Coalition agreement: The plans for supply chain law, EUDR and GTC law

In the coalition agreement, the CDU/CSU and SPD agreed: “We will also abolish the National Supply Chain Due Diligence Act (LkSG).” At first glance, a clear and absolute statement. On closer inspection, however, one comes to the conclusion that an “abolition” is obviously not intended in such a sweeping manner. Rather, a differentiated and staggered relief for companies is planned.

There was particular criticism of the LkSG’s reporting obligation

The LkSG has been applicable to companies based in Germany with more than 3,000 domestic employees since January 1, 2023 and to companies with more than 1,000 domestic employees since January 1, 2024. It contains regulations on due diligence obligations with regard to certain human and environmental rights in relation to the company’s own business operations and direct suppliers. These due diligence obligations include risk analyses, preventive measures in relation to risks, remedial measures in the event of violations, the introduction of a complaints procedure and public annual reporting. Violations can be sanctioned with fines of up to 8 million euros or up to 2 percent of annual turnover. The reporting obligation in particular has been the subject of strong criticism. This provides for an independent report via an electronic BAFA system that cannot be combined with other reports. The BAFA has therefore repeatedly de facto suspended this reporting obligation, most recently until December 31, 2025. At the same time, the possibility of integrating the report under the LkSG into the CSRD reporting should be created as part of the national implementation of the CSRD, which has still not taken place.

Germany must implement the European Supply Chain Directive CSDDD by 2027

The European Supply Chain Directive (CSDDD) was adopted on July 26, 2024. The EU member states must transpose this into national law. The date of application for the first companies was originally scheduled for July 26, 2027. As part of the first omnibus package, the implementation deadline for the member states has now been postponed by one year to July 26, 2027 and the date of application of the national rules for the first companies has been postponed to July 26, 2028. At the same time, in addition to the postponement, the European Commission has also proposed numerous simplifications in terms of content, on which an agreement is to be reached at European level in the course of 2025. This would bring the content of the CSDDD closer to the German LkSG in some areas. The coalition agreement expressly confirms support for the Commission’s omnibus project.

Coalition wants to abolish the reporting obligation under the Supply Chain Act

The coalition agreement provides for several staggered steps in relation to the LkSG. The reporting obligation under the LkSG is to be abolished “immediately” and completely eliminated. It is currently still unclear whether this change will be made through a formal amendment to the LkSG or, as previously, through corresponding announcements by the BAFA and corresponding enforcement practice. In any case, this should relieve many companies of the much-criticized separate reporting obligation. In the future, the reporting obligation could be integrated into CSRD reporting as part of CSDD implementation.

No sanctions, except for “massive human rights violations”

The coalition agreement stipulates that the “applicable statutory due diligence obligations” will not be sanctioned until a law implementing the CSDDD comes into force. An exception is only to apply to “massive human rights violations”. A complete repeal of the LkSG until the CSDDD implementation law comes into force is therefore clearly not intended. Otherwise, there could be neither “applicable statutory duties of care” nor sanctions for “massive human rights violations”. Here too, however, it is unclear whether this change is to be made by formally amending the LkSG or whether it is merely intended to adapt enforcement practice. It also remains to be seen how the exception of “massive human rights violations” will be defined and whether massive violations of environmental law requirements will continue to be sanctioned under the LkSG. It is to be hoped that the impending risk of vagueness and ambiguity for companies in this respect will be limited by sufficiently specific criteria.

New law on international corporate responsibility

The national implementation of the CSDDD, which is now required by July 26, 2027, is to be carried out by means of an “Act on International Corporate Responsibility”, which is to be designed to be low-bureaucracy and enforcement-friendly. It is expected that the LkSG will be repealed in stages when this law comes into force.

The coalition wants to ease the EU deforestation regulation

The coalition agreement also contains statements relating to the EU Deforestation Regulation (EUDR). The aim of the coalition is to ease the burden on affected companies in general and the forestry industry in Germany in particular. This is to be achieved through the introduction of a “zero-risk variant”, which Germany intends to advocate at European level.

This is regulated by the EUDR

The EUDR entered into force on June 29, 2023 and is applicable from December 30, 2025. The EU Deforestation Regulation requires the collection of information, the performance of risk analyses and the submission of due diligence declarations with regard to freedom from deforestation and legal compliance for imports into, trade within and exports from the EU of the raw materials wood, rubber, soya, oil palm, cattle, coffee and cocoa as well as certain products made from them. Non-compliant products will no longer be marketable in the EU. To date, the EUDR provides for countries to be classified into the risk categories low, medium and high following country benchmarking. Simplified due diligence obligations can be applied to raw materials from countries with a low risk category. Nevertheless, extensive data may still need to be collected and maintained in these cases.

Coalition partners want to work towards a “zero-risk variant”

The CDU/CSU and SPD intend to work towards the introduction of a “zero-risk variant” at European level, for which extensive exemptions from the due diligence obligations apply. The coalition agreement does not contain any further details in this respect. However, this new fourth risk category is clearly aimed at providing significant further relief for the raw materials and products covered by it.
However, it is questionable whether the future German government will be able to push this idea through at European level. A similar proposal was already discussed and rejected at the end of 2024. At that time, the aim was to introduce an additional risk category for countries or regions with an “insignificant risk”. According to the proposal, the due diligence obligations should not apply to products from such countries or regions. Instead, only specific documentation requirements should apply. However, the reason for the rejection of this proposal at the end of 2024 could also have been high time pressure, as it was actually a matter of postponing the EUDR, which was then adopted.

Amendment of the law on general terms and conditions for large corporations

The coalition partners want to provide large corporations with more reliability when using general terms and conditions (GTC). Specifically, this concerns contracts that large corporations within the meaning of Section 267 (3) of the German Commercial Code (HGB) conclude with each other using general terms and conditions. The aim of the reform is to ensure that “what has been agreed is also recognized by the courts”.

The law on general terms and conditions is essentially governed by Sections 305 et seq. BGB (German Civil Code). Section 310 (1) and (1a) of the German Civil Code (BGB) provide for differentiated exceptions to the general terms and conditions regulations for B2B terms and conditions. In particular, the judicial review of content in accordance with Section 307 BGB repeatedly leads to doubts and time-consuming and costly disputes about the effectiveness of individual provisions in practice, even in the B2B sector. The case law is very much based on the specific circumstances of the individual case. As a result, there is little predictability and reliability. This can entail considerable risks with regard to the validity of certain clauses in general terms and conditions and thus also impair the attractiveness of agreements under German law in an international context.

Contracts between large corporations could be exempt from GTC control

The specific implementation of the proposed reform is not specified in the coalition agreement. It is conceivable that Section 310 of the German Civil Code (BGB) could be amended, which would allow contracts between large corporations to be exempted from the control of general terms and conditions to a greater extent than before or completely.

According to the coalition’s plans, the personal scope of application of the proposed reform is more clearly defined: only contracts between large corporations within the meaning of Section 267 (3) HGB are to be covered. These are corporations that exceed two of the following three size criteria: (a) EUR 25 million balance sheet total, (b) EUR 50 million turnover p.a. and (c) an annual average of 250 employees. Capital market-oriented corporations pursuant to Section 264 d HGB are also included.