectly affected. Larger customers are increasingly demanding that their suppliers also implement the due diligence obligations of the LKSG.
• Step-by-step action: Companies are obliged to identify grievances both in their own business area and along the supply chain and to take action. There is a particular need for action when there are indications of grievances.

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Challenges and practical experience

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The practical implementation of the LKSG is proving to be more complex than expected in many companies. According to the speakers, there are a number of problems that companies are confronted with:

• High implementation costs: Companies encounter particular difficulties when working with international suppliers. Establishing transparent supply chains and monitoring requires considerable resources.
• Complaints and inspections: The first complaints were submitted to the Federal Office of Economics and Export Control (BAFA) in the first year after it came into force. Certain sectors, such as the automotive and food industries, are a particular focus of inspections.

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The European supply chain law (CSDDD)

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While the LKSG applies specifically to Germany, the planned EU directive CSDDD (Corporate Sustainability Due Diligence Directive) will tighten the regulations even further. The CSDDD is to apply to companies with 250 employees or more and contains additional obligations, such as liability regulations and climate targets. However, the political process for adopting the directive has not yet been completed. There is opposition to certain provisions of the CSDDD, particularly from Germany.

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The Tacto software solution for the LKSG

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Tacto offers a specially developed software solution to support companies in complying with the LKSG. This enables efficient implementation of the legal requirements by providing functions for risk assessment, action management and documentation. The software is primarily aimed at medium-sized companies and also takes into account the expected requirements of the European CSDDD Directive.

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Main functions of the Tacto solution:

• Conducting risk analyses to identify human rights and environmental risks.
• Management of risk minimization measures along the supply chain.
• Documentation and reporting to demonstrate compliance with due diligence obligations.

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Conclusion

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The Supply Chain Duty of Care Act presents companies with considerable challenges, both in terms of the necessary internal processes and in their cooperation with international partners. It demands transparency and commitment to compliance with human rights and environmental standards. While the implementation of legal requirements can be complex and resource-intensive, digital solutions such as those from Tacto offer valuable support. They help to identify risks, manage measures efficiently and fulfill legal documentation requirements. Companies that respond proactively to these requirements are better equipped for future legislative changes, such as the planned EU CSDDD directive.

Overall, it is clear that the LKSG and the CSDDD mark a shift towards greater responsibility in the global business world. Companies must embrace this change and see it as an opportunity to make their processes more sustainable.

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