Federal cabinet resolves reforms to the German Supply Chain Act and implementation of the CSRD

On 3 September 2025, the federal cabinet adopted an Act to Amend the German Supply Chain Due Diligence Act (Gesetz zur Änderung des Lieferkettensorgfaltspflichtengesetzes (available in German only)) (“Reducing the burden on companies by implementing practical and enforceable provisions”). This is intended to replace the German Supply Chain Due Diligence Act (“Supply Chain Act”) until the European Corporate Sustainability Due Diligence Directive (“CSDDD”) (Directive (EU) 2024/1760) has been implemented and to prevent excessive bureaucratic burdens on businesses.

Besides this, the federal cabinet has adopted a draft bill (available in German only) implementing the Corporate Sustainability Reporting Directive (Directive (EU) 2022/2464) (“CSRD”).

I. Amendments of the Supply Chain Act

The Supply Chain Act is designed to ensure corporate responsibility for observance of human rights and protection of the environment in supply chains. All enterprises regularly employing at least 1,000 employees in Germany are covered, regardless of their legal form. The Supply Chain Act imposes demanding due diligence, documentation, remedial and reporting requirements on the companies concerned.

The German government plans to abolish the reporting requirements and to reduce the scope of application of the rules regarding fines.

1. Abolition of reporting requirements

The government’s ministerial bill envisages a complete abolition of the reporting requirements under section 10(2) of the Supply Chain Act with retrospective effect for the reporting period from 1 January 2023. This means that companies do not have to send reports to the Federal Office for Economic Affairs and Export Control (Bundesamt für Wirtschaft und Ausfuhrkontrolle – BAFA) (“Federal Office”) for either past or future financial years. At the same time, the Federal Office’s obligation to extend its accountability reports to include evaluation of company reports will cease to apply.

2. Amendments to the rules on fines

The list of fines set out in section 24 of the Supply Chain Act is also to be reduced. In future, companies are only to be penalised for infringements that were previously classified by the legislature as particularly serious and were subject to higher fines. Only those who fail to take preventive or remedial actions in a timely manner in relation to human rights risks or violations will be committing a regulatory offence. The omission of preventive or remedial action following environmental violations under section 2(3) of the Supply Chain Act will consequently no longer be penalised in the future.

Furthermore, failure to set up a complaint’s procedure can also lead to fines. Companies can still in principle be excluded from public contracts, but this will only apply to the remaining offences subject to fines.

3. Continuing due diligence obligations

The essence of the Supply Chain Act is largely to remain untouched. Apart from the reporting requirement, all due diligence obligations under section 3(1) of the Supply Chain Act are to remain in force:

• Appropriate risk management: companies need to establish an appropriate risk management system and assign responsibilities. In addition, they still have to issue a policy statement on human rights.
• Risk analysis: companies have to carry out a risk analysis on their own business area and in relation to their direct suppliers once a year and on an ad hoc basis.
• Preventive measures: the duty to take effective preventive measures in their own business area and in relation to direct suppliers continues to apply.
• Remedial action: the duty to take remedial action when violations have been committed or are imminent also continues to apply.
• Complaints procedure: companies still have to establish an accessible complaints procedure.
• Indirect suppliers: the duty to address violations of human rights-related or environment-related obligations at indirect suppliers on an ad hoc basis where they possess substantiated knowledge remains unchanged.
• Documentation obligation: finally, it continues to be necessary to document fulfilment of all due diligence obligations within the company; only the duty to file reports has been waived.

Although penalties are only envisaged for violations of human rights-related obligations, companies are still required to include environmental obligations in their due diligence obligations.

II. Implementation of the CSRD

On 3 September 2025, the federal cabinet also passed the Act Implementing the CSRD (Gesetz zur Umsetzung der CSRD). In September 2024, the European Commission initiated infringement proceedings against the Federal Republic of Germany for failing to implement the directive. The time limit for incorporating it into national law expired on 6 July 2024 (we reported on this here).

The Implementing Act will now only implement the provisions which will remain valid according to the current state of negotiations on Omnibus Package I (we reported on this here (available in German only)). In particular, the postponement of reporting requirements under the “Stop-the-Clock” Directive (Directive (EU) 2025/794) is implemented. In addition, “first wave“ companies with fewer than 1,000 employees will be exempted from their reporting obligations for the 2025 and 2026 financial years in anticipation of planned simplifications.

III. Conclusion and outlook

It remains to be seen whether the planned amendments to the Supply Chain Act together with the implementation of the CSRD will actually lead to a noticeable reduction in the burden on companies. At any rate, the implementation of the CSRD should finally bring legal certainty and resolve the previous failure to implement the directive.

With regard to the Supply Chain Act, the legislature is adhering to the coalition agreement and directly abolishing the reporting requirements. Yet it is unclear why infringements of environment-related obligations are no longer to be subject to penalties in future, even though these obligations will remain in law. This regulatory gap could lead to companies paying less attention to environmental aspects in future – even though new binding environmental requirements are to be expected with the upcoming CSDDD. In view of this, it is advisable to continue including environmental duties in corporate due diligence obligations and not to neglect them.

Any questions?

You can find information on the advice provided by us on various topics relating to supply chain compliance, including the Supply Chain Act, CSDDD and CSRD, here.