The German Supply Chain Due Diligence Act (LkSG) has required large companies since 2023 to fulfill human rights and environmental due diligence obligations along their supply chains. From 2024, the threshold drops to 1,000 domestic employees, requiring more companies to implement these obligations. However, the law also affects smaller companies that are not directly subject to the LkSG but act as suppliers to obligated companies.

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Why Smaller Companies Should Also Pay Attention to LkSG Requirements

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The LkSG requires obligated companies to work closely with their direct and indirect suppliers to fulfill all necessary due diligence obligations. For suppliers, this means that depending on customer requirements, they must contribute to risk analysis and implementation of preventive measures and meet certain compliance standards. Companies that engage in this collaboration benefit from long-term partnerships and a competitive advantage in tenders.

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Requirements for Indirectly Affected Companies

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Even though companies with fewer than 1,000 employees are not subject to direct statutory reporting obligations, they can be prepared for the following measures to facilitate collaboration with LkSG-obligated companies:

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• Risk management: Support in identifying and monitoring risks along the supply chain.
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• Preventive and remedial measures: Implementation of measures to minimize identified risks.
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• Provision of information: Documentation and provision of relevant data for risk analysis and fulfillment of due diligence obligations.
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• Participation in grievance procedures: Involvement in establishing and documenting a system for complaints about violations of due diligence obligations.

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Support from Tacto: Solutions for LkSG Compliance in Mid-Sized Companies

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For mid-sized companies that are in direct or indirect relationship with LkSG-obligated companies, Tacto offers a comprehensive solution to support compliance requirements. Our platform helps companies efficiently manage compliance efforts and capture all relevant data in a structured manner:

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• Automated supplier queries: Facilitates querying and tracking compliance questions with all relevant suppliers.
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• Efficient risk assessment: Identifies potential risks in the supply chain and supports the implementation of due diligence obligations.
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• Ongoing documentation: Ensures all measures and results are centrally captured and documented to be prepared for customer requirements.

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Conclusion: Opportunities for Mid-Sized Companies

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The LkSG brings not only challenges but also opportunities for mid-sized companies to improve supply chain transparency and actively implement compliance standards. Obligated companies will in many cases rely on collaborating with their suppliers to fulfill their own statutory due diligence obligations. Companies that are prepared for the requirements and cooperate with LkSG-obligated customers can secure competitive advantages and build long-term relationships.

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If you would like detailed information on the requirements for indirectly affected companies, download our whitepaper "Supply Chain Act for Mid-Sized Companies: Mastering Indirect Impact" now.

‍Obligated companies will in many cases rely on collaborating with their suppliers to fulfill their own statutory due diligence obligations. This is also built into the law and begins with the establishment of a risk management system. Obligated companies also need support from suppliers regarding risk analysis, preventive and remedial measures, and grievance procedures.