Germany’s conservative CDU and CSU parties and the center-left SPD announced a deal for the formation of a new government, and released a coalition agreement that includes the immediate elimination of Germany’s human rights and environmental supply chain due diligence law, the Supply Chain Act (LkSG).

The agreement says that the LkSG will be replaced with the EU’s new Corporate Sustainability Due Diligence Directive (CSDDD), although under the EU’s new Omnibus proposals, the CSDDD will likely only apply in mid-2028, and require less frequent monitoring than the LkSG.

Introduced in 2021, and applying from 2023, the LkSG created a series of sustainability-focused requirements for large Germany-based companies to prevent and mitigate risks of human rights violations and environmental damage in their operations and supply chains.

The law included requirements for companies to perform human rights and environmental risk analysis annually covering their operations and direct suppliers, and for indirect suppliers if there is knowledge of human rights abuses. The LkSG initially applied to companies with more than 3,000 employees, and from 2024 to companies with more than 1,000 employees. Penalties under the LkSG in the event of violations could reach as high as 2% of annual revenue.

Under a section focusing on bureaucracy reduction, in their new agreement, the coalition said that the “reporting requirement under the LkSG will be immediately abolished and completely eliminated,” adding that existing obligations will not be sanctioned until the CSDDD comes into effect, other than for cases of serious human rights violations.

The CSDDD sets out obligations for companies to identify, assess, prevent, mitigate, address and remedy impacts on people and planet – ranging from child labor and slavery to pollution and emissions, deforestation and damage to ecosystems – in their upstream supply chain and some downstream activities such as distribution and recycling.

The CSDDD legislation was adopted in May 2024, and set to begin applying from July 2027. EU lawmakers in the European and Council have both agreed to delay the application of the sustainability due diligence law by a year, following the launch by the European Commission of its Omnibus proposals, which include measures to significantly simplify and reduce sustainability compliance obligations for companies. The Commission’s Omnibus proposals for the CSDDD include requiring full due diligence only at the level of direct business partners, unless the company has plausible information of adverse impacts further down the value chain, and reducing the frequency of monitoring the effectiveness of due diligence from annual to every 5 years, in addition to setting limits on the information that can be requested from small companies in the value chain.

The new coalition expressed for the EU Commission’s proposals as well, stating:

“We support the Commission’s “Omnibus” to significantly reduce and postpone the extensive requirements regarding the content of EU sustainability reporting, particularly for small and medium-sized enterprises.”