Germany’s LkSG Has Changed in Key Ways Businesses Shouldn’t Overlook

Article Highlights:

• Entered into force in 2023, the LkSG regulation aims to hold German organizations accountable for their supply chain, including through ensuring that all their suppliers and sub-tier manufacturers are adhering to international human rights and environmental standards.
• In the spring of 2025, the German government began serious discussions around scaling back the supply chain directive the nation had only just implemented two years earlier. This was, in part, because Germany was anticipating the rollout of the European Union’s Corporate Sustainability Due Diligence Directive (CSDDD), a sweeping new ESG regulation that covered some of the same ethical considerations around supply chains as LkSG.
• In September 2025, the Federal Ministry of Labour and Social Affairs drafted a bill that will scale back LkSG in two important ways—the first pertaining to reporting obligations, and the second to penalties for violating the directive.

On January 1, 2023, the German government officially implemented the German Supply Chain Act, known in Germany as the Lieferkettensorgfaltspflichtengesetz, often abbreviated as LkSG. LkSG aims to hold German organizations accountable for their supply chain, including through ensuring that all their suppliers and sub-tier manufacturers are adhering to international human rights and environmental standards.

While LkSG entered into force in 2023, the scope of the regulation expanded considerably in 2024. According to some estimates, between 2,500 and 3,000 companies fell into the scope of LkSG in 2024—including a substantial number of U.S. businesses with a robust presence in Germany.

But in the fall of 2025, the German government drafted legislation changing several aspects of LkSG, largely in an effort to prepare for the transposition of the Corporate Sustainability Due Diligence Directive (CSDDD), which is set to enter into force in Germany in the years to come.

So what’s changed, and how are the regulatory obligations for in-scope businesses now different than they were six months ago?

What Are LkSG’s Obligations?

Germany’s LkSG imposes a number of regulatory requirements on organizations that meet its employee threshold. Germany’s Federal Ministry of Labour and Social Affairs breaks these down into eight distinct responsibilities.

1. Risk Management System: In-scope businesses are responsible for conceiving of and implementing a risk management system to help them comply with LkSG, one that identifies any potential human rights and/or environmental risks in their supply chain.

2. Supply Chain Due Diligence Officer: Organizations must have a dedicated individual on staff to lead these risk management efforts and take any necessary actions to address violations and other potential issues encountered in the company’s supply chain.

3. Recurring Risk Analysis: Businesses must carry out an annual ESG risk analysis—both within their own operations and extending to their complete supply chain. While in-scope companies are responsible for analyzing potential risks among both direct and indirect suppliers, the obligations differ between these two categories.  

4. Official Policy Statement: Senior leadership from in-scope firms must issue a policy statement outlining their process for fulfilling all their due diligence obligations under LkSG.

5. Preventative Measures: Companies are obligated to implement appropriate preventative measures that specifically mitigate the human rights and environmental risks unique to their supply chain.

6. Framework for Remedial Actions: In addition to preventative actions, organizations must also take corrective action if they identify a human rights or environmental violation, either within their operations or along their supply chain.

7. Clear Complaints Process: In-scope businesses are responsible for implementing official channels for issuing complaints internally. As outlined by German Parliament, these channels must enable “persons to report human rights and environment-related risks as well as violations of human rights-related or environment-related obligations that have arisen as a result of the economic actions of an enterprise in its own business area or of a direct supplier.”

8. Documentation and Reporting: Finally, in-scope organizations are responsible for producing an annual report describing how the company fulfilled its due diligence obligations under LkSG. These reports must be made publicly available on the business’s website, and remain available for a minimum of seven years.

Has LkSG Changed Since Its Implementation in 2023?

In the spring of 2025, the German government began serious discussions around scaling back the supply chain directive the nation had only just implemented two years earlier. This was, in part, because Germany was anticipating the rollout of the European Union’s CSDDD, a sweeping new ESG regulation that covered some of the same ethical considerations around supply chains as LkSG.

Specifically, the German government recognized two looming issues with the prospect of LkSG and the CSDDD existing in the country at the same time. First, there would be the potential for significant redundancies, with German companies—as well as international firms with German branches exceeding a specific personnel threshold—being responsible for producing separate documentation and reports covering much of the same ESG responsibilities. Second, that level of supply chain due diligence reporting was set to impose a significant regulatory burden on German businesses that fell into the scopes of both directives.

According to Germany’s Federal Ministry of Labour and Social Affairs, the driving force behind the amendments was a desire to streamline regulatory obligations and ensure that ESG goals were not bogged down by burdensome bureaucracy. As the German government explained, its objective is to “implement the Directive in a way that minimizes bureaucracy and facilitates enforcement, and will seamlessly replace the LkSG with a law on international corporate responsibility that transposes the CSDDD into national law.” The ministry has lightened the regulatory burden of LkSG, in other words, to make room for the rollout of the Corporate Sustainability Due Diligence Directive. The CSDDD will enter into force in Germany via a national law dedicated to transposing the EU directive in the years to come.

Specifically, the German government recognized two looming issues with the prospect of LkSG and the CSDDD existing in the country at the same time.

What Specific Changes Were Made to LkSG?

In September, the Federal Ministry of Labour and Social Affairs drafted a bill that will scale back LkSG in two important ways:

• Reporting Obligations: The ministry has removed external reporting obligations for the regulation. As of October 1, 2025, the Federal Office for Economic Affairs and Export Control stopped reviewing these reports.

• Removal of Most Penalties: In addition to abolishing the reporting obligations, the German government has also removed the original penalty structure for violating LkSG, which initially included punishments of up to 8 million euros, or up to 2% of the business’s annual revenue. Now, fines will only be levied for what the government deems to be the most serious human rights and environmental violations.

What Companies Are Within LkSG’s Scope?

The German Supply Chain Act has had a relatively straightforward rollout process. Enforcement began on January 1, 2023, and covered businesses with at least 3,000 employees based in Germany. One year later, on January 1, 2024, that scope expanded to encompass organizations with at least 1,000 employees in Germany.

• January 1, 2023: LkSG covers all businesses with at least 3,000 employees based in Germany.
• January 1, 2204: LkSG expands to include all organizations with at least 1,000 employees in Germany.

Navigate a Tricky Compliance Landscape With Z2 Software

Even as the German Supply Chain Act is ramping down and reducing its regulatory requirements, the CSDDD is going in the other direction, ramping up and continuing its rollout across the EU. Organizations that operate in any of the EU’s member countries need to be aware of the landmark ESG regulation and its myriad legally enforceable requirements.

Companies determined to master compliance and ensure that they’re in full adherence with all relevant regulations may want to consider the capabilities provided by compliance software. Compliance tool Z2 offers users a streamlined four-step process to understand their regulatory obligations and determine compliance across a company’s full product portfolio.

Organizations that operate in any of the EU’s member countries need to be aware of the landmark ESG regulation and its myriad legally enforceable requirements.

• Data Framework: Z2 establishes the appropriate regulatory scope for individual customers, building a taxonomy that categorizes each product and part under the regulation that applies to them. In addition, the compliance software determines the specific data requirements for each product and part, based on the specific regulation that it falls under.

• Due Diligence: Once the data framework has been established, Z2 carries out what is arguably the most challenging, time-intensive aspect of the compliance process: supply chain due diligence. Experienced professionals at Z2 reach out to suppliers in your manufacturing network, obtaining all the necessary information on materials, parts, subassemblies, and products. While Z2 engages with suppliers, the software is also carrying out internal due diligence, utilizing customers’  databases, documentation, and other sources to determine the compliance status of in-scope items.

• Compliance Risk Analysis: Once Z2 has obtained all the necessary data and documentation, it carries out a comprehensive analysis to determine the customer’s compliance risk exposure across all in-scope products and parts.

• Reports and Declarations: Finally, Z2 can prepare declarations for products; create custom reports tailored to specific requirements for both internal and external stakeholders; and complete regulatory submissions that fulfill compliance obligations.

To learn more about Z2 and how it can help companies navigate LkSG, the CSDDD, and other critical emerging regulations, schedule a free trial with one of our product experts.