The Supply Chain Act poses new challenges to suppliers when conducting business with new or existing German-based customers.

Key Points:

• The Supply Chain Act obliges in-scope companies to identify, address, and report on human
  rights-related and environmental risks in their supply and value chains.
  
  
• Suppliers to German businesses should familiarize themselves with this legislation and anticipate
  that their German customers will require ESG-related information and related contractual
  safeguards.
  
  
• Suppliers should update their compliance management systems, allocate internal responsibility to
  communicate with customers falling within the scope of this Act, consider undertaking a
  (voluntary) risk assessment, and update their own supplier code of conduct.

On 1 January 2023, the German Act on Corporate Due Diligence Obligations in Supply Chains (Lieferkettensorgfaltspflichtengesetz, LkSG — the Supply Chain Act¹) entered into force. The Supply Chain Act requires companies based in Germany with more than 3,000 employees (and from 1 January 2024, more than 1,000 employees) (In-scope Companies) to identify, address, and report on human rights-related and environmental risks in their supply and value chains. 

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