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Lieferkettensorgfaltspflichtengesetz (LkSG) – The German Supply Chain Due Diligence Act

What is the German Supply Chain Due Diligence Act?

The German Supply Chain Due Diligence Act (in German, Lieferkettensorgfaltspflichtengesetz or LkSG)

The German federal government aims to protect human rights and the environment across the supply chains of companies operating in Germany. In 2023, the act obliges companies with 3,000 or more employees to implement a supplier risk management system. In 2024, the act applies to companies operating with 1,000 or more employees.


The risk management system must help assess, mitigate, and monitor human rights and environmental risks in your supply chain. Reporting to the German government is required no later than four months after the end of the financial year.

The cost of not complying can be significant. Penalties include fines of up to 2% of annual revenues and exclusion from public tenders for up to three years. This is in addition to the risk of damage to your brand and resulting revenue loss.

Compliance with LkSG will requires:

  • Establishing a risk management system

  • Defining where responsibility for compliance lies within the company

  • Issuing a policy statement

  • Performing regular risk analyses

  • Establishing preventive measures within your field of business and in relation to any direct suppliers

  • Taking remedial measures

  • Establishing a complaints procedure

  • Implementing due diligence obligations with respect to risks at indirect suppliers

  • Providing documentation and reporting

How SAP can help

SAP Ariba Supplier Risk addresses key requirements for LkSG while SAP Ariba Supplier Lifecycle and Performance supports compliance across your supply base.

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SAP Ariba Supplier Risk

You can make risk assessment and due diligence part of the source-to-pay process and tailor risk views and alerts to your business, to each supplier relationship, and to your role. You can also produce reporting data that meets LkSG requirements.

Enabled by SAP Business Network, SAP Ariba Supplier Risk can help you:

  • Assess: Perform risk due diligence on targeted suppliers in your supply base, segmenting by country, commodity, and more

  • Mitigate: Drive collaborative risk disposition and remediation to minimize risk impacts to your business

  • Monitor: Rely on continuous, proactive risk monitoring and alerts, plus ongoing compliance checks

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SAP Ariba Supplier Lifecycle and Performance

By integrating supplier lifecycle management with procurement, you can direct spend to preferred suppliers and scale compliance across the supply chain. SAP Ariba Supplier Lifecycle and Performance offers:

  • A central supplier repository for native integration into SAP ERP

  • Scalable and rapid supplier onboarding

  • Region- and category-specific supplier qualification and segmentation

  • Compliance enforcement within the source-to-pay process

  • Self-service reporting through SAP Business Network

  • Framework and visibility to support sustainability, diversity, and other corporate responsibility programs

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Frequently asked questions

Lieferkettensorgfaltspflichtengesetz (LkSG) is an effective German law since 2023, with reporting requirements that for all companies with German operations that exceed 3,000 employees in 2023 or 1,000 employees in 2024. Direct violations of forced labor, unfair conditions, discrimination, or other human rights issues can result in penalties of up to 2% of revenue, exclusion from public tenders for up to three years, and brand damage.

 

The law requires companies to:

  • Adopt a policy statement on human rights protection

  • Assign responsibilities for due diligence

  • Conduct a risk assessment to identify particularly high human rights and environmental risks

  • Take preventative and mitigative measures to prevent violations

  • Establish a complaints procedure to address possible violations

  • Document compliance with due diligence obligations

  • Submit an annual report on compliance with due diligence obligations

A number of sustainability regulations are planned or in place across the EU. SAP intends to support the requirements for mandatory Human Rights Due Diligence (mHRDD) laws, which require, in common, data collection from suppliers, identification of risk, risk mitigation, and reporting requirements.

SAP customers can achieve LkSG compliance with SAP Ariba Supplier Risk combined with the power of SAP Business Network. SAP Ariba Supplier Lifecycle and Performance is recommended, but not required, as a foundational solution to provide consistent supplier master data and management.

There are six requirements to consider:

  1. Supplier intake: The engagement assessment process in SAP Ariba Supplier Risk enables you to request the required data from your suppliers. You can also evaluate new suppliers as part of onboarding and monitor existing suppliers for compliance.
  2. Supplier segmentation: The law requires companies to address higher-risk areas for compliance. SAP Ariba Supplier Risk helps you categorize and organize suppliers by risk profile.
  3. Supplier risk scoring: SAP Ariba Supplier Risk calculates a risk score that’s influenced by the factors listed by the regulation.
  4. Risk prevention, mitigation, and complaints management: SAP Ariba Supplier Risk offers issue management tied to the risk engagement assessment and to the risk control framework.
  5. Reporting: SAP Ariba Supplier Risk enables you to create analysis reports to meet the regulations.
  6. Supplier collaboration: SAP Ariba Supplier Risk is connected to SAP Business Network to support robust collaboration with suppliers. This includes self-assessments to make compliance easier for both you and your suppliers.