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In May 2024, the European Council adopted the Corporate Sustainability Due Diligence Directive (CSDDD), laying the foundation for its implementation into national law. In Germany, this will happen within the next two years through an adaptation of the national Supply Chain Due Diligence Act (LkSG). The scope of the adapted Supply Chain Act will then be gradually expanded by 2029 to include all companies with at least 1,000 employees and an annual turnover of more than 450 million euros. This regulation applies to domestic companies as well as companies based outside the EU if they generate such turnover of more than 450 million euros within the EU.
After many companies had already prepared for more transparency with the entry into force of the local LkSG in January 2023, it is now time to think even further ahead. Despite many similarities, there are also points where the CSDDD deviates from the LkSG. Nevertheless, there are many opportunities to use already established structures and processes for the implementation of the European supply chain directive.
An obvious area to build on existing structures when implementing the CSDDD is risk management. Many companies already had to check whether human rights or environmental risks or even violations exist or have occurred in the supply chain as part of the LkSG. Those who have implemented their own tools and analysis processes for this step can use these equally for the risk analysis required under the CSDDD. Companies benefit from building on the experience gained and possibly expanding successful processes.
There are similar effects in reporting, which, due to the requirements of the CSDDD, not only covers the measures to comply with due diligence obligations but also includes a company's sustainability strategy and its implementation. Companies affected by the CSDDD must therefore also report in detail on their long-term sustainability goals, strategies for achieving these goals, and the concrete progress and challenges in implementation.
In the contents of the CSDDD - as well as in the reporting requirements for the German LkSG - there are sometimes large overlaps with the measures and current information that must be collected and reported as part of the sustainability reporting of the CSRD. It makes sense to identify the overlaps with the material sustainability topics of a company at an early stage and to collect the relevant risks, data, and KPIs once for the individual requirements.
These synergies also apply to companies that already prepare annual reports under the LkSG. The reports prepared in accordance with LkSG already contain detailed information on human rights and environmental risks as well as measures to minimize them. Companies should definitely use this information as a basis to meet the future expanded and deeper reporting requirements of the CSDDD. This can be achieved, for example, by expanding their data collection systems to capture additional data points relevant to the CSDDD.
The LkSG requires companies to establish a complaint mechanism that allows affected persons to report grievances in the supply chain. The CSDDD extends the requirements for the complaint procedure by explicitly demanding comprehensive involvement of all stakeholders in the design of the complaint process. This criterion, which is primarily considered in the context of the LkSG as part of the effectiveness review, means that not only direct employees and suppliers but also other affected groups such as the local population on site or NGOs are to be actively involved in the design.
Affected companies can therefore also build on their established complaint mechanism here, which should be put to the test based on the relevant stakeholder groups and sharpened if necessary. As a result, it is conceivable that, for example, additional communication channels will be created to effectively involve newly identified stakeholder groups in the process.
In addition to accessible reporting channels for incidents, the CSDDD also requires the establishment of remedial measures to address existing violations and prevent future incidents. Because this is also provided for in the LkSG, many companies have already defined individual prevention and remedial measures and thus built up approaches to eliminate human rights and environmental violations. These systems often include standardized processes for developing and implementing action plans as well as monitoring the effectiveness of the measures.
For example, if a company has developed preventive training programs for its suppliers as part of the LkSG to prevent environmental and human rights violations, it can also use these programs to comply with CSDDD requirements and extend them to additional suppliers.
Control systems and governance structures are the core of holistic supply chain compliance and therefore an important component of both the LkSG and the CSDDD. Here, too, companies can in certain cases adopt and further develop existing systems for monitoring the extended CSDDD obligations. For example, they can expand the responsibilities of internal control bodies that have previously focused primarily on monitoring human rights risks to consider the comprehensive catalog of environmental aspects.
Companies benefit from further synergies when they sharpen audits and reviews that are already carried out as part of the implementation of the LkSG. Among other things, it is advisable to adapt audit protocols and ensure that the audits are more comprehensive and detailed to cover both social and ecological risks.
A look at practice shows that there are numerous approaches to exploit synergy potentials and efficiently map the extended obligations of the CSDDD with existing processes and structures. In this way, companies that are geared towards the LkSG have already operationally implemented many of the requirements and can position themselves as pioneers in the European market.
In the future, many companies will take a very close look at the potential supply chain risks of their partners and suppliers due to the extended due diligence obligations. And now it's time to resolve any differences in the reporting requirements of the LkSG, CSRD, and CSDDD to enable uniform use of data and minimize administrative effort.
Relatico software can be a valuable tool in helping companies navigate the complex requirements of the CSDDD, LkSG, and CSRD. It can assist in centralizing data collection, streamlining risk management processes, and facilitating comprehensive reporting. Relatico's features can help companies map their supply chains, identify and assess risks, implement due diligence measures, and generate the necessary reports to comply with various regulatory requirements. By providing a unified platform for managing sustainability and supply chain compliance, Relatico can help companies leverage synergies between different regulations, reduce administrative burden, and ensure consistent, accurate reporting across various sustainability and due diligence frameworks.
Bernd possesses extensive experience in strategic procurement, shaped by his tenure at Eckes-Granini, Symrise and DuPont de Nemours. Currently, he is focused on sustainable sourcing and supply chains, collaborating with the relatico team to develop practical software solutions. Additionally, Bernd runs his own agricultural business and is involved in supply chain projects globally.
