Discover who the German Supply Chain Act applies to, how companies and suppliers are affected, and which LkSG compliance and due diligence requirements matter in Germany.

A German manufacturer employs 1,200 people, buys components internationally and works with hundreds of smaller suppliers. One supplier has only 80 employees and operates outside Germany. Which organisation is directly covered by the German Supply Chain Act, and what responsibilities can still reach the smaller supplier?

This example captures a common misunderstanding about LkSG applicability. The Lieferkettensorgfaltspflichtengesetz, usually called the LkSG or German Supply Chain Act, directly applies only to companies that satisfy defined legal criteria. Its practical influence reaches further. Smaller manufacturers, service providers, logistics businesses and overseas suppliers may receive questionnaires, contract clauses, audit requests or corrective-action requirements from covered customers.

Understanding direct legal scope and indirect commercial impact is essential for procurement, compliance, sustainability, legal and supply-chain professionals. It also matters to job seekers building skills for Germany’s procurement and compliance market.

Who Does the German Supply Chain Act Apply To?

The LkSG generally applies to companies that have their central administration, principal place of business, administrative headquarters or registered office in Germany and normally employ at least 1,000 employees in Germany. It applies regardless of legal form. A foreign company may also fall within scope when it operates a qualifying German branch and meets the relevant domestic employee threshold.

The current criteria appear in Section 1 of the LkSG. A company is not automatically covered merely because it sells products in Germany, has German customers or supplies an LkSG-covered organisation. (Gesetze im Internet)

A useful distinction is:

• Directly covered company: The organisation satisfies the establishment and employee tests.
• Indirectly affected supplier: The organisation is outside direct scope but supplies goods or services to a covered customer.

The LkSG Applicability Test

1. Check the Company’s German Presence

The first question is whether the organisation has a qualifying connection to Germany under the German Supply Chain Act. Relevant connections include a registered office, principal place of business, central administration, administrative headquarters or qualifying German branch.

International groups should assess the correct legal entity rather than assuming that the entire global group is automatically covered. They must also consider whether group employee-counting rules bring a German parent company within scope.

2. Calculate the Employee Threshold Correctly

Since 1 January 2024, the German Supply Chain Act has applied to companies that normally employ at least 1,000 employees in Germany. The calculation may require more than checking the payroll of a single legal entity.

Domestic employees of affiliated companies must be considered when calculating the threshold for a German parent company. Employees posted abroad may remain relevant, while temporary agency workers count when their assignment exceeds six months. A corporate group may therefore meet the threshold even when an individual operating subsidiary employs fewer than 1,000 people.

Companies should document which legal entities, employees, business locations and temporary workers were included in the calculation. The applicability assessment should also be reviewed following acquisitions, restructuring, workforce growth or the establishment of a new German branch. This helps companies demonstrate that their assessment under the German Supply Chain Act is accurate, current and properly documented.

3. Identify the Responsible Entity

The business must identify which legal entity is subject to the Act and who owns each compliance activity.

Professionals can develop practical implementation skills through the Procurement & Vendor Management (LkSG) course, covering scope, supplier risk analysis, contracts, audits and corrective actions.

Which Parts of the Supply Chain Are Covered?

The LkSG is not limited to raw-material purchasing. Its definition covers steps in Germany and abroad necessary to manufacture products or provide services, from raw-material extraction to delivery to the end customer.

Under Section 2 of the LkSG, the relevant supply chain includes the company’s own business area, direct suppliers and indirect suppliers.

A direct supplier is a contractual partner whose goods or services are necessary for the covered company’s products or services. An indirect supplier has no direct contract with the covered company but contributes necessary goods or services further upstream.

Does the LkSG Apply Directly to Suppliers?

A supplier does not become subject to the Act merely because it supplies an in-scope customer. Nevertheless, covered companies often need supplier cooperation to fulfil their German supply chain due diligence duties.

A customer may request site, subcontractor, labour, environmental or corrective-action information and ask the supplier to accept proportionate controls or audits.

However, the covered company remains responsible for its statutory duties. BAFA’s official supply-chain cooperation guidance explains what obliged companies can and cannot reasonably request. Cooperation should be proportionate, risk-based and connected to identified risks; the complete compliance burden cannot simply be transferred downstream. 

Suppliers should distinguish direct legal duties from contractual customer expectations. They should cooperate transparently but avoid unsupported guarantees that no violation could ever occur.

