LkSG Update: Robert Habeck Announces a Change in Course

The Supply Chain Due Diligence Act (LkSG) has been in effect since January 1, 2023. Companies must now take responsibility worldwide —not only for their own actions, but also for those of their suppliers. However, Minister of Economic Affairs Robert Habeck has now spoken out with an update on the LkSG and is questioning the approach taken so far. He speaks of a radical change in course. Find out what this means for you in this article.

What is the LkSG?

The LkSG is intended to establish, for the first time, regulations governing corporate responsibility for upholding human rights in supply chains. It requires German companies to respect internationally recognized human rights—such as the right to physical integrity—even abroad, throughout the entire supply chain. This applies not only to the company’s own violations but also to those committed by subsidiaries, suppliers, or other key business partners. Similar to other reporting-required laws, such as the CSRD, the LkSG was introduced in phases. While initially only German companies with more than 3,000 employees were affected, as of January 1, 2024, companies with more than 1,000 employees will also be directly affected. Smaller companies may also be indirectly affected as suppliers if they are pressured by directly affected companies to comply with due diligence obligations. Companies directly affected must submit a report no later than four months after the end of the fiscal year. Failure to comply may result in fines of up to 2% of global annual revenue. Now, however, Economy Minister Robert Habeck has provided an update on the LkSG.

New LkSG Update from Robert Habeck: The LkSG Has “Taken a Completely Wrong Turn”

After the law went into effect in 2023 and its scope was expanded in 2024, the LkSG has been facing repeated criticism. Most recently, Economy Minister Robert Habeck (Greens) spoke out. At a business conference hosted by the German Foreign Trade Association (BGA) on October 2, he criticized the law, arguing that it jeopardizes the competitiveness of German companies. He emphasized that he did not want to limit himself to minor tweaks. Rather, he sees the solution in “fire up the chainsaw and cut the whole thing down.” A fundamental shift in thinking is necessary. His criticism is not limited to the LkSG. He also argued that with other regulations, such as sustainability reporting or the Deforestation Directive, the country has “taken a completely wrong turn.” This bureaucracy, he said, jeopardizes competitiveness. Instead, Habeck advocated for placing greater emphasis once again on companies’ individual responsibility.

Is the “traffic light” coalition changing course on reporting requirements under the LkSG?

Habeck had already expressed criticism of the LkSG in the past. In June, for example, he proposed a two-year suspension of the law. The FDP has long criticized the law and warned of competitive disadvantages. Due to these concerns, the law was passed in 2021 under the previous government only in a watered-down form. Against the backdrop of a stagnating economy, however, voices are once again being raised that criticize the law as an additional burden on businesses. The federal government’s growth initiative, published in July, already suggests that due diligence and reporting requirements should be implemented with as little bureaucracy as possible. The LkSG should not go beyond the requirements of the EU’s CSDDD legislation. Habeck’s latest statement, however, is the most radical to date from within the government. This signals a shift in course within the “traffic light” coalition. Habeck is proposing a move away from reporting obligations toward clear rules with defined sanctions for noncompliance.

What Does the LkSG Update Mean for Businesses?

The statement by the Minister of Economic Affairs is creating new uncertainties. Questioning the current legislation undermines companies’ ability to plan ahead. By 2026 at the latest, supply chain oversight will once again become a pressing issue, regardless of the “traffic light” coalition’s plans. That is when the European legislation—the CSDDD Regulation on respecting human rights along supply chains—must be transposed into German law. In Germany, this is to be achieved through the LkSG. Other EU regulations, such as the CSRD, also emphasize the importance of reporting requirements on the part of the EU. A complete reversal away from reporting requirements is unlikely in this context.

Sooner or later, German companies will be faced with the task of implementing supply chain controls. At the same time, transparency in the supply chain can bring significant benefits to your company, ranging from risk minimization to competitive advantages through fair sourcing. With CONSUST, you can proactively manage supply chain risks in accordance with the LkSG. Contact us for a no-obligation consultation.

We’ll also keep you updated on further developments in the debate surrounding the LkSG on our blog.