
The engine that powers sustainable organisations

contact@daato.net

Follow us on Linkedin!


In one of our last articles, we talked about the overlap between the EU Taxonomy and the LkSG. In this one, we want to inform you about the connection between the LkSG (German Supply Chain Law / Lieferkettensorgfaltspflichtengesetz) and the European Sustainability Reporting Standards (ESRS). That way, you can save valuable time and resources. Let’s dive right in!
The German Supply Chain Act, also known as LkSG, is a law aimed at improving supply chain management and protecting human rights. The law applies to Germany companies with more than 3,000 employees in 2023 and more than 1,000 employees as of 2024 and requires them to ensure their supply chains are free from human rights violations.
The law provides a framework for companies to identify and address risks in their supply chains and ensure that their operations are conducted in a responsible and sustainable manner.
The German Supply Chain Act requires companies to implement due diligence measures to identify and address any human rights violations or environmental damage that may occur in their supply chains. This includes conducting risk assessments, establishing a complaints mechanism, and implementing remediation measures where necessary. The law also requires companies to publish an annual report detailing their due diligence measures and the results of their risk assessments.
The due diligence requirements under the German Supply Chain Act are designed to help companies identify and address risks in their supply chains. These requirements include conducting regular risk assessments to identify and prioritize human rights and environmental risks in their supply chains, taking appropriate preventive measures to prevent human rights abuses and environmental damage, implementing remediation plans, compensation for affected parties, and termination of business relationships, and establishing a complaints mechanism to enable workers and other stakeholders to report human rights abuses and environmental damage in their supply chains.
To comply with the German Supply Chain Act, companies must take a proactive approach to identifying and addressing risks in their supply chains. This includes conducting a comprehensive risk assessment to identify and prioritize human rights and environmental risks in their supply chains, establishing appropriate preventive and remediation measures, and setting up a complaints mechanism that is accessible, independent, and effective. By complying with the law, companies can not only protect themselves from reputational damage and legal liability, but also contribute to the well-being of workers and the environment.
There are many similarities and overlaps between the LkSG and the ESRS that we would like to explain in more detail in the following.
The ESRS require companies to disclose their material impacts, risks, and opportunities related to their own workforce (e.g. Disclosure Requirement S1-3). This is very much related to the risk assessment that German companies have to conduct for the LkSG.
In general, an impact and financial materiality assessment is a process that companies use to identify and prioritize the most significant impacts, risks, and opportunities related to their operations. This assessment typically involves analyzing the potential social, environmental, and economic impacts of a company's activities on its stakeholders, as well as the financial implications of these impacts.
To conduct an impact and financial materiality assessment related to a company's own workforce, some factors that could be considered include:
- The number of employees affected by a particular issue
- The severity of the issue (e.g., whether it poses a risk to employee health or safety)
- The potential costs associated with addressing the issue (e.g., implementing new policies or procedures)
- The potential benefits of addressing the issue (e.g., improved employee morale or productivity)
Overall, the goal of an impact and financial materiality assessment is to help companies prioritize their efforts to address the most significant issues related to their own workforce.
Here is a detailed overview and comparison between the LkSG and the ESRS requirements:
LkSG Requirements:
ESRS Requirements ((ESRS S1) Own workforce; (ESRS S2) Workers in the value chain; (ESRS S3) Affected communities; (ESRS S4) Consumers and end-users):
[similar Disclosure Requirements exist in ESRS S3 and ESRS S4 for affected communities and consumers / end-users]
The LkSG and ESRS regulations overlap in the following areas:
In summary, LkSG and ESRS overlap in the areas of risk assessment, stakeholder engagement, remediation measures, supplier and value chain worker policies, and monitoring and disclosure. Although they have slightly different specific requirements, both regulations aim to ensure responsible and sustainable business practices that consider human rights, environmental, and social aspects and there is a lot of potential to save time, energy and costs by combining the two regulations.
Daato can help companies to comply with the due diligence requirements of the LkSG by offering a compliance tool to manage supply chain ESG performance in one place.
It can also help companies comply with reporting requirements of the ESRS and other sustainability reporting standards by consolidating all ESG data on one platform and automatically transferring the data companies used for instance for the LkSG. Wherever there is an overlap of information between different frameworks and regulations, Daato automatically fills it in so you save time and valuable resources.
Additionally, Daato can help companies identify and manage ESG risks and opportunities, including those related to taxation, free competition, anti-bribery, and anti-corruption.
By providing a comprehensive software solution, Daato can help companies future-proof their ESG reporting and management, stay ahead of emerging regulatory requirements, and promote sustainable business practices.
If you're interested in learning more about how Daato can assist you with your sustainability efforts, don't hesitate to contact us.