Main LkSG Compliance Requirements

Once a company confirms direct applicability under the German Supply Chain Act, it must establish an appropriate due diligence system. The Act does not promise a risk-free supply chain. Instead, it requires structured efforts to identify, prevent, minimise and remedy relevant human-rights and environmental risks.

The main duties include:

• Establishing risk management and internal responsibility
• Conducting regular and event-driven risk analyses
• Publishing a policy statement
• Implementing preventive measures
• Taking remedial action
• Maintaining a complaints procedure
• Addressing indirect-supplier risks when credible information arises
• Documenting decisions and reviewing effectiveness

Procurement teams must connect these duties under the German Supply Chain Act to supplier onboarding, segmentation, contracts, audits, performance reviews and escalation procedures.

Human-Rights and Environmental Due Diligence

The LkSG covers risks such as child labour, forced labour, slavery-like practices, inadequate occupational health and safety, interference with freedom of association, employment discrimination, withholding an adequate wage, unlawful land deprivation and certain abuses involving security forces.

The environmental due diligence requirements of the German Supply Chain Act are more specific than those of a general sustainability programme. They include prohibited conduct involving mercury, persistent organic pollutants and certain hazardous-waste movements or disposal practices. Pollution, harmful noise or excessive water use may also be relevant when they seriously affect food production, drinking water, sanitation or human health.

Preventive and Remedial Measures

Preventive measures may include risk-based supplier selection, procurement policies, contractual clauses, supplier codes of conduct, training, targeted audits and supplier-development programmes. Controls should reflect the severity and likelihood of the risk, the company’s contribution to the problem and its ability to influence the supplier.

When a violation has occurred or is imminent, the company must take appropriate remedial action under the German Supply Chain Act. This may involve immediate protection, an investigation, a time-bound corrective-action plan, supplier support, closer monitoring or formal escalation.

Ending the business relationship is generally considered a last resort where the violation is particularly serious and other appropriate measures have been unsuccessful or are unavailable.

Complaints and Indirect Suppliers

Covered companies must operate an accessible complaints procedure through which people can report relevant human-rights or environmental risks and violations. Information about the procedure should be understandable, confidentiality must be protected and retaliation risks should be addressed.

When factual indications make a violation at an indirect supplier appear possible, the company may acquire “substantiated knowledge.” It must then conduct an event-driven risk analysis and introduce suitable preventive or remedial measures.

Credible complaints, worker testimony, audit findings, media investigations or evidence of undisclosed subcontracting can trigger this response. This requirement ensures that the German Supply Chain Act also supports appropriate action where serious risks arise deeper within the supply chain. Procurement & Vendor Management (LkSG) course

Practical Checklist for Companies and Suppliers

A directly covered company should:

• Document its scope assessment
• Map relevant operations and supplier groups
• Assign internal responsibility
• Prioritise identified risks
• Integrate controls into procurement
• Preserve evidence of decisions
• Review the effectiveness of its measures

A supplier outside direct scope should identify covered customers, appoint a contact for due diligence requests, maintain accurate site and subcontractor information, preserve relevant labour and environmental evidence, review contract clauses carefully and establish incident-reporting and corrective-action processes.

Evidence requests should remain proportionate to the supplier’s size, sector, location, products and actual risk exposure.

Reporting and Future Legal Changes

The published LkSG still contains documentation and reporting provisions. German policymakers have proposed amendments intended to reduce administrative burdens. The Bundestag held the first reading of the government’s amendment bill on 16 January 2026 and referred it for further consideration. Businesses should distinguish current statutory wording, administrative practice and proposed reforms rather than presenting a bill as enacted law. (Deutscher Bundestag)

Why LkSG Skills Matter in Germany

LkSG knowledge supports work in procurement, vendor management, compliance, sustainability, contract management and internal audit. For job seekers, Weiterbildung can demonstrate how legal duties influence everyday supplier decisions.

Final Thoughts

The German Supply Chain Act does not impose identical duties on every company and supplier. The correct starting point is a documented LkSG applicability assessment.

Covered companies must build a proportionate due diligence system and retain responsibility for it. Non-covered suppliers should prepare for reasonable customer requests without confusing contractual expectations with direct statutory duties.

Organisations that understand this distinction can focus resources on genuine risks and strengthen supplier cooperation. Companies should regularly review their scope assessment, controls and official guidance.