Updated version – as of July 2026
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 oblige companies to implement them consistently and transparently, a legislative proposal for sustainability disclosures (CSRD) was approved by MEPs in the EU Parliament on 1 June 2023. This relates to non-financial reporting. In addition, the EU Supply Chain Law (Corporate Sustainability Due Diligence Directive – CSDDD) was developed. After several political attempts, the European Parliament and the Council have agreed on a watered-down version of the CSDDD. The directive has been published in the Official Journal and has now entered into force but must still be transposed into national law by the Member States. The obligations to apply will come into effect later than originally planned due to the Omnibus adjustments.
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 is likely to be amended as part of the implementation of the CSDDD; the specific German version has not yet been finally determined.
What obligations now arise from the decisions?
The company management must integrate the requirements of the respective national legislation into its corporate organisation.
The European Supply Chain Act aims to combat human rights violations such as slavery, child labour, exploitation, or environmental pollution.
Member States must lay down effective, proportionate and dissuasive sanctions; the specific amounts will be determined by national implementation.
Who does the European Supply Chain Act apply to?
The final CSDDD will gradually cover large companies; thresholds for employee numbers and turnover are decisive
Although small and medium-sized enterprises are not directly affected, they must also comply with the provisions of the Supply Chain Act as suppliers to larger companies.
What is the EU Supply Chain Act?
The EU's Corporate Sustainability Due Diligence Directive (CSDDD) requires large companies to embed human rights and selected environmental due diligence obligations throughout their value chains. German Supply Chain Due Diligence Act applies to companies with 1,000 or more employees from 2024. The CSDDD will cover significantly fewer companies, depending on the threshold, but particularly large ones; a general threshold of 250 employees is no longer included in the final version.
The CSDDD requires companies to:
To systematically identify and mitigate supply chain risks.
To implement human rights and environmental standards.
To establish a complaints procedure and to handle reports confidentially.
Regularly report on measures, insofar as reporting or disclosure obligations apply.
Which companies are affected by the EU supply chain law?
The EU Supply Chain Act affects large companies operating in Europe, regardless of their sector. Companies from third countries operating in the EU that exceed certain turnover and employee thresholds are also affected by this legislation.
The CSDDD entered into force 20 days after its publication in the Official Journal; however, it will only become applicable from the staggered application dates laid down in the directive.
The EU member states must implement the CSDDD into national law, in Germany likely through an amendment to the LkSG or a new implementation act. The first proposal for the EU Supply Chain Act included the definition of risk sectors for which stricter provisions were to apply. However, these stricter special regulations have been removed again in the current version of the law.
What do companies need to consider?
Companies are responsible for introducing and implementing the European Supply Chain Act (CSDDD). European companies must consider a number of factors when ensuring that both their supply chains and their production processes comply with the EU Supply Chain Act.
First, companies must ensure that all suppliers comply with the legal requirements. This includes examining their suppliers’ practices with the necessary due diligence and taking measures to prevent human rights violations and breaches of environmental protection requirements. Companies must also establish strategies for monitoring their supply chains to ensure compliance with the applicable regulations.
EU Supply Chain Due Diligence Act: These are the obligations for companies
Integrating human rights and environmental due diligence into company processes.
Investigation 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 and Implementation.
Presentation 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 and directives at the same time.
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:
Discussion on a stronger focus of due diligence obligations on direct business partners, with a risk-based expansion to downstream levels at the same time.
- The analysis obligations are to become more risk-based, allowing companies to adapt the focus and depth of their assessments to the risks associated with the respective supply chain.
Companies should nonetheless enforce their Code of Conduct throughout the entire value chain.
Testing and update cycles are to be designed more efficiently; the specific frequency will only be determined by the final Omnibus Regulation and national implementation provisions.
The application dates for the CSDDD have been postponed and staggered compared to the original plans; specific dates will depend on company size and national implementation.
The CSddd provides for civil liability for certain infringements, the scope and enforcement of which, however, are essentially defined by national law.
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 Act is to promote responsible business practices, protect people and the environment and ensure that companies that fail to comply with ethical standards are held accountable.
Even today, respect for human rights and responsible treatment of the environment cannot be taken for granted in many countries. Child labour and forced labour are not uncommon and, in some places, form part of everyday life. Work carried out under life-threatening conditions, with serious and long-term consequences for people’s health, is also not an isolated occurrence. Environmental violations harm nature and animals, with devastating consequences for the future.
The European Supply Chain Act requires companies to integrate sustainability principles and human rights due diligence into their processes. Companies must also ensure that their suppliers comply with the relevant requirements so that the EU Supply Chain Act can be implemented effectively. The legislation represents an important step towards creating more sustainable supply chains that promote 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 responsible for ensuring that they and their suppliers respect and promote human rights and environmental principles. Violations of the European Supply Chain Act may include companies failing to record sufficient information about their practices relating to labour, employees and the environment, failing to provide the required reports or failing to take measures to prevent human rights violations.
Companies may also violate the law if they participate in activities involving forced labour, child labour or the exploitation of workers. In addition, companies must comply with responsible sourcing requirements and ensure that their suppliers observe the 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 punished in various ways for violations of the EU's supply chain law. The EU supply chain law makes it the duty of European firms to comply with human rights and environmental due diligence obligations. Violations must be prevented and identified.
In the event of infringements and non-compliance with the guidelines, possible consequences include fines, exclusion from public procurement procedures, and sanctions against suppliers or the company; the exact details will be determined at a national level. Companies that do not comply with the European Supply Chain Act can also be sued in EU courts and be ordered to pay damages.
EU Supply Chain Law and German Supply Chain Law: What are the differences?
The European Supply Chain Act and the German Supply Chain Due Diligence Act both aim to promote responsible business practices in Europe by establishing minimum standards for employee rights, environmental protection and human rights.
The EU Supply Chain Act is framework legislation that applies to large companies operating in Europe, while the German law implements EU standards into national law and applies only to companies based in Germany or operating in Germany. The current German law is more specific, however, the EU directive will prospectively introduce stricter requirements in some areas, for example, through civil liability and stronger climate components.
The LkSG has applied to companies with 1,000 or more employees since 2024, whereas the CSDDD uses tiered thresholds and, in some cases, applies to significantly larger companies.
One difference lies in the scope of the obligations: The CSDDD relates to the value chain including certain downstream activities, whereas the LkSG focuses more strongly on direct suppliers, but already includes indirect suppliers on a risk-based approach today.
Depending on the specific design of the national implementation, the CSDDD may go further than the LkSG in certain points, while in other points the German regulation is already detailed today.
Companies should align their processes to risk-based integration of both current requirements of the LkSG and foreseeable obligations from the CSDDD.
What are the implications of the new coalition agreement of 14/04/2025 for the German Supply Chain Due Diligence Act?
A definitive repeal of the LkSG cannot currently be presented as the applicable legal situation. At most, it is permissible to point out that political discussions about a reform or adaptation of the LkSG are continuing in light of the CSDDD.
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 with suppliers worldwide. Companies operating in the EU must take measures to ensure they comply with this law and the national implementing regulations.
This includes carrying out due diligence on their suppliers, ensuring procedures comply with applicable standards and taking measures to prevent human rights violations. One of the most important measures is the establishment of an easily accessible, 24/7 reporting system in as many languages as possible, which allows for anonymous reporting and is linked to a standardised complaint procedure.
The EU's supply chain law thus contributes to protecting workers and the environment, and promotes a sustainable economy with its directives. If breaches of the law are observed, employees and other stakeholders must have the option to report these incidents. Particularly digital Whistleblower schemes are well-suited for anonymous reporting and the implementation of a standardised complaints procedure, which, among other things, is also part of the due diligence obligations under the German Supply Chain Act.
(The male form used refers to all persons, regardless of gender.)
