The domino effect of the Lieferkettengesetz
The law functions as a cascading requirement throughout 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) increases pressure on suppliers to become "supply chain ready."
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 the LkSG receive requirements from customers:
- Self-disclosures 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 regarding internal complaint systems
What the CSDDD adds
The CSDDD follows the "cascade logic" along value chains: requirements travel from large companies through direct contractors down the chain. Particularly affected: high-risk sectors such as textiles, metal, construction, agriculture, logistics, waste, and chemical-related supply chains.
Practical action plan for SMEs
1. Define supply chain readiness as a product feature
B2B customers increasingly expect "compliance-ready" as a standard delivery capability. Documented processes and fast proof of evidence become a competitive advantage.
2. Build a minimum evidence package
Instead of starting from scratch with every customer: standardize company profile, code of conduct, risk detection process, remediation process, and documentation structure.
3. Resolve the complaints channel cleanly
Defined channels, clear responsibilities, protection against retaliation, and traceable processes are essential.
4. Risk-based instead of "auditing everything"
Law and guidelines emphasize proportionality and risk focus: deeper review where the risk is higher.
5. Use certifications strategically
Well-maintained management systems facilitate structured supplier evaluation, documented responsibilities, and audit readiness.
Conclusion
SMEs remain capable of delivering – 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.
