New supply chain laws: What do they mean for companies?

What does the German Supply Chain Act regulate?

Since January 2023, the German Supply Chain Due Diligence Act has applied to companies with more than 3,000 employees and a registered office or permanent site in Germany. From 2024, the minimum threshold has been lowered to 1,000 employees.

The Supply Chain Act obliges companies to:

• analyze human rights risks in their supply chain
• take preventive and rectifying measures
• set up grievance mechanisms
• report on their activities
• and be held responsible in German courts for non-compliance.

How can WifOR support companies in dealing with the new Supply Chain Acts? Learn more here.

Objectives of the German Supply Chain Act in detail

The main objective of the Supply Chain Act is to ensure companies comply with basic human rights and environmental standards along their entire supply chain. This includes, for example, the prevention of child labor, exploitation in the form of modern slavery, and hazardous waste.

Creating legal certainty

The Supply Chain Act establishes clear requirements for corporate due diligence obligations. It provides a legal framework for companies to identify and assess human rights risks and implement appropriate measures. This is intended not only to enhance legal certainty for businesses but also to ensure the protection of potentially affected individuals.

Establishing fair conditions for competition

Another key aspect of the Supply Chain Act is to create a fair competitive framework for companies in Germany. It aims to ensure that businesses already acting responsibly are not disadvantaged compared to those that disregard human rights and environmental standards. This means that companies that have proactively invested in meeting their due diligence obligations will not face pressure from competitors who ignore standards to cut costs.

External review and enforcement

Germany’s Federal Office of Economics and Export Control (BAFA) monitors compliance with the law. It reviews company reports, and investigates complaints from affected parties. Moreover, it can impose fines or exclude companies from public tenders in the event of non-compliance. This external review ensures that companies take their obligations seriously and comply with the prescribed standards.

The European Supply Chain Act

On March 15, 2024, the EU member states agreed on an EU-wide directive on supply chain legislation, the Corporate Sustainability Due Diligence Directive (CSDDD or CS3D). However, in February 2025, the EU proposed the “Omnibus” revision, which reduced the scope of the directive.

This decision was made during the national implementation phase of the CS3D. It is highly likely that the revised obligations will be enacted. As part of this process, existing supply chain laws, such as the German Lieferkettensorgfaltspflichtengesetz and the French Loi de vigilance, will need to be aligned with the EU directive.

Comparison: German and European supply chain laws

Both Germany’s Supply Chain Act and the Europe’s supply chain legislation share the goal of protecting human rights and environmental standards in the economy by increasing transparency in global supply chains. However, they differ significantly in terms of scope, areas of responsibility, extent, and potential consequences for the companies subject to these regulations:

The German Supply Chain Law	The European Supply Chain Law
Scope From 2023, initially for companies with 3,000 employees; since January 1, 2024 for companies with 1,000 employees.	Scope The law applies to companies with 3,000 or more employees and a turnover exceeding €900 million. It also covers non-EU companies that generate a corresponding turnover of €900 million within the EU.
Area of responsibility Companies must implement preventive measures within their own operations as well as those of their direct suppliers. They must also establish a grievance mechanism that allows stakeholders to report risks and violations of human rights or environmental standards by indirect suppliers, ensuring that risk management is adjusted accordingly. If there is clear evidence of violations, companies must immediately conduct a risk analysis, implement preventive measures, and regularly report on the fulfillment of their due diligence obligations. All documentation must be retained for seven years and made publicly accessible.	Area of responsibility Companies must conduct risk analyses and ensure that their due diligence obligations are continuously fulfilled. The Omnibus proposal requires that the risk assessment be repeated every five years. In general, due diligence obligations under the CS3D are similar to those in the LkSG, as both laws are based on the existing Due Diligence Process outlined in the United Nations Guiding Principles on Business and Human Rights (UNGPs). However, under the CS3D, mandatory due diligence applies only to direct suppliers.
Extent The protection of the environment is covered by the law when environmental risks have the potential to cause human rights violations. Additionally, environmental infringements are addressed through two international agreements that safeguard against the health and environmental hazards of mercury and harmful persistent organic pollutants.	Extent The European Parliament’s proposal addresses both environmental and social issues, including fair wages, safe working conditions, children’s rights, and the prohibition of forced labor and modern slavery. It also targets environmental degradation that impacts natural resources for food production, access to clean drinking water, and the prevention of deforestation.
Potential consequences Fines of up to €800,000 or up to 2% of a company’s global annual turnover, as well as exclusion from public tenders for up to three years.	Potential consequences Violations can result in fines of up to 2% of annual global turnover. Civil liability has been removed under the Omnibus proposal, meaning companies will no longer face legal claims for negligence or intent related to their due diligence obligations.

New supply chain laws: history, status quo & outlook

In June 2021, the Bundestag passed the Act on Corporate Due Diligence in Supply Chains. However, in the debate over an EU-wide supply chain directive, ministries led by Germany’s liberal FDP strongly opposed it until the very end. Nevertheless, on March 15, 2024, EU member states agreed on an EU-wide law, the Corporate Sustainability Due Diligence Directive (CS3D). Its original scope was reduced during the implementation phase. Once enforced at the national level, the law will apply to companies with more than 3,000 employees and an annual turnover of €1 billion.

Initially – before the Omnibus review – the CS3D included civil liability for violations of due diligence obligations. In contrast, the German Supply Chain Act (LkSG) focuses primarily on administrative fines for non-compliance. The LkSG also allows NGOs to file complaints on behalf of affected stakeholders with the German supervisory authority (BAFA).

Pros and cons of a European supply chain law for companies

What do the German and European supply chain laws mean for businesses in Europe? A look at the advantages and disadvantages.

Opportunities for companies from a European supply chain law

A European supply chain law creates a uniform legislative framework to promote transparency and legal clarity in Europe. This harmonization eliminates the uncertainties and complexities associated with the diversity of national laws. Additionally, an EU-wide directive ensures that companies within certain countries are not put at a disadvantage, creating a level playing field.

This is particularly relevant given that many companies in countries with existing supply chain laws have made considerable investments in implementing sustainability standards. Companies that had already adopted the United Nations Guiding Principles on Business and Human Rights (UNGPs), including a standardized due diligence process, before the mandatory supply chain laws, are well-prepared. These laws recognize and reward their voluntary efforts in sustainability and human rights.

A supply chain law also strengthens the remit of European companies to shape and influence compliance with standards along the supply chain in challenging political environments. In addition, a legal guarantee of sustainability standards promotes long-term consumer confidence in products and brands.

Risks for companies from a European supply chain law

However, it is an enormous challenge for global companies with highly fragmented supply chains to identify deficiencies along their entire supply chain. Some companies fear that a European law could put them at a disadvantage in international competition, especially compared to companies from countries without comparable legislation.

Medium-sized enterprises could suffer particularly from the requirements of a European supply chain law, as they may not have the resources to meet these requirements. The Omnibus revision was partially driven by concerns regarding the administrative burden on SMEs as parts of the supply chain of larger companies.

To meet the corporate due diligence requirements of both the German Supply Chain Act, companies need a holistic overview of their social and environmental impact along the supply chain. Beyond compliance, the analysis supports corporate risk assessment, providing a basis for resilience.

How can WifOR support companies in dealing with the Supply Chain Act?

Key components of both Supply Chain Acts include risk analysis and prioritization in order to define targeted preventive and remedial measures. Using a macroeconomic model, WifOR identifies social and environmental hotspots along global supply chains based on purchasing data.

Prioritization using Impact Valuation

Results of Impact Analysis are initially expressed in physical variables, such as number of workplace accidents or tons of CO₂ emitted. In order to enable a comparison, the second step is to convert the results into a standardized, monetarized value. Consequently, impacts can be prioritized – as required by the Supply Chain Act.

Coefficients, known as value factors, can be used to translate physical units into a common currency. This methodical approach makes it more accessible to compare the impact of different social and environmental indicators. This enables the areas with the greatest impact on society to be ranked, forming a data-based foundation for prioritizing measures. The results thus support sustainable decision-making and facilitate more effective risk management.

Calculate own results using WifOR’s Sustainability Impact Tool (WISIT)

For companies wanting to carry out risk analysis themselves, the WifOR Sustainability Impact Tool (WISIT) offers a Supply Chain Act feature. WISIT supports companies in analyzing and reporting in accordance with legal requirements. It enables risks along the supply chain to be identified, analyzed, and prioritized. The results are provided in a format that can be easily transferred to the final Supply Chain Act reporting documents.

Watch the video to learn how companies can meet Germany’s Supply Chain Act requirements using WISIT: