The traffic light wants to “bolt away” the supply chain law again – too much bureaucracy. Such announcements do not help companies, he says Bastian Brunk. Undesirable developments in implementation can be remedied with less effort.
Top politicians from all three government parties agree: In its current form, the Supply Chain Due Diligence Act (LkSG) has no future. Federal Economics and Climate Protection Minister Robert Habeck (Greens) summed it up particularly drastically at the BGA Entrepreneurs’ Day at the beginning of October with his demand, “to fire up the chainsaw and bolt the whole thing away“. Chancellor Olaf Scholz (SPD) seconded last week at the German Employers’ Day: “We said that, it will go away.“Also FDP Justice Minister Marco Buschmann expressed clear criticism on X.
In any case, the reporting and documentation obligations associated with the law are a thorn in the side of Habeck and Buschmann. The law “has proven to be the cause of a huge amount of paperwork,” Buschmann tweeted. Habeck called for a rethinking of the regulatory approach: “Clear rules, but no reporting requirements, just stick to the rules and, in case of doubt, pay the penalties if you get caught.”
Such statements may sound good to the ears of entrepreneurs plagued by bureaucracy. But they don’t seem sincere or at least not well thought out. This is because the requirements of EU law are ignored and the promises made with the LkSG are ignored. It cannot be denied that there have been undesirable developments in the implementation of the LkSG – but the German legislator can correct them with simple clarifications; the chainsaw should be left in the garage.
Human rights protection as a bureaucratic monster – a one-dimensional view
Firstly, abolishing the LkSG or at least the reporting obligation contained therein will at best provide short-term relief. Because that European directive on sustainability reporting (Corporate Sustainability Reporting Directive, CSRD) und die European Supply Chain Directive (Corporate Sustainability Due Diligence Directive, CSDDD) are already waiting to be implemented into German law. The first companies are expected to submit a sustainability report according to the CSRD for the 2024 reporting year, and the content and scope of this report significantly exceeds the human rights report required by the LkSG. Companies that are obliged to provide CSRD sustainability reporting should according to the will of the legislature at least not be obliged to submit an additional LkSG report.
Secondly, in the discussion about the bureaucratic burden associated with the LkSG, the fact that the law is aimed at protecting human rights is often overlooked. Companies are obliged to identify and minimize human rights and environmental risks in their own business area as well as among suppliers and customers. It is clear that this is not free and was already clear when the law was passed. Anyone who is serious about protecting human rights should stick to it regardless of economic developments.
Thirdly, such calls for abolition are understandable for reasons of opportunity. However, good politics is characterized by informed decisions and reliability. Accordingly, when the LkSG was passed, the federal government – at that time not the traffic light, but a Union-led GroKo – committed itself to evaluating the effectiveness of the law as well as the associated economic effects. Only on the basis of this evaluation should a decision be made as to whether legal reform is necessary and what this would look like. According to the justification for the law (BT-Drucks. 19/28649, p. 32), a “lowering of the threshold value for company size classes” was even considered. The fact that politicians are now simply abandoning this evaluation and instead bowing to pressure from business associations is regrettable, not only in view of the lack of knowledge gained; it also makes them appear like the famous flag in the wind.
Undesirable developments in the implementation of the LkSG
Regardless, it cannot be denied that certain undesirable developments have occurred in the implementation of the LkSG, which actually lead to a considerable burden on companies without any immediately recognizable benefit for human rights and environmental protection. These undesirable developments are already laid out in the legal text: The distinction between direct (Tier 1) and indirect suppliers (Tier 2 etc.) and the associated graduated legal obligations in Sections 5 ff. and Section 9 LkSG have often led to companies send mass questionnaires to their direct suppliers and demand certification from them, even though there are generally only low human rights and environmental risks there. When suppliers receive requests from multiple customers and are exposed to different or even contradictory requirements, it is hardly surprising if they complain about being overloaded. This is particularly true for small and medium-sized enterprises (SMEs) that do not have sufficient human and financial resources to process a large number of such requests.
This raises the question of how less bureaucratic supply chain regulation can be achieved given the requirements of Union law. The answer to this question is urgent because the federal government in its Growth initiative from July 5, 2024 has announced that it wants to implement the CSDDD during this legislative period. Accordingly, the window of opportunity for sensible regulatory approaches will close in the foreseeable future. Three approaches in particular are discussed.
Firstly, against the background of the undesirable developments described, it is of central importance to place greater emphasis on the risk-based approach to due diligence obligations in the law. The law should make it explicitly clear that companies cannot take measures indiscriminately against all of their direct suppliers, but must prioritize the most serious risks – regardless of where exactly in the supply chain they occur. The European CSDDD guidelines for risk identification and assessment and for prioritizing the identified risks also assume such a risk-based approach. In any case, the CSDDD does not make any distinction between direct and indirect suppliers that corresponds to the LkSG.
Distribute bureaucracy better
Secondly, it should be made clear that the common practice of sending all suppliers the same generic and often very extensive questionnaire does not constitute a meaningful risk analysis. This not only leads to an unnecessary burden on those suppliers who only have minimal human rights and environmental risks. It is also not effective because such questionnaires can hardly determine the actual risk situation in a meaningful way. Instead, companies should be required to take appropriate account of the risk profile of the respective supplier (category) when developing and sending questionnaires. Accordingly, the selection of suppliers and questions can be limited to those areas where the most serious risks are to be expected.
In the future law, this could be implemented by making an explicit distinction between abstract and concrete risk analysis. In addition, the law should explicitly stipulate that the results of the abstract risk analysis must be taken into account as part of the concrete risk analysis (e.g. when involving stakeholders). In fact, this corresponds to the interpretation practice of the Federal Office of Economics and Export Control (BAFA), which is responsible for enforcing the LkSG.. However, companies would also have to internalize this interpretation practice.
Thirdly, should – This also corresponds to BAFA’s interpretation practice – it must be expressly made clear that the obligated companies do not fulfill their due diligence obligations by simply obtaining assurances of compliance from their suppliers, i.e. by passing them on to them. Instead, obligated companies should work with their suppliers to jointly fulfill due diligence obligations. This can mean, among other things, that the obligated company must provide its suppliers with the necessary financial or human resources in whole or in part. Corresponding mechanisms for cooperation in the supply chain have already been created in the CSDDD. In addition, the directive stipulates that the EU Commission drafts model contractual clauses in consultation with the member states; In this respect, care should be taken to ensure that this clause ensures cooperation, for example by not unilaterally imposing obligations on suppliers in the contracts, but also specifying the obligations of the buyer (shared responsibility). The European Model Clauses (EMCs) of the Responsible Contracting Project provide guidance for appropriate model contract clauses.
Ultimately, it’s not just the legislature that is required to reduce bureaucracy. Rather, companies themselves can make a contribution to implementing due diligence obligations in a more targeted manner and therefore with less effort. All three proposed measures could already be implemented today and on the basis of current law. The due diligence obligations of the current LkSG are also based on a risk-based approach, which is why complete monitoring of direct suppliers is not necessary. Against this background, the companies affected by the LkSG bear a certain share of responsibility for the undesirable developments described.
Politicians and companies should therefore reconsider the LkSG. Given the imminent entry into force of the CSDDD, the LkSG cannot simply be “bolted away”. But it is not necessary to abolish the law. Rather, with a few clarifications, balanced supply chain regulation can be achieved, leading to less paperwork and more human rights protection.
Dr. Bastian Brunk is a researcher at the Max Planck Institute for Foreign and International Private Law in Hamburg. The views expressed in this article reflect solely the personal opinion of the author.
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Bureaucracy monster supply chain law?: . In: Legal Tribune Online, October 30, 2024, (accessed on: October 30, 2024)
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