Supply Chain Act: reporting obligation no longer applies, sanctions reduced

In the coalition agreement, the coalition partners agreed to abolish the Supply Chain Due Diligence Act (LkSG) as part of the implementation of the European Supply Chain Directive CSDDD and to remove the reporting obligation of the LkSG beforehand. The latter is now happening: on September 3, 2025, the Federal Cabinet approved a corresponding amendment to the Supply Chain Act and presented a corresponding draft bill.

Removal of the reporting obligation has little practical impact

The deletion of the reporting obligation probably has little practical significance. The obligation arises from Section 10 LkSG. This currently still stipulates that companies with at least 1,000 employees in Germany must prepare an annual report on the fulfillment of due diligence obligations, submit it to the Federal Office of Economics and Export Control (BAFA) and publish it on their website.

According to the draft law, the elimination of the report is expected to bring financial relief of 4.1 million euros for the German economy. Up to now, the BAFA had repeatedly suspended the reporting obligation, most recently until December 31, 2025.

Germany can also only temporarily remove the reporting obligation. This is because if, as things currently stand, the CSDDD has to be transposed into German law by July 2027, companies will probably have to submit a report again from the start of application of the new law. However, this can then be integrated into the sustainability report in accordance with the CSRD, if such a report is to be submitted.

The duties of care otherwise remain in place

With the exception of the reporting obligation, all previous due diligence obligations remain in place.

Companies will still need to establish a risk management system in all relevant business processes. They will still need to conduct annual and ad hoc risk assessments to identify risks in their own operations and with direct suppliers and adopt a policy statement on the company’s human rights strategy.

Preventive measures such as suitable procurement strategies, training and contractual assurances from direct suppliers are and remain important.

If risks or even violations of human rights or environmental obligations are identified, companies are obliged to take remedial action. Companies must also establish a complaints procedure and carry out risk analyses on an ad hoc basis to identify risks at indirect suppliers.

Sanctions only for serious violations

According to the cabinet’s decision, only serious violations of the LkSG will be sanctioned. Whereas previously almost every violation of the law, even formal ones, was an administrative offense, the draft law stipulates that fines will only be imposed for the following violations:

• In relation to a human rights risk, a preventive measure is not taken or not taken in time.
• In relation to a human rights risk, a remedial action is not taken or not taken in time.
• In relation to a human rights risk, a remediation plan is not drawn up or not implemented in time or not implemented at all.
• No complaints procedure will be set up.

This means that violations of environmental risks within the meaning of Section 2 (3) LkSG will no longer be sanctioned under the LkSG in future. However, the existing special statutory sanctions outside the LkSG will remain relevant. The amount of the impending fines is to remain unchanged. The draft bill will now be introduced into the legislative process.

The CSDDD extends the due diligence obligations

The EU member states must transpose the CSDDD into national law by July 26, 2027. Despite the omnibus package, the due diligence obligations for German companies are likely to increase as a result.

In particular, the CSDDD expands the catalog of risks that companies must identify. The LkSG currently concerns a limited range of risks, such as child and forced labor, occupational health and safety, unequal treatment, minimum wage, freedom of association, unlawful eviction from land and certain environmental damage and risks. The European Supply Chain Directive adds human rights risks alone, among other things:

• Torture, cruel, inhuman or degrading treatment,
• Threat to freedom and security, to a person’s privacy,
• Interference with freedom of thought, conscience and religion and
• Land eviction.