What’s new German Supply Chain Act? Legal Update on LkSG and CSDDD

LkSG

On July 28, 2025, the Federal Ministry of Labor and Social Affairs (BMAS) drafted a bill on the Supply Chain Act (LkSG), which is intended to relieve the burden on the German economy, and published it on August 29, 2025. On September 3, 2025, the draft bill was approved by the Federal Cabinet.

The BMAS’s draft bill would mean the abolition of the reporting obligation and a reduction in possible sanctions for companies. According to the BMAS’s own calculations, the changes would lead to economic relief of approximately EUR 4,138,000.00 for the benefit of the German economy. However, the applicable due diligence obligations of the LkSG are to remain in place. The scope of the LkSG would also remain unchanged and should continue to apply – regardless of the industry – to all companies in Germany that generally employ at least 1,000 people.

Key proposed amendments to the draft bill include the abandonment of the annual reporting requirement and the reduction of the offenses that can be punished with a fine.

Among other things, the draft bill provides for the retroactive abolition of the obligation to publish and submit annual reports on the fulfillment of due diligence obligations within the meaning of the LkSG. However, it should be noted that the documentation obligation contained in the same paragraph of the LkSG remains in place. The fulfillment of the due diligence obligations must therefore continue to be documented internally by the company and the documentation, which can be viewed by BAFA, must be kept for at least seven years from its creation.

Furthermore, the draft bill contains the proposal to only sanction in the future those companies that do not take any preventive measures (§ 6 LkSG) and/or remedial measures (§ 7 LkSG) against possible or already identified human rights risks and/or do not set up a complaints procedure (§ 8 LkSG). However, it should be taken into account that, among other things, the unfulfilled risk analysis should also remain subject to a fine, as this is a preventive measure in the broadest sense. Furthermore, the draft bill proposes that only those who act “intentionally or negligently” are acting in a disorderly manner and that in the future only violations of human rights risks are subject to fines. Violations of environmental risks should no longer be subject to sanctions under the LkSG.

However, it should be taken into account that a final decision has not yet been made on the new draft bill of the BMAS.

For although the Bundesrat welcomes the changes made by the draft bill, it has brought further changes to the LkSG into play, which in its opinion would further relieve the burden on the German economy. Among other things, the further proposed amendments provide for reducing the scope of the LkSG by already adopting the scope of the CSDDD and, in addition, pursuing a risk-based prioritization with regard to LkSG risks and corresponding measures.

On October 17, 2025, the Bundesrat submitted this proposal to the Federal Government and returned the “lead” accordingly to the Federal Government. However, the Federal Government rejected the Bundesrat’s proposals, as it is currently unclear what form the CSDDD will take in the future; a corresponding adaptation or alignment would therefore be premature. The Federal Government now has another opportunity to pick up the ball again.

And how does the Federal Office for Economic Affairs and Export Control (BAFA) behave as the responsible authority? On October 1, 2025, it pointed out that the review of company reports will be discontinued and fines will only be imposed in ongoing and future administrative offense proceedings in the event of serious allegations within the meaning of the coalition agreement. According to BAFA, this is the case if the violations are “particularly serious due to their extent, scope or irreversible nature.” The prerequisites for this can be met in the event of a lack of remedial measures and a lack of conception within the meaning of the LkSG. In addition, BAFA offers further communication options in order to get in touch with affected companies and thus achieve an effective achievement of the law’s objectives through practical measures.

CSDDD

In addition, there are currently also discussions regarding the CSDDD. The focus here is also on: Reducing the scope. According to the EU Parliament, the CSDDD should in future only apply to companies with more than 5,000 employees and a net turnover of EUR 1.5 billion.

This initiative initially failed in the first vote in the European Parliament. In a second vote on November 13, 2025, the proposal then received a majority – albeit a politically controversial one.

The negotiations on this began on November 18, 2025 in the trialogue procedure between Parliament, the Council and the Commission. A decision on the amendment to the directive is expected at the end of 2025.

The CSDDD already came into force on July 25, 2024 and was originally scheduled to be implemented by July 26, 2026. However, the so-called Stop-the-Clocks Initiative postponed the deadline for implementation into national law to July 26, 2027. According to the CSDDD, companies with more than 1,000 employees and a net turnover of more than EUR 450 million currently fall within the direct scope of application. The changes now approved by the EU Parliament therefore mean a significant reduction in the scope of application.

To what extent the changes to the scope of the CSDDD mean that the LkSG will also be adapted remains to be seen. For despite the amendment to the CSDDD, a prohibition of regression and/or deterioration could counteract a reduction.

Conclusion

Although noticeable deregulations are emerging in LkSG and CSDDD, the procedures for amending laws or guidelines have not yet been completed. Especially against the background of the previous history of the two sets of regulations, a final conclusion would therefore be premature.

However, it can be said that changes to simplify and relieve the burden on the economy are welcome. However, the constant back and forth and the associated discussions and uncertainties regarding LkSG and CSDDD are increasingly perceived as burdensome by economic actors. Ultimately, the political actors are therefore achieving exactly the opposite of what would be appropriate with this zigzag course: They spread uncertainty and thus inhibit investment efforts. A clear, uniform and long-term legal perspective would be desirable for all parties involved, which offers companies planning security, does not burden them with unnecessary rules and at the same time reflects the current urgency (with regard to sustainability aspects).

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