Germany’s New Coalition Government Eliminates Sustainability Due Diligence Law

Germany’s new coalition government, formed by the conservative CDU, CSU parties, and the center-left SPD, has announced the immediate elimination of the country’s human rights and environmental supply chain due diligence law, the Supply Chain Act (LkSG). This decision comes as part of a broader coalition agreement, signaling a shift in the country’s approach to corporate sustainability and environmental governance.

The coalition plans to replace the LkSG with the EU’s Corporate Sustainability Due Diligence Directive (CSDDD), which, under the EU’s Omnibus proposals, will not take full effect until mid-2028. The new directive will also require less frequent monitoring compared to the LkSG. Initially introduced in 2021, the LkSG required large Germany-based companies to perform detailed annual risk analyses on human rights and environmental issues within their operations and supply chains. By 2024, the law was set to apply to companies with over 1,000 employees, with penalties for non-compliance potentially reaching up to 2% of annual revenue.

Impact on Sustainability Compliance: Under the coalition’s new agreement, the reporting requirements under the LkSG will be immediately abolished, and the law will no longer be enforced, except in cases of severe human rights violations. The coalition’s move to replace the LkSG with the CSDDD follows a broader trend of simplifying sustainability compliance regulations within the EU.

The CSDDD, adopted in May 2024 and set to take effect by July 2027, mandates companies to identify, assess, and mitigate impacts on people and the planet. This includes issues ranging from child labor and pollution to deforestation and ecosystem destruction. However, under the new EU Omnibus proposals, the application of this law will be delayed by a year, and compliance requirements will be significantly reduced. For example, full due diligence will only be required at the level of direct business partners, and monitoring will occur every five years instead of annually.

Bureaucracy Reduction and Support for Smaller Enterprises: The coalition also expressed support for the EU Commission’s Omnibus proposals, which aim to reduce the regulatory burden, particularly for small and medium-sized enterprises (SMEs). The proposal suggests easing sustainability reporting requirements for smaller companies and reducing the scope of due diligence obligations. This shift reflects the government's priority to reduce bureaucracy while still adhering to core sustainability goals.

Looking Ahead: As Germany transitions to the CSDDD, the government is signaling a more streamlined and business-friendly approach to sustainability compliance. While the LkSG’s immediate removal may alleviate some corporate pressures, the long-term implications for human rights and environmental protection will depend on how effectively the CSDDD is enforced.

The change has sparked debates within the country, with proponents praising the move as a step toward easing regulatory burdens on businesses, while critics argue that it may undermine the progress made toward corporate responsibility and sustainable development.

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