Is Germany changing its supply chain rules?

The new German coalition government, formed by the CDU/CSU and SPD parties, has announced its intention to replace the current Supply Chain Act with the European Union’s broader Corporate Sustainability Due Diligence Directive (CSDDD).

To give some background, the Supply Chain Act was introduced in 2021 and entered into force in 2023. It places obligations on large companies headquartered in Germany to identify, prevent and mitigate human rights violations and environmental damage within their operations and supply chains. These requirements include:

• The performance of an annual risk analysis covering a company’s own operations and direct suppliers
• The implementation of due diligence procedures for indirect suppliers in cases where there is substantiated knowledge of potential abuses.

Initially, the Supply Chain Act applied to companies with more than 3,000 employees which was then broadened in 2024 to include companies with more than 1,000 employees. Companies who fail to comply with the Supply Chain Act could end up with substantial penalties of up to 2% of their annual revenue.

What’s changing and why does it matter?

The new German coalition agreement is now proposing to immediately abolish the reporting requirements of the Supply Chain Act and suspend its enforcement until the Corporate Sustainability Due Diligence Directive (CSDDD) becomes applicable. However, this suspension will not apply to cases involving serious human rights violations, where enforcement will continue.

The timeline, however, is not simple. The CSDDD's own application is also subject to adjustments. Due to the EU Omnibus proposals, the CSDDD's implementation is potentially going to be delayed, until mid-2028.

This change could have implications for companies operating in or with German supply chains, if it get’s the green light. While it might seem like a reprieve in the short term, the CSDDD is still on the horizon, albeit with a potentially different timeline and scope.

We'll continue to monitor these developments and provide guidance on how they might impact your business.