Deciphering Supply Chain Laws: LkSG vs CSDDD
On March 15, 2024, the European Council reached an agreement on the Corporate Sustainability Due Diligence Directive (CSDDD). The Belgian Presidency of the European Council circulated an adapted proposal for the CSDDD as a final attempt to reach an agreement among the Member States and with success: the required (qualified) majority was achieved within the European Council. The formal adoption of the CSDDD by the Members of the European Parliament is expected in April 2024.
But how does this directive differ from the German Supply Chain Due Diligence Act (LkSG)? And how do they relate to each other? In this blog post, we will highlight the similarities and differences between the CSDDD and the LkSG.
Exploring Similarities Between LkSG and CSDDD: Seeking Common Ground
Both laws aim to hold companies accountable and oblige them to organize their supply chains responsibly. Both the Supply Chain Due Diligence Act (LkSG) and the Corporate Sustainability Due Diligence Directive (CSDDD) set out comprehensive due diligence obligations for human rights and environmental protection along the supply chain. This means that companies are obliged to identify and report on the potential negative impacts of their business activities and to take measures to minimize or prevent negative impacts. Both laws also provide for sanctions that companies face if they violate the stipulated regulations. This can include fines and exclusion from public contracts.
Highlighting Contrasts: Key Differences Between LkSG and CSDDD
The main difference between the German Supply Chain Due Diligence Act (LkSG) and the EU Corporate Sustainability Due Diligence Directive (CSDDD) lies in their scope of application and legal structure. The LkSG applies to companies of any legal form in Germany and is staggered according to company size, whereby it has applied to companies with more than 3,000 employees since 2023 and to companies with more than 1,000 employees since January 2024.
In contrast, the CSDDD applies gradually to corporations in the EU and to non-EU companies that exceed a specified number of employees and a turnover threshold in the EU single market. Large companies with more than 5,000 employees and a minimum turnover of 1.5 billion euros are obliged to comply with the directive three years after its enactment, likely in 2027. Companies with more than 3,000 employees and a minimum turnover of 900 million euros have four years (potentially until 2028), and companies with more than 1,000 employees and a minimum turnover of 450 million euros have five years (potentially until 2029 2029) until they are subject to the law.
Another difference involves the specific requirements and concerns covered by the laws. While the LkSG focuses primarily on human rights and direct environmental risks, the CSDDD expands its scope to include additional environmental concerns such as climate targets, the protection of flora and fauna and the minimization of environmental impacts along the “chain of activity”. The "chain of activity" includes all upstream activities that are related to the production of goods, the company’s own operations and downstream activities for distribution, transport and storage for direct business relationships. Usage and disposal of the product are not in scope.
Furthermore, there are distinctions regarding liability within the two laws. While the LkSG does not provide for civil liability, the CSDDD does, but only within its own sphere of influence and in accordance with the provisions of the German Civil Code (BGB). There are also differences in the sanctions: While the LkSG provides for fines of up to 2% of annual turnover and exclusion from public sector contracts, the CSDDD provides for fines of up to 5% of annual turnover, in addition to publication of the infringement and a ban on the marketing or export of products and services.
Wrapping Up: Key Takeaways from the Comparison of LkSG and CSDDD
In conclusion, the comparison between the German Lieferkettensorgfaltspflichtengesetz and the EU Corporate Sustainability Due Diligence Directive reveals significant similarities and differences. While both aim to hold companies accountable for their supply chains, the LkSG applies to German companies based on employee count, whereas the CSDDD applies to specific company forms across the EU, based on employee count and turnover. Additionally, the CSDDD extends its scope to address a broader range of human and environmental concerns along the upstream and partially downstream supply chain. Understanding these distinctions is crucial for businesses navigating compliance and sustainability efforts in the evolving regulatory landscape.
