LkSG and CSDDD: A comparison and what companies need to consider
In recent years, the topic of sustainability and responsibility in the supply chain has become increasingly important. Two key legal frameworks that affect companies in Europe are the German Supply Chain Due Diligence Act (LkSG) and the European Corporate Sustainability Due Diligence Directive (CSDDD). Both aim to strengthen human rights and environmental standards in global supply chains. But there are important differences that companies need to know and consider.
The Supply Chain Due Diligence Act (LkSG)
The LkSG came into force in Germany on January 1, 2023 and is aimed at companies with more than 3,000 employees (from 2024 also for companies with 1,000 or more employees). It obliges companies to exercise human rights and environmental due diligence throughout their supply chain. The key requirements include:
- Risk management: Companies must identify and assess risks in their supply chain and take measures to minimize these risks.
- Complaint mechanisms: Mechanisms must be put in place that enable those affected to report violations of human rights or environmental standards.
- Reporting obligation: Companies are obliged to regularly report on their due diligence obligations and their implementation.
- The LkSG has a strong national focus and focuses on preventing human rights violations and environmental degradation throughout the supply chain.
The Corporate Sustainability Due Diligence Directive (CSDDD)
The CSDDD is a planned EU-wide directive that takes a more comprehensive approach. It is due to come into force in the coming years and will be applicable to all large companies in the EU, regardless of their industry. The CSDDD goes beyond the LkSG and requires companies to:
- More comprehensive risk assessment: In addition to analyzing human rights and environmental threats, climate-related risks and their impact on business must also be taken into account.
- Mandatory measures: Companies must take concrete measures to minimize risks, while also ensuring compliance with the Paris climate goals.
- Integration into corporate policy: Sustainability considerations must be more integrated into the overall corporate strategy, including executive compensation policies.
- Transparency and reporting: In line with the Corporate Sustainability Reporting Directive (CSRD), companies must prepare detailed reports on their sustainability practices.
Differences between LkSG and CSDDD
The main difference lies in the scope and requirements:
– Scope: The LkSG is a national law that focuses on German companies, while the CSDDD is an EU-wide directive that will affect all large companies in the EU.
– Requirements: While the LkSG focuses on compliance with human rights and environmental standards, the CSDDD additionally requires measures to combat climate change and a more comprehensive integration of sustainability into corporate strategy.
– Reporting: Reporting obligations under the CSDDD are stricter and must be in line with the new EU sustainability standards.
What companies need to consider
Companies should proactively prepare for both sets of rules. Here are some recommendations for action:
- Expand risk analysis: Companies should update their risk analyses to cover not only human rights and environmental risks, but also climate-related risks.
- Adapt compliance programs: It is important to review and adapt existing compliance programs to meet the stricter requirements of the CSDDD.
- Improve reporting: Reporting requirements are becoming more complex. Companies should invest in appropriate systems and processes to efficiently collect and report the necessary data.
- Make early adjustments: Since the CSDDD is still in the legislative phase, companies should closely monitor developments and make adjustments early on to avoid later compliance pressure.
Conclusion
The LkSG and the CSDDD mark an important step towards greater sustainability and responsibility in business. Companies must not only prepare to comply with current laws, but also be able to respond flexibly to upcoming regulations. A proactive and comprehensive strategy will be crucial to meet future requirements and achieve long-term sustainability success.