German Supply Chain Act (LkSG) and Carbon: What Suppliers Must Know

What Is the German Supply Chain Act?

The Lieferkettensorgfaltspflichtengesetz — universally abbreviated to LkSG — is Germany's mandatory human rights and environmental due diligence law. It came into force on 1 January 2023 for companies with 3,000+ employees in Germany, and was extended to companies with 1,000+ employees from 1 January 2024.

Unlike CSRD, which focuses on disclosure, the LkSG creates a legal obligation to identify, prevent, and remedy human rights and environmental risks in supply chains — and to report annually to Germany's Federal Office for Economic Affairs and Export Control (BAFA).

What Does the LkSG Require From Suppliers?

The LkSG directly regulates companies with 1,000+ employees operating in Germany. However, those companies must extend due diligence to their direct suppliers — and increasingly to indirect suppliers where they have substantive influence or knowledge of risk.

This creates a cascade effect: if your client is a German manufacturer with 2,000 employees, they are legally required to assess you as a direct supplier against LkSG criteria. This assessment typically includes:

• Environmental risks: Pollution, resource depletion, greenhouse gas emissions
• Climate risk: Contribution to significant climate impacts through operations
• Social risks: Labour conditions, wages, health and safety

For carbon specifically, your client may ask you to provide emissions data as evidence that you are not creating disproportionate climate risk in their supply chain.

LkSG Carbon Questions in Practice

LkSG-driven questionnaires typically ask:

Providing a Carbon Passport URL is an efficient way to satisfy all of these questions in a single document.

How the LkSG Relates to CSRD

CSRD (Corporate Sustainability Reporting Directive) requires large EU companies to disclose their full sustainability performance — including Scope 3 supply chain emissions — in their annual reports from 2024 onwards (large companies) and 2026 (SMEs listed on regulated markets).

LkSG creates a German-law due diligence obligation; CSRD creates an EU-law disclosure obligation. They overlap significantly:

If your German client is subject to LkSG, they are almost certainly also subject to CSRD — which means they need your Scope 3 data for both purposes simultaneously.

The EU Corporate Sustainability Due Diligence Directive (CSDDD)

The CSDDD (sometimes called CS3D) is the EU-level equivalent of the LkSG. Adopted in 2024, it will apply to: - EU companies with 1,000+ employees and EUR 450M+ net turnover (from 2027) - Non-EU companies with EUR 450M+ EU turnover (from 2027)

The CSDDD goes further than LkSG by requiring companies to adopt a transition plan aligned with the Paris Agreement 1.5°C pathway. This will eventually pull carbon reduction requirements into supplier contracts across the EU — not just in Germany.

What to Do Now

If you supply to German companies with 1,000+ employees:

1. Generate a Carbon Passport — it proves you measure emissions and demonstrates good faith
2. State your methodology — GHG Protocol Corporate Standard is always the correct answer
3. Have a reduction target — even a basic 10% reduction plan is better than nothing
4. Keep your emissions data for three years — LkSG audit requests can go back multiple years

The companies asking you these questions face fines of up to 2% of global annual turnover for non-compliance. Suppliers who can demonstrate carbon accountability are materially lower-risk to them — and that is leverage worth using in contract negotiations.