European Supply Chain Law: Everything about the guidelines for sustainable business
As social minimum standards in human and labour law are disregarded, people worldwide live in poverty and misery. Children and forced labour are particularly affected by this. However, ecological minimum standards, which serve environmental protection, are also not being implemented by many companies.
To change these conditions and commit companies to consistent and transparent implementation, a legislative proposal for the Corporate Sustainability Due Diligence Directive (CSDDD) was approved by MEPs in the EU Parliament on 1 June 2023. This relates to non-financial reporting. Its implementation failed in February 2024. The CDU/CSU and FDP, in particular, positioned themselves clearly against the legislative proposal and thus contributed significantly to its failure on the first attempt. The consequence: a watered-down proposal with less stringent regulations, fewer affected companies, and an extended implementation period. Despite the watering-down, the law continued to be criticised – but without success: in March 2024, the European supply chain law was able to be initiated at the EU Council meeting, despite Germany's abstention, and came into force in July 2024.
Currently, the European Commission is working on the so-called Omnibus Regulation. This aims to simplify existing regulations such as the CSDDD and CSRD, reduce bureaucracy for companies, and make sustainability reporting requirements more practical.
The German Supply Chain Due Diligence Act must be adapted to the now-applicable strict provisions at the EU level.
What obligations now arise from the decisions in the EU Parliament and the Federal Government?
- The company management must implement the obligations of national law
- The European supply chain law aims to combat human rights abuses such as slavery, child labour, exploitation or environmental pollution.
- Companies that fail to comply with the law face fines amounting to 5 % of their global net turnover
Das europäische Lieferkettengesetz gilt für grosse Unternehmen, die in der EU tätig sind.
- Companies based in Europe with more than 5,000 employees and a worldwide net annual turnover of more than €1.5 billion must implement due diligence obligations from 2027
- Companies from the EU as well as third-country companies operating in the EU with at least 1,000 employees and at least €450 million in turnover must comply with the requirements after a transitional period of five years, i.e. from 2029.
- Although small and medium-sized enterprises are not directly affected, they must also comply with the provisions of the Supply Chain Due Diligence Act as suppliers to larger companies.
What is the EU Supply Chain Act?
- To systematically identify and mitigate supply chain risks
- to implement human rights and environmental standards
- To introduce complaint procedures and to promote collective bargaining.
- to report annually on sustainability measures
Welche Unternehmen sind von dem EU-Lieferkettengesetz betroffen?
The EU supply chain law affects all companies that operating in Europe are, regardless of their industry. Even those operating in the EU Companies from third countries, which have more than 1,000 employees and more than 450 million euros in turnover, are affected by this legislation.
|
July 2024: |
The CSDDD will enter into force 20 days after its publication. |
|
July 2026: |
The EU Member States must transpose the CSDDD into national law, in Germany through an amendment to the LkSG. |
|
2027 |
The CSDRDM shall apply to companies with
|
|
2028 |
CSDDD applicable to companies with
|
|
2029 |
CSDDD applicable to companies with
|
The initial proposal for the EU's supply chain law included the definition of risk sectors, which were to be subject to stricter regulations due to their particularly high risk potential for people and the environment. These included companies in the textile or leather industry and related products, agriculture, forestry, fishing and food production, as well as companies that transport and trade mineral resources. However, these stricter special regulations have now been removed from the current version of the law.
What do companies need to consider?
The companies are responsible for the introduction and implementation of the European Supply Chain Due Diligence Act (CSDDD). European companies must A number of factors consider when ensuring their supply chains and production are compliant with the EU Supply Chain Act.
First, companies must ensure that all suppliers adhere to the Legal requirements fulfil. This includes them having the due diligence to examine the practices of their suppliers Carefulness ensure and take action to prevent human rights abuses and environmental protection violations. Furthermore, companies must also Monitoring strategies ensure compliance with regulations throughout their supply chains. Finally, companies must ensure that they adequately train their employees on the requirements of the European Supply Chain Law.
EU Supply Chain Due Diligence Act: These are the obligations for companies
- Integrating human rights and environmental due diligence into corporate processes
- Identification and prevention of negative impacts on human rights and the environment in the value chain
- Establishment of a complaints procedure for reporting breaches of guidelines
- Annual Report on Due Diligence Perception and Implementation
- Outline of a transformation plan to achieve the Paris Agreement's goal (1.5-degree target)
Amendments through the Omnibus Regulation for the European Supply Chain Act
With the „Omnibus Regulation“, the European Union intends to amend or update several existing regulations or directives simultaneously.
The European Commission is currently planning a significant initiative to simplify ESG reporting obligations, particularly with regard to the CSRD and CSDDD.
Key elements of the changes:
- Limitation of due diligence obligations to direct business partners
- Obligation to analyse sustainability risks only for direct business partners (Tier 1 suppliers)
- Enhanced due diligence obligations for indirect business partners only in cases of plausible risks or negative reports (e.g. by media/NGOs)
- Companies should nonetheless enforce their Code of Conduct throughout the entire value chain.
- Timely adjustments
- Review of due diligence measures only every five years (instead of annually)
- Postponement of the initial application of the CSDDD by one year to 26 July 2028
- Liability
- Companies are no longer liable across Europe for breaches of due diligence obligations
These changes aim to reduce bureaucracy while simultaneously promoting sustainable corporate governance.
Why is a European supply chain law needed?
The aim of the European supply chain law is to, Responsible business practices to promote, protect people and the environment and to ensure that companies that do not adhere to ethical standards to be held accountable.
Even today, unfortunately, in many countries no laughing matter, that human rights are upheld and the environment is treated with respect. Child labour and forced labour is not uncommon, but is partly part of everyday life. Work under also life-threatening circumstances It is not isolated cases that have long-term and serious consequences for people's health. Environmental violations harm nature and animals – with devastating Implications for the future.
The European Supply Chain Act requires companies to, Sustainability principles and one Due diligence regarding human rights in your to include processes. Companies must also ensure that their suppliers also adhere to the guidelines in order to ensure compliance with the EU Supply Chain Act. This law is an important step forward in creating a more sustainable supply chain that promotes human rights, biodiversity, and environmental protection.
This is why the European Supply Chain Act is important:
- Protection of Human Rights (Prevention of Child Labour and Forced Labour, Wages below the Subsistence Level, Prevention of Work in Life-Threatening Conditions)
- Environmental protection (prevention of environmental exploitation and destruction, water and air pollution)
What are violations in the EU Supply Chain Act?
European companies are in the Responsibility to ensure that they and their suppliers uphold and promote human rights and environmental principles. Violations of the European Supply Chain Act can include companies failing to provide sufficient information about their approach to labour, employees and the environment Record, no reports on this Providing or taking no action to prevent human rights violations.
Companies can also fall foul of the law if they engage in activities that involve forced labour, child labour, or the exploitation of workers. Furthermore, companies must adhere to the Requirements to comply with responsible sourcing and ensure their suppliers adhere to applicable labour, health and safety standards.
These violations fall under the EU Supply Chain Act.
- Violation of human rights (liberty and security of person, legal capacity)
- Non-compliance with safety regulations (working in life-threatening conditions)
- Violation of fundamental employee rights (child labour, forced labour, rest & leisure)
- Violation of the protection of biodiversity and ecosystems
- Pollution of water and air
- Violation of climate change countermeasures
How are these violations punished?
Companies can be penalised in various ways for breaches of the European supply chain law. Under the EU Supply Chain Act, it is the duty of European companies to, human rights and environmental due diligence obligations to meet. Violations must be prevented and identified.
Failure to comply with the guidelines and incorrect adherence, we shall Fines, exclusion from public procurement procedures and sanctions against suppliers or the Companies face consequences. Companies that fail to comply with the European Supply Chain Due Diligence Act can also be sued in EU courts. Furthermore, firms may be obliged to pay damages caused by their breaches of the act.Lists will be published naming companies that have violated the requirements of the CSDDD.
EU Supply Chain Law and German Supply Chain Law: What are the differences?
The European Supply Chain Act and the German Supply Chain Act both aim to, Responsible business practices to promote in Europe by Minimum standards to establish for workers' rights, environmental protection, and human rights.
The EU Supply Chain Act is a framework law that applies to all companies operating in Europe, whereas the future German law is a Bespoke implementation the EU standard, which only applies to companies based in Germany. The current German law is more specific, however, the EU law has stricter requirements for companies. Overall, both laws aim to Compliance with applicable standards to ensure and create a level playing field for responsible business practices across Europe.
Both pieces of legislation stipulate that companies with 1,000 or more employees fall under the regulation. One difference lies in the scope of obligations: the EU Supply Chain Act refers to the distribution, transport, and storage of products when these are carried out directly for the obligated company. The disposal of products is excluded. The German Supply Chain Act, on the other hand, is limited to direct suppliers and largely excludes downstream processes.
The European Supply Chain Law therefore has a much deeper impact than the German Supply Chain Law, which has been in force since January 2023. European companies should therefore focus directly on the EU law when developing their own supply chain management, thus avoiding later amendments to their measures.
What are the implications of the new coalition agreement of 14/04/2025 for the German Supply Chain Due Diligence Act?
The new federal government plans to abolish the existing Supply Chain Due Diligence Act (LkSG). It is to be replaced by a new law on international corporate responsibility, which will implement the European Supply Chain Directive (CSDDD) in a low-bureaucracy and enforcement-friendly manner. The reporting obligation under the LkSG will be abolished immediately and will cease to apply entirely.
Conclusion on the European Supply Chain Act
The EU Supply Chain Act is a important step to create a more sustainable, responsible, and ethical working environment in Europe and among suppliers worldwide. Undertakings operating in the EU must take measures to ensure they comply with this law. This includes carrying out due diligence on their suppliers, ensuring practices are in line with applicable standards, and taking steps to prevent human rights abuses. One of the most important measures, and one that is always checked first by the authorities, is the establishment of an easily accessible, 24/7 Reporting systems in as many languages as possible. It must enable anonymous reporting, which can be submitted by anyone with knowledge of human rights violations or environmental hazards. The companies should have appropriate Complaints procedure set up as soon as possible and check existing procedures for compliance with the EU Supply Chain Act.
This way, companies can ensure regulatory compliance and contribute to a fair, social, and environmental minimum standard.
The EU Supply Chain Act thus contributes to protecting workers and the environment and, with its guidelines, a sustainable economy to promote. If violations of the law are observed, employees and other stakeholders must have the opportunity to report these incidents. Especially digital Whistleblower schemes are well-suited for anonymised reports and the implementation of a standardised complaint procedure, which is also part of the duty of care under the German Supply Chain Act.
(The male form used refers to all persons, regardless of gender.)
Our next free webinar for you:
We regularly offer exciting webinars on the subject of whistleblowing.
Customers, partners, and experts engage in dialogue with us and you here, sharing insights and expertise on whistleblowing related to supply chains, ESG & sustainability, employment law, data protection, and more.
Register for our next webinar now!
