After intense debates, the EU Supply Chain Law was successfully passed following plenary sessions from April 22 to 26, 2024. The law aims to require European companies to comply with human rights and environmental standards along their supply chains to effectively combat child labor, exploitation, and environmental pollution.
The National Supply Chain Due Diligence Act (LkSG) in Germany, which has been in force since 2024 and applies to companies with at least 1,000 employees, places special emphasis on the analysis of risks in supply chains, the establishment and implementation of prevention and remediation measures, as well as the establishment of a complaints management system. Companies are also required to report transparently on their activities. Non-compliance with the law is subject to legal proceedings and fines, monitored by the Federal Office for Economic Affairs and Export Control (BAFA).
The EU Supply Chain Law goes beyond the German regulations and applies to companies with at least 1,000 employees and a net turnover of over 450 million euros. It also extends to non-EU companies if they achieve a corresponding turnover in the EU. The main differences between the EU law and the LkSG lie in their scope, specific responsibilities, extent of obligations, and sanctions for non-compliance.
The focus of the EU Supply Chain Law is comprehensive due diligence along the entire supply chain, including direct and indirect suppliers. Companies are required to conduct risk analyses and document measures to comply with due diligence obligations. Penalties for violations can amount to up to 5% of global annual turnover, supplemented by civil liability in cases of negligence or intent.
The EU Supply Chain Law offers companies the opportunity for a uniform legal framework that creates security and transparency, as well as ensuring a level playing field. The disclosure of supply chain practices contributes to building trust but also poses challenges in the complexity of supply chains and potential competitive disadvantages in international markets for companies that have not implemented comparable laws.
These new legal frameworks present both opportunities and risks for companies, requiring careful adjustment and implementation to meet legal requirements and maintain their international competitiveness.