BlogpostIncreased Transparency and Accountability
The German Supply Chain Due Diligence Act (LkSG) is pushing businesses to take greater responsibility for the social and environmental impact of their production and sourcing practices. Since 2023, large companies with at least 3,000 employees have been required to actively manage risks within their supply chains. From 2024 onwards, this obligation extends to companies with 1,000 or more employees. This means that businesses must carefully assess their suppliers and take concrete steps to prevent or address potential violations.
For example, a fashion brand sourcing fabrics from low-wage countries can no longer ignore poor working conditions in factories. It must investigate, hold suppliers accountable, and take corrective action when necessary. Companies that proactively embrace transparency and responsibility not only avoid legal trouble but also strengthen their reputation among customers and investors.
Financial and Legal Consequences
Failing to comply with the LkSG can have significant consequences. Companies risk fines of up to 2% of their annual revenue. Beyond financial penalties, reputational damage is a serious risk. Consumers are increasingly conscious of ethical business practices and prefer brands that prioritize sustainability and fairness. Businesses that can demonstrate responsible and sustainable sourcing practices gain a competitive edge and build stronger customer loyalty.
Changes in Supply Chain Management
The LkSG requires companies to go beyond monitoring their direct suppliers. They must now assess risks throughout their entire supply chain, including subcontractors and raw material providers. This means stricter supplier selection processes, improved monitoring, and closer collaboration with third-party certification bodies.
Take an automotive manufacturer that sources metals and electronics from multiple countries. The company must now investigate whether the mines supplying its raw materials adhere to environmental standards and whether workers are treated fairly. This may lead to stricter supplier requirements or additional audits. While this requires an initial investment, it ultimately results in more reliable supplier relationships and a more stable supply chain.
How ImpactBuying Can Help
Meeting the requirements of the LkSG can be, but companies don’t have to navigate it alone. ImpactBuying helps organizations to do multi-tier mapping, assess their compliance, identify potential gaps and implement effective risk management strategies.
With our free pre-scan (available in German and English), businesses gain a clear overview of their current status and receive actionable recommendations to improve compliance. By acting proactively, companies can avoid penalties and reputational risks while creating real value for their brand and contributing to a more sustainable world. Investing in responsible business practices is therefore not just about compliance; it’s a way to future-proof the company and build long term resilience.