Germany, a step back on sustainability: the Supply Chain Act abolished

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With the recent formation of the new German government, consisting of CDU, CSU, and SPD, Germany has embarked on a significant shift in corporate sustainability policy. The agreement between the parties has led to the decision to abolish the Lieferkettensorgfaltspflichtengesetz (LkSG), known as the Supply Chain Act, which came into force in 2023. It was a pioneering regulation that required large companies with over 3,000 employees (1,000 from 2024) to conduct annual checks on environmental and human rights risks throughout the entire supply chain, including indirect suppliers in case of suspected violations. Penalties for non-compliance could reach up to 2% of annual turnover. Now, Germany's commitment will be realigned with the future European Corporate Sustainability Due Diligence Directive.

With the approval of the so-called Stop the Clock, the European Union has temporarily frozen the application of certain sustainability regulations, including the Corporate Sustainability Due Diligence Directive (CSDDD). The directive, which is supposed to replace national regulations like the LkSG, will come into effect starting in 2028, barring further modifications. In the meantime, many companies will see a reduction in the obligations for reporting and monitoring, especially in sectors more exposed to regulatory pressures. The new version proposed by the "Omnibus" package also limits the due diligence obligation to direct suppliers only (tier 1) and reduces the frequency of checks. The minimum threshold of 1,000 employees is also confirmed, thus excluding most of the SMEs in Europe that represent over 98% of the business fabric.

The cancellation of the LkSG and the postponement of the application of the CSDDD have direct consequences not only on German companies but also on the entire European market. Companies now find themselves in a more uncertain environment, with changing and loosening rules, creating disparities between those who have already invested in structured ESG processes and those who choose to wait. The obligation of due diligence limited to direct suppliers risks nullifying the efforts made in recent years to ensure the transparency of supply chains. Moreover, the lack of widespread controls might encourage greenwashing and weaken consumer trust. In this context, the most virtuous companies could find themselves at a disadvantage compared to less rigorous competitors, in the absence of a clear and stable regulatory framework. In this scenario, a strategic waiting phase opens for companies, but also an opportunity to voluntarily strengthen their ESG policies in anticipation of 2028.

Germany, long considered one of the leading countries in Europe in terms of sustainability and corporate responsibility, now risks compromising its credibility on an international level with this decision. The abolition of the Supply Chain Act, a pioneering law that had inspired other member states and supranational organizations, is seen by many observers as a sign of political and cultural regression. While the European Commission is working on a just and inclusive transition for businesses and citizens, Berlin seems to prefer deregulation aimed at reducing the administrative burden on businesses, which could have the side effect of reducing transparency and the protection of human and environmental rights. At a time when the EU is called to confirm its leadership in the field of global sustainability, this German step back could negatively affect the entire European regulatory framework.

This article was created as part of the "Biodiversity services EU expansion" project (CUP: E43D22000480009) under the Regione Lombardia call "PR FESR 2021-2027 – LINEA INTERNAZIONALIZZAZIONE 21-27", aimed at supporting the internationalization of Italian companies. 3Bee is the naturetech company that develops innovative technologies for the monitoring, protection, and regeneration of biodiversity, supporting companies in defining customized climate strategies based on the analysis of their impacts and dependencies on nature. With a consolidated portfolio in Italy, Germany, and France and significant partnerships, 3Bee continues its expansion in international markets to create a concrete impact through technology.