What’s next for the LkSG and CSDDD? Making sense of the German coalition’s announcement
In light of the German coalition’s recent announcement on the future of the Supply Chain Due Diligence Act (LkSG), questions have emerged regarding the implications for companies that are already compliant and those preparing for the upcoming Corporate Sustainability Due Diligence Directive (CSDDD). To better understand what this means in practice, Valentina Bolognesi, amfori senior advocacy and engagement advisor, sat down with Michaela Streibelt and Daniel Schönfelder, lawyers and lecturers in business and human rights. Together, they explore the reasons why it is not the time for companies to scale back their ESG due diligence efforts, and how they can be more effective in their ESG due diligence by adjusting to a more focused and risk-based approach.
Valentina Bolognesi: On 9 April 2025, companies woke up to the news that the German coalition agreement would replace the LkSG with legislation based on the EU Corporate Sustainability Due Diligence Directive (CSDDD). Can you help us clarify what was actually announced?
Daniel Schönfelder and Michaela Streibelt: Many believed the LkSG was dead when they heard the first news about the agreement. However, the specific announcement in the coalition agreement is a lot more complex. Additionally, the coalition treaty itself has no legal effects and cannot abolish the LkSG or other laws.
Looking at the details of the coalition treaty, the first sentence on the topic seemed clear – „we will abolish the LkSG“. But the second sentence stated that LkSG would be replaced by a new law that implements the CSDDD. That is not really news, as the LkSG would have to be amended to transpose the CSDDD anyway.
To put it very clearly, the LkSG is not being abolished?
Correct. In fact, the next sentence of the coalition treaty carries further significance: “until the law is being replaced, its reporting obligation will be abolished AND failure to meet the remaining due diligence obligations will only be sanctioned in cases of massive human rights violations”.
This sentence shows that the LkSG won’t be abolished, at least not completely. If the LkSG were to be abolished, its reporting obligations would be as well. And let’s not forget, enforcement is only possible with a legal basis. So, the LkSG remains alive, but wounded. What these announcements will mean concretely remains to be seen. Until then, the law is the law, and political announcements are political announcements.
So, for companies that have been working on LkSG compliance, has it all been a waste of time?
Not at all. Quite the opposite. Despite the announcement of the coalition’s government and the coming change with the EU omnibus proposal, it is clear that mandatory human rights and Environmental due diligence (HREDD) obligations are here to stay. It is also not foreseen that these obligations will be suspended: the LkSG remains in force until it is replaced by the CSDDD. So, companies will have to continue to implement HREDD. The CSDDD will have its own requirements, and the groundwork laid by the LkSG now gives companies a head start in preparing for those future obligations. The focus on enforcing only in case of severe violations is an opportunity to refine processes: companies can reflect on what worked and what didn’t, and focus their efforts even more. They should consider stopping bureaucratic tick-the-box exercises like one-size-fits-all mass questionnaires, which are unlikely to prevent “massive violations” and focus instead on fewer but more meaningful measures addressing their most salient issues. This can strengthen the risk-based approach, allow to focus on limited resources, and prepare for the CSDDD, which spells out the risk-based approach more stringently than the LkSG.
Now, looking ahead, what are the next steps for the government between now and the full transposition of the CSDDD?
The government has several options to implement this.
- They can make a legislative proposal that changes the LkSG to abolish the reporting obligations.
- They can include an obligation for the Federal Office of Economics and Export Control (BAFA), the authority, to only focus on severe cases. Alternatively, the competent ministry could instruct the BAFA not to enforce the reporting obligations and only enforce the due diligence obligations in case of severe human rights violations without changing the law.
In order to replace the LkSG with a new law to transpose the CSDDD, they could either wait for the dust around the CSDDD and the EU omnibus to settle and then change the law again, or directly include a sunset clause that will let the LkSG go out of force once the CSDDD is implemented. In the latter case, the LkSG could formally be immediately abolished and directly be replaced by a completely new law. They could also transpose the CSDDD by amending the LkSG as was originally planned by the last government before the snap election.
And do we have any timelines?
There is not a lot of clarity around this. The coalition might move fast to demonstrate unity and also because an early implementation of the described abolition of the LkSG (rather: reform) might be politically attractive for the ruling CDU/CSU. Reducing what they called bureaucratic burdens to set positive incentives for the economy has been an important topic in their electoral campaign. The CDU/CSU might want to be seen to deliver on these promises quickly. Additionally, in another passage of the coalition treaty, the government announces an “immediate action programme for bureaucracy reduction” (Sofortprogramm für den Bürokratierückbau) with which they want to reduce bureaucratic burdens for companies by the end of the year. The timeline for the changes to the enforcement of the LkSG or even changes to the LkSG might be the same.
Now that we have a better understanding of what was announced and the likely next steps, what is your advice to companies that are still subject to LkSG?
Our main advice to these companies would be:
- Immediately stop any overly bureaucratic “tick-boxing” approaches, especially the one-size-fits-all questionnaires for Tier 1 suppliers, which weren’t particularly effective.
- Take a breath and focus on implementing a truly risk-based approach to your human rights and environmental due diligence across the entire supply chain. Instead of getting stuck in managing a huge number of low-risk tier-1 suppliers, they should identify their key risks related to critical raw materials and products and develop targeted strategies for improvement. Less suppliers and less procurement categories, but a more in-depth assessment. This more risk-based approach is more in line with CSDDD; international standards; Art. 18 Taxonomy regulation and – most importantly – as seen in Norway with the Transparency Act and also recognised by BusinessEurope: less bureaucratic.
- Finally, do not dismantle any existing due diligence structures or teams you have, as these will be essential for future compliance. The interim period should be used strategically to build more effective and sustainable due diligence processes for the long term.
The focus on severe violations would give companies space to evaluate what has worked and what hasn’t, and to incorporate these learnings into their preparations for the CSDDD.
What does all this mean for the CSDDD and the “EU Omnibus” process?
The coalition treaty is generally supportive of implementing the CSDDD in an SME friendly and non-bureaucratic way, mentioning support for the omnibus process. However, if taken seriously, this would mean sticking to a “tier-n” risk-based approach and putting an even stronger focus on protecting SMEs from risk-shifting by firmly establishing shared responsibility principles.
The Norwegian experience shows that the tier-n risk-based approach is perceived by companies as a lot less bureaucratic than the tier-1 and substantiated knowledge approach by the LkSG. Similarly, companies in Germany prefer the current approach of the CSDDD to the LkSG’s substantiated knowledge approach as they feel this allows them to systematically address the most salient issues in their whole supply chains instead of having to constantly chase incidents of substantiated knowledge. The proposed tier-1 and plausible information focus would again incentivize mass tick-boxing to the detriment of SMEs and disincentivize a more focused and tailored approach.
Finally, how should we interpret Chancellor Merz’s recent call to abolish the LkSG?
His comments do not override the coalition agreement. The parties of the coalition government (CDU, CSU and SPD) have a long tradition of collaborating and implementing agreed policies together. His party knows that sticking to agreements is what makes effective governance possible in the first place and that current and future coalition partners are closely watching how much their word is worth. In response, several leading SPD ministers as well as the European Commission clarified that they will not support abolishing the law. Notably, after this Merz did not take the topic up in his first chancellor’s declaration in front of parliament on May 14th. For good reason: Germany`s companies have invested considerable resources in implementing HREDD and can be seen as now having a first mover advantage in this field. They need stable, predictable, and implementable rules, not regulatory unpredictability. Germany can support this by playing a constructive role in the Omnibus procedure, or repeat the chaos of German votes and watch while others find compromises. We are confident that after realizing that the time for election campaign slogans has passed and calm and constructive governing is the order of the day, Germany will act in business and human rights best interest and continue to engage constructively.
About the authors
Daniel Schönfelder is a lawyer and lecturer in business and human rights. He works as Lead European Legal Advisor for the Responsible Contracting Project and in-house on the implementation of the German Supply Chain Act.
Michaela Streibelt is a lawyer, lecturer, and advisor in business and human rights. She works for the German Helpdesk on Business and Human Rights and the Responsible Contracting Project.
Valentina Bolognesi is Senior Advocacy and Engagement Advisor at amfori, where she is responsible for amfori’s advocacy work in the field of social sustainability and supply chain policies with a special focus on human rights due diligence.
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