Supply Chain Act (LkSG): Implementing Due Diligence in the Supply Chain
The Supply Chain Due Diligence Act (LkSG) mandates companies to identify and minimize human rights and environmental risks within their supply chain. As of 2024, it applies to companies with more than 1,000 employees — and the EU Directive (CSDDD) will expand the scope further.
What does the LkSG demand?
Companies must address in their own operations and with direct suppliers:
Conduct risk analysis: Regular assessment of human rights and environmental risks
Implement preventive measures: Appropriate actions to prevent and mitigate identified risks
Establish a complaint mechanism: Enable reporting of grievances
Documentation and reporting: Annual report on the fulfillment of due diligence obligations
The Role of Background Checks in LkSG
An often overlooked aspect: The examination of the people behind the suppliers. Who are the owners and executives of your suppliers? Are there links to human rights violations, sanction listings, or corruption?
Background checks on business partners and their key persons are a crucial element of LkSG compliance — similar to Due Diligence in investment decisions:
Check ownership structure: Who is behind the supplier? Are there complex structures or front men?
Sanctions list screening: Are owners or executives on international sanctions lists?
Adverse media: Are there media reports about human rights abuses, child labor, or environmental violations?
PEP status: Are key persons politically exposed — indicating a heightened risk of corruption?
How Indicium supports LkSG compliance
Business partner screening: Automated examination of suppliers and their key persons against 50+ data sources
Risk scoring: Country and industry-based risk assessment of your supply chain
Ongoing monitoring: Automatic alerts on changes in the risk profile of your partners
Documentation: Audit-proof evidence for the annual LkSG report
The result: you systematically and demonstrably fulfill your LkSG due diligence obligations — without manual research effort per supplier.
Nabil el Berr, CEO
Frequently Asked Questions
What is the Supply Chain Due Diligence Act (LkSG)?
The Supply Chain Due Diligence Act (LkSG) is a German law that requires companies to identify, prevent, and minimize human rights and environmental risks within their supply chain. It has been applicable since 2023 for companies with 3,000 employees and since 2024 for those with 1,000 employees. The EU directive CSDDD (Corporate Sustainability Due Diligence Directive) will further expand the scope to more companies across the entire EU.
What are the obligations for companies under the LkSG?
The LkSG requires companies to: establish risk management systems, conduct regular risk analyses within their own operations and with direct suppliers, implement preventive and remedial measures, set up a grievance procedure, and report annually on the fulfillment of due diligence obligations. There is an obligation for case-specific audits with indirect suppliers. Penalties can amount to up to 2 % of global annual sales.
How do Background Checks help in implementing the LkSG?
Background Checks are a crucial tool in fulfilling LkSG due diligence obligations: Sanctions list screening identifies sanctioned business partners and suppliers, Adverse Media Screening detects negative media reports on human rights abuses or environmental violations in the supply chain, and PEP checks uncover corruption risks with business partners. Indicium automates these checks and provides a documented audit trail as evidence of due diligence.
What is the difference between LkSG and CSDDD?
The German LkSG and the EU directive CSDDD (Corporate Sustainability Due Diligence Directive) share similar goals but differ in scope and enforcement: The LkSG applies to German companies with 1,000 employees, focusing on direct suppliers. The CSDDD will apply EU-wide, covering the entire value chain (not just direct suppliers) and introducing civil liability. Companies already compliant with LkSG have an advantage in CSDDD implementation.
