Interview with Ann-Christine Lehmann

EU Corporate Sustainability Due Diligence Directive intensifies requirements and opportunities for companies

On April 24, 2024, the European Parliament adopted the Corporate Sustainability Due Diligence Directive (CSDDD), following the endorsement of the European Council in March. It has now been formally adopted by the EU Council of Ministers and must now be published in the EU Official Journal. Member states will then have two years to implement the directive. The German Supply Chain Act (Lieferkettengesetz – LkSG) will also have to be revised during this period.

Ann-Christine Lehmann, a supply chain expert at Lufthansa Industry Solutions, explains in this interview what the new legislation means for companies in the EU – and how they can prepare.

Points of contact and differences in supply chain acts

The original draft of the CSDDD has been heavily watered down. What are the key differences between this new EU directive and the German Supply Chain Act?

Fundamentally, the threshold for companies affected by the EU directive has now been raised considerably – from 500 to 1,000 employees, with a five-year phase-in period. Its provisions will only apply to companies with over 5,000 employees after three years and extend to companies with 3,000 and 1,000 employees after four and five years respectively. This means that more companies in Germany will be affected by the German Supply Chain Act in the coming years than by the EU legislation. As in the draft version of the EU directive, the issue of liability remains a significant difference from the German legislation. Under German law, companies cannot be held liable for breaches of their due diligence obligations – whereas under the current version of the EU directive, they can.

What exactly do companies need to do to comply with new EU directives on supply chains?

Companies are now required to conduct a comprehensive analysis in order to identify all the negative impacts of their activities on the environment and human rights throughout the entire value chain. Aspects such as child labor, environmental pollution, slavery and biodiversity loss play a decisive role in this analysis. After identifying these impacts, companies must take practical steps to prevent or minimize them. The focus is on assessing potential influences followed by targeted measures to prevent, mitigate and discontinue the identified impacts. The requirements set out in the EU CSDDD exceed those in the German Supply Chain Act, in particular in relation to environmental protection.

Will companies be held liable immediately if infringements are identified in their supply chains?

Legal liability for infringements in supply chains does not apply right away. As a general rule, companies are initially required to assess the severity and likelihood of a potential risk – starting by analyzing producer countries – to identify potential problems.

If an infringement occurs, the focus is not on immediately terminating supplier relationships but rather on developing solutions, such as training programs, joint actions or intensified cooperation. They can provide assurances, for example, that tie order volumes to the implementation of specific measures. The aim is to positively shape cooperation between companies.

What is the deadline for companies to meet the new requirements?

The legislation doesn’t set out specific deadlines for implementing measures and instead requires them to make reasonable efforts. Companies must actively strive to cooperate with their suppliers and put effective measures in place. These efforts must be substantive and documented. In extreme cases, if companies and their suppliers fail to collaborate, they may be encouraged or required to terminate the business relationship.

Companies should already be assessing where they stand in the context of existing legislation – especially the German Supply Chain Act, which now covers far more companies than last year.

Ann-Christine Lehmann
Supply chain expert at LHIND

Many critics have complained about an increase in bureaucracy. Can IT solutions provide meaningful relief?

IT can help minimize the burden, especially in relation to requirements regarding supply chain transparency. An appropriate IT solution enables companies to collect, process and collate large volumes of data efficiently into informative reports. This makes it possible to track and monitor all processes throughout supply chains, from procurement through to waste disposal. Lufthansa Industry Solutions offers a variety of solutions for companies and supply chains of different scales and complexities to provide suitable systems tailored to each customer’s needs. This includes evaluating existing systems and developing a future-proof overall strategy, taking account of other sustainability-related requirements, such as the EU Corporate Sustainability Reporting Directive (CSRD).

What can companies do now to prepare themselves?

Companies should already be assessing where they stand in the context of existing legislation – especially the German Supply Chain Act, which now covers far more companies than last year. It’s essential that companies have a comprehensive understanding of their own industries, along with the associated risks, and implement measures to adapt and upgrade their business processes at an early stage. The German Supply Chain Act not only presents an opportunity to promote sustainability but also helps improve companies’ competitive position in the face of global crises. Companies that accurately identify the risks in their supply chains and rectify their weaknesses will be able to respond promptly and purposefully to unforeseen events.

About Lufthansa Industry Solutions

Lufthansa Industry Solutions is a service provider for IT consulting and system integration. This Lufthansa subsidiary helps its clients with the digital transformation of their companies. Its customer base includes companies both within and outside the Lufthansa Group, as well as more than 300 companies in various lines of business. The company is based in Norderstedt and employs more than 2,500 members of staff at several branch offices in Germany, Albania, Switzerland and the USA.