The Act on Corporate Due Diligence Obligations in Supply Chains (LkSG)
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Compliance is not merely a challenge; it is a crucial opportunity to establish a trustworthy green supply chain and win the trust of the international market.
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What is LkSG?
The Act on Corporate Due Diligence Obligations in Supply Chains (LkSG) is a mandatory regulation that came into effect in Germany on January 1, 2023. It applies to enterprises of a certain scale within Germany and requires them to fulfill their obligations to identify, prevent and rectify human rights and environmental risks in the global supply chain.
Specific requirements include conducting human rights and environmental risk reviews of direct suppliers, establishing appeal mechanisms and risk early warning systems, regularly compiling and publicly disclosing compliance and due diligence reports, etc. Enterprises that fail to meet the standards will face economic penalties, market access restrictions and reputation risks.
LkSG will gradually align with EU law after the passage of the EU’s Corporate Sustainable Responsibility Directive (CSDDD).
What enterprises does LkSG cover?
Starting from January 2024, LkSG will be applicable to enterprises that have a headquarters, branch or main business location in Germany and have at least 1,000 employees in the country.
Chinese export enterprises, as an important supplier group to German industry, are directly affected by the transmission requirements of LkSG. Key industries include textile and garment, electronic manufacturing, minerals and raw materials, agricultural products, metal processing, rubber and plastic, etc.
LkSG Compliance Challenges | What difficulties do companies face?
The burden of information disclosure has increased
Enterprises lacking relevant experience find it difficult to cope with clients’ requests for filling out due diligence questionnaires, providing ESG reports, and undergoing audits.
Insufficient transparency of the supply chain
Large enterprises have long supply chains and complex hierarchies, making it difficult to identify potential risks in the upstream and downstream. Data deficiency and information silos are widespread. In high-risk industries such as the textile industry, the data barriers for suppliers are high, making it difficult to trace the environmental performance of suppliers at or above the secondary level.
The gap in institutional capacity is obvious
Most enterprises lack the ability to systematically collect carbon emissions and environmental impacts of their products, or have not yet established systematic human rights, labor and environmental management mechanisms, making it difficult for them to meet the due diligence audits of German customers.
Our professional service: One-stop LkSG compliance solution
Relying on our professional experience in green trade and ESG management, we offer a one-stop LkSG compliance solution that is operational and meets the regulatory expectations of Germany, helping Chinese enterprises smoothly enter the German and EU markets.
Regulatory interpretation and compliance gap assessment
Comprehensively interpret the LkSG regulatory requirements for enterprises, assess their LkSG compliance, help them fully identify high-risk elements related to LkSG, and provide gap analysis reports and rectification suggestions.
Compliance system construction and document support
Establish mechanisms for identifying, assessing, documenting and responding to environmental and human rights risks to prevent and eliminate key issues. Assist enterprises in formulating the necessary documents for compliance and building an ESG governance system that can meet the due diligence requirements of customers.
Supply chain transparency improvement and questionnaire response
We offer traceable data management tools and report disclosure support to enhance the visibility of the value chain. Provide standard response templates and guidance services for common due diligence questionnaires used by German clients.
One-stop service for multiple green compliance
Breaking the “single regulatory response” path, we create an integrated green compliance system for enterprises, enabling one-stop compliance with multiple green barriers and ESG disclosure requirements. This avoids fragmented responses and resource waste, making the overseas expansion journey of enterprises more efficient and smoother!
Our advantages
Data advantage
Intelligently match carbon accounting methodologies, automatically adapt to the optimal declaration plan, and reduce the compliance costs of enterprises.
Technical advantage
Self-developed carbon accounting AI engine, automated accounting process, and dynamically optimized enterprise carbon emission accounting model.
Ecological advantage
Covering 26 types of regulations such as CBAM/CSRD/ battery passports, it is compatible with the entire industrial chain scenarios of multiple industries.
Security Assurance
Blockchain + industrial Internet of Things data channel, achieving full lifecycle protection of data.
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