The Domino Effect of the Supply Chain Act
The law functions as a cascading requirement through supply chains. Large German companies must fulfill human rights and environmental due diligence obligations, which they pass on to their direct suppliers (Tier-1) – typically where SMEs operate. At the same time, the EU Corporate Sustainability Due Diligence Directive (CSDDD) intensifies pressure on suppliers to become "supply chain capable."
What the LkSG requires
- Risk Management Framework
- Regular risk assessments
- Preventive and remedial measures
- Complaint procedures/Whistleblowing structures
- Documentation and Reporting
Typical supplier requirements for SMEs
Even companies not regulated by LkSG receive requirements from customers:
- Self-assessments on human rights, occupational safety, environment and governance
- Documentation of management systems – often ISO logic even without explicit ISO requirements
- Contractual clauses (Supplier Codes of Conduct, audit rights, reporting obligations)
- Expectations for internal complaint systems
What the CSDDD adds
The CSDDD follows the "cascade logic" along the value chains: requirements flow down from large companies through direct contractors. Particularly affected: high-risk sectors such as textiles, metals, construction, agriculture, logistics, waste, and chemistry-related supply chains.
Practical Action Plan for SMEs
1. Define supply chain capability as a product feature
B2B customers increasingly expect "compliance capability" as standard delivery capability. Documented processes and rapid proof provision become a competitive advantage.
2. Build minimum evidence package
Instead of starting from scratch with each customer: standardize company profile, Code of Conduct, risk identification process, remedial process, and documentation structure.
3. Clean resolution of complaint procedures
Defined channels, clear responsibilities, protection from retaliation and traceable processes are essential.
4. Risk-based instead of "auditing everything"
Law and guidelines emphasize proportionality and risk focus: Deeper examination where the risk is higher.
5. Using certifications strategically
Well-maintained management systems facilitate structured supplier evaluation, documented responsibilities and audit readiness.
Conclusion
SMEs remain able to deliver – and can use LkSG/CSDDD requirements as an opportunity rather than a bureaucratic burden. Digital, lean certification and evidence management enables repeatable supply chain compliance.
