Supply Chain Act (LkSG and CSDDD)
The term Supply Chain Act refers to legislation requiring companies to exercise human-rights and environmental due diligence in their supply chains. In Germany the relevant law is the Lieferkettensorgfaltspflichtengesetz (LkSG), often called the Supply Chain Due Diligence Act; at EU level the Corporate Sustainability Due Diligence Directive (CSDDD) establishes a comparable framework that member states transpose into national law. Both oblige in-scope companies to identify, prevent, mitigate and report on adverse impacts in their own operations and across their suppliers. For ERP and procurement systems this creates concrete requirements around supplier management, risk monitoring and ESG reporting.
- Term
- Supply Chain Act (LkSG and CSDDD)
- Entity type
- Standard / regulation
- Domain
- Supply-chain due diligence and compliance
- Canonical definition
- The Supply Chain Act is legislation, comprising the German LkSG and the EU Corporate Sustainability Due Diligence Directive (CSDDD), that obliges in-scope companies to perform human-rights and environmental due diligence across their own operations and supply chains and to document and report on it.
- Classification
- A human-rights and environmental due-diligence regulation affecting procurement and supplier management, with reporting overlaps into ESG reporting and the CSRD.
- Related terms
- ESG reporting, CSRD, Supplier management, SRM, Supply chain management, Audit trail, Master data management
- Source / maintainer
- erp-software.org editorial team (independent, vendor-neutral)
What Supply Chain Act (LkSG and CSDDD) is NOT — disambiguation
- Not the CSRD: The CSRD is a sustainability disclosure directive, while the Supply Chain Act imposes due-diligence duties to act on supply-chain risks, not only to report them.
- Not a product-safety law: It addresses human-rights and environmental risks in the supply chain rather than the technical safety or conformity of products.
- Not customs or trade compliance: Customs rules govern import duties and origin declarations, whereas the Supply Chain Act governs due-diligence obligations regarding human rights and the environment.
- Not a certification scheme: There is no single certificate that proves compliance; the law requires an ongoing, documented due-diligence process.
Purpose and scope
The Supply Chain Act framework aims to make companies accountable for human-rights and environmental risks connected to their products and supply relationships. The German LkSG and the EU CSDDD differ in detail and in the size of companies they cover, and obligations are typically phased in over time and may cascade indirectly to smaller suppliers through their larger customers. Rather than relying on specific thresholds, organisations should treat the framework as a due-diligence obligation: understand where risks lie, act on them and document the effort. Many DACH SMEs are affected not because they are directly in scope but because in-scope customers pass requirements down the chain.
Core due-diligence duties
The frameworks share a recognisable set of obligations. In broad terms, in-scope companies are expected to:
- Establish a risk-management system and assign internal responsibility
- Carry out regular risk analyses of their own operations and direct suppliers
- Adopt a policy statement on respecting human rights and the environment
- Take preventive and, where harm occurs, remedial measures
- Operate a complaints or grievance mechanism
- Document the due-diligence process and report on it
The emphasis is on appropriate, risk-based effort rather than guaranteeing perfect outcomes throughout the chain.
Implications for ERP and procurement
Compliance places data and process demands on the systems that run procurement. Organisations need reliable supplier records, including country of origin and, increasingly, information about sub-tier suppliers, which depends on sound master data management. SRM tools and supplier portals collect certificates, self-assessments and risk indicators, while workflow automation can route reviews and grievances. Because the law requires evidence of the process, an audit trail over supplier assessments and actions is valuable.
Relationship to sustainability reporting
Supply-chain due diligence overlaps with broader sustainability disclosure. Findings feed into ESG reporting and, for larger entities, into reporting under the CSRD. While due-diligence law focuses on acting on risks and the reporting frameworks focus on disclosure, the underlying supplier and impact data is often the same, which is why integrated supplier and supply chain management data is increasingly important.
Related Topics
Frequently Asked Questions
Are smaller suppliers affected by LkSG?
Indirectly, yes. Large customers in scope of LkSG impose contractual due-diligence obligations on their suppliers, including smaller mid-market companies. The smaller supplier may not formally be in LkSG scope, but contractually owes the same due-diligence evidence to remain a supplier of the larger customer. Most mid-market manufacturers serving large customers should expect supplier-due-diligence questionnaires from 2023 onwards.
Can we use specialist platforms instead of building this in ERP?
Yes, and most companies do. Specialist platforms (IntegrityNext, EcoVadis, Sphera, IntegrityNext) handle the supplier-questionnaire collection, scoring and on-site audit coordination far more effectively than ERP. The ERP provides supplier master-data and spend information; the specialist platform layers risk assessment and reporting on top.
How does LkSG interact with CSRD reporting?
Significant overlap. CSRD's ESRS S1 (own workforce), S2 (workers in the value chain), S3 (affected communities) and S4 (consumers and end-users) overlap with LkSG's human-rights risk areas. Companies in scope for both should design integrated data collection so that one set of supplier-risk data flows to both regulatory reports.