As businesses face increasing pressure to address human rights and environmental risks in their supply chains, two critical regulations are taking centre stage: the Corporate Sustainability Due Diligence Directive (CSDDD) and the German Supply Chain Due Diligence Act (LkSG). These laws are not just regulatory hurdles—they’re essential for fostering accountability, mitigating risks, and building trust in a rapidly evolving global market.
In this blog, we’ll break down the key differences between CSDDD and LkSG, identify which businesses are affected, and offer practical steps for identifying and mitigating supply chain risks. You’ll also learn about the penalties for non-compliance and how Prewave can simplify adherence to these regulations. By the end, you’ll have actionable insights to future-proof your business in 2025 and beyond.
What Are the CSDDD and LkSG?
What is the CSDDD?
The Corporate Sustainability Due Diligence Directive (CSDDD) is an EU-wide initiative designed to harmonise sustainability regulations across member states. Its primary focus is on improving corporate accountability, protecting human rights, and minimising environmental impacts throughout supply chains. By establishing clear, standardised due diligence obligations, the CSDDD aims to create a level playing field for businesses while promoting sustainable practices across Europe.
What is the LkSG?
The German Supply Chain Due Diligence Act (LkSG) is a national law requiring companies to assess, identify, and address human rights violations and environmental risks within their supply chains. Initially targeting businesses with 3,000 or more employees (and expanding to include those with 1,000 employees), the LkSG sets clear thresholds and responsibilities for affected companies. Its goal is to enforce ethical supply chain management, holding organisations accountable for the social and environmental impacts of their operations.
Key Differences Between CSDDD and LkSG
Scope of Application
The LkSG applies to German-based companies with 3,000 or more employees, with the threshold lowering to 1,000 employees in 2024. In contrast, the CSDDD has a broader reach, targeting EU companies with 250+ employees or annual revenue of €40 million. Non-EU companies generating significant revenue within the EU may also fall under CSDDD’s jurisdiction, such as multinational corporations operating in EU markets.
Due Diligence Obligations
Under the LkSG, due diligence primarily focuses on direct (tier-one) suppliers, with indirect suppliers considered only when a substantiated risk is identified. The CSDDD, however, takes an impact-driven approach, requiring businesses to assess risks across indirect suppliers and deeper supply chain tiers, creating a more comprehensive framework.
Sanctions and Penalties
Non-compliance with the LkSG can lead to fines of up to 2% of global turnover and exclusion from public tenders. The CSDDD imposes stricter penalties, with fines reaching up to 5% of global turnover and additional civil liability provisions, significantly raising the stakes for businesses.
Environmental Scope
While the LkSG has a limited focus on specific environmental conventions, the CSDDD adopts a broader environmental scope. It addresses issues such as climate change, biodiversity, and deforestation, emphasising sustainability in corporate operations at a deeper level.
Steps to Prepare for Compliance
Preparing for compliance with the LkSG and CSDDD requires a structured and proactive approach. Businesses must not only meet existing obligations under the LkSG, but also anticipate the broader requirements of the CSDDD.
By aligning current strategies, conducting thorough risk assessments, and implementing preventive measures, companies can ensure they’re ready to navigate these evolving regulations effectively. Here’s a step-by-step guide to help your organisation stay ahead.
Aligning Compliance Efforts
- Build on existing LkSG compliance strategies to meet CSDDD requirements.
- Identify high-risk supply chains and prioritise them for due diligence efforts.
- Assess gaps between current practices and upcoming CSDDD standards.
Conducting Risk Assessments
- Use a risk-based approach to pinpoint human rights and environmental risks.
- Include indirect suppliers, especially in high-risk regions or sectors.
- Regularly update assessments to adapt to changing regulations and supply chain dynamics.
Implementing Preventive Measures
- Develop supplier codes of conduct to outline compliance expectations.
- Use technology to monitor supplier activities and generate compliance reports.
- Establish training programs for employees and suppliers to ensure alignment with regulations.
How Prewave Can Help
Navigating the complexities of LkSG and CSDDD compliance can be challenging, but Prewave offers powerful solutions to simplify the process. By combining AI-driven insights, automation, and deep supply chain visibility, Prewave helps businesses identify risks, meet regulatory requirements, and maintain transparency across all supply chain tiers.
AI-Powered Risk Management
Prewave leverages AI to provide real-time monitoring of supply chain risks, enabling businesses to stay ahead of potential issues. From identifying human rights violations to tracking environmental impacts, Prewave ensures you have the insights needed to address challenges promptly and effectively.
Streamlined Compliance Solutions
With Prewave, businesses can automate their due diligence processes, saving time and resources. The platform ensures that reporting is fully aligned with the requirements of both the LkSG and CSDDD, helping you maintain compliance with minimal effort.
Deep Supply Chain Visibility
Prewave’s AI-based system offers unparalleled visibility into deeper supply chain tiers, allowing you to identify and manage risks across all levels. Its collaborative features also facilitate seamless engagement with stakeholders, ensuring transparency and accountability throughout your operations.
Conclusion
The CSDDD and LkSG represent significant steps toward greater accountability in global supply chains, with key differences in their scope, due diligence obligations, and penalties. While the LkSG focuses on tier-one suppliers, the CSDDD takes a broader, more comprehensive approach, requiring businesses to address risks across all supply chain levels.
Proactive compliance is essential—not only to avoid penalties, but also to build sustainable and ethical operations that align with evolving stakeholder expectations. By leveraging Prewave’s AI-powered solutions, businesses can streamline their compliance efforts, gain deeper visibility into supply chain risks, and stay ahead of regulatory demands with confidence.
Discover how Prewave’s platform can support your business every step of the way. Contact us today!