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In the evolving landscape of global corporate responsibility, the push towards sustainable and ethical business practices has led to the development of several legislative frameworks. Among these, the German Supply Chain Act (Lieferkettensorgfaltspflichtengesetz, LkSG), the Corporate Sustainability Due Diligence Directive (CSDD), and the Corporate Sustainability Reporting Directive (CSRD) stand out as pioneering efforts aimed at promoting human rights and environmental standards within supply chains. This article delves into the differences and similarities among these directives, providing insights into their scope, reporting obligations, and fundamental principles.
Now that the CSDDD is confirmed to be implemented it is more important than ever to be aware of the differences between them.
The LkSG, effective from 2023, mandates companies with over 3,000 employees (and from 2024, companies with more than 1,000 employees) to ensure their supply chains uphold human rights and environmental standards. This national regulation underscores Germany's commitment to fostering corporate accountability beyond its borders.
The CSDD, a European Union initiative, aims to extend the principles of due diligence and accountability across member states. Initially, it targets companies with over 1,000 employees, with plans to expand its reach to smaller entities, indicating a phased approach towards inclusivity. The directive's enforcement timeline suggests a gradual implementation, starting with larger corporations before cascading down to medium-sized businesses.
Set to be compulsory from January 2025 for companies with at least 250 employees and significant financial thresholds, the CSRD focuses on standardizing sustainability reporting. It introduces rigorous reporting standards to enhance transparency and comparability of sustainability data across the EU. Notably, the directive emphasizes the importance of double materiality, assessing both the impact of company operations on the environment and vice versa.
While the LkSG requires affected companies to submit annual reports to the Federal Office for Economic Affairs and Export Control (BAFA), the CSDD currently lacks specific reporting mandates, which are anticipated to be addressed by the CSRD. The CSRD, in contrast, specifies the content and format of sustainability reports, integrating them into annual financial reports and subjecting them to external audits and board approval.
Both the LkSG and the CSDD focus on safeguarding human rights and environmental integrity within supply chains, requiring companies to engage proactively with their suppliers. The CSRD, however, is dedicated to reporting, aiming to standardize and make sustainability data comparable. It introduces the concept of double materiality, helping companies identify and prioritize relevant sustainability issues.
While the LkSG specifically targets human rights issues such as child labor, forced labor, and discrimination, the CSDD is expected to encompass similar concerns, thus overlapping significantly with the LkSG. The CSRD, although primarily focused on reporting, shares common ground with the other two directives in terms of promoting transparency in corporate governance and social responsibility.
German companies that have already adapted to the LkSG may find themselves at a competitive advantage, as they can leverage existing processes to meet the requirements of the CSDD and CSRD. This preparatory work not only positions them favorably in the European market but also underscores the strategic benefit of early compliance with evolving regulatory standards.
The LkSG, CSDD, and CSRD collectively represent a significant shift towards more ethical, sustainable, and transparent business operations. While they share common goals, the nuances in their application, scope, and reporting requirements reflect a layered approach to addressing the complex challenges of global supply chains. As these directives evolve and intersect, companies operating within and beyond the EU are urged to stay informed and agile, adapting their practices to not just comply with legal mandates but to lead the way in corporate sustainability.
relatico.next offers practical, value-driven solutions to help businesses navigate the complexities of the LkSG and enhance their sustainability practices. With a focus on documentation automation, audit readiness, and supplier reliability, relatico.next empowers companies to efficiently manage compliance and digitalize procurement, quality, and regulatory processes. As your strategic partner, relatico.next ensures your business stays ahead in the ever-evolving market landscape, turning compliance into a competitive advantage.
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.
