The Corporate Sustainability Due Diligence Directive (“CSDDD”) came into force this summer and is now being gradually transposed into national law in the individual EU member states. With the Supply Chain Due Diligence Act (LkSG), Germany already had a like-minded law, which is now expected to be adapted again with the obligation to implement the CSDDD.
Swiss companies are also affected by these regulations, as foreign customers often contractually transfer their legal obligations to suppliers. In order to remain competitive, it is therefore advisable for Swiss companies to address the legal measures at an early stage despite the lack of a direct obligation and, if possible, to implement them already.
1. The Corporate Sustainability Due Diligence Directive (CSDDD)
The Corporate Sustainability Due Diligence Directive (“CSDDD”), which was adopted at EU level in the summer of 2024 and came into force on July 25, 2024, aims to strengthen and standardize human rights and environmental due diligence obligations of companies within the European Union (EU). The directive places extended requirements on companies and obliges them to comply with responsible standards in the area of human rights and environmental protection along their entire supply chains. The CSDDD brings with it significant innovations, particularly in environmental issues, which go beyond existing national regulations and create a closer link to international climate goals. It affects not only companies based in the EU, but also Swiss companies that are part of the supply chain of EU companies.
The CSDDD is a step towards more sustainable European supply chains and is conceptually based on the German Supply Chain Due Diligence Act (LkSG) (see below).
1.1 Objectives and Scope of the CSDDD
The CSDDD was developed to make companies more responsible for protecting both human rights and environmental standards along their entire supply chain and promoting compliance with them. The directive includes extended environmental obligations, including requirements for the protection of ecosystems, as well as chemical-related due diligence obligations. Obligations to protect biodiversity, specially protected areas and the seