Supply Chain Due Diligence Act in Mid-Market Companies: What Must SMEs Consider?

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Since January 2023, the Supply Chain Due Diligence Act (LkSG) has applied to companies in Germany with 3,000 employees. Starting in 2024, it will also become mandatory for companies with 1,000 employees to comply with due diligence obligations along their supply chain. However, not only companies that fall within the scope of the LkSG are affected, but also indirectly affected companies such as suppliers of any size to directly affected companies. Indirectly affected companies must therefore also ensure that their own supply chains are free from human rights violations and environmental problems.

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But what does this look like in practice?

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As a supplier to a directly affected company, you are indirectly impacted by the LkSG. If, for example, there is a risk of child labor in your production chain, the directly affected company must take measures to address this and may terminate the business relationship with you as a supplier. To maintain your business relationships, you as an indirectly affected company must ensure that a risk analysis is conducted along your supply chain to implement measures against illegal activities.

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Particularly mid-market industrial companies face high bureaucratic burden due to supply chain interconnections and structures. Especially given the stricter legislation from the EU side, which will likely apply to companies with 250+ employees, it is important to prepare early for the requirements of the LkSG.

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Want more information?

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Learn in our white paper which obligations the LkSG and the European directive include, whether you are affected, and how you can easily and intuitively monitor the LkSG within your supply chain using Tacto and meet minimum requirements.

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Additionally, the German Federal Office for Economics and Export Control (BAFA) has published various guides, such as on the appropriateness of the LkSG or on risk analysis, which summarize the essential requirements of the law and provide practical implementation options.

Through the indirect reporting obligations for all companies along the supply chain and the stricter EU directive, particularly mid-market companies face the challenge of preparing for the implementation of the LkSG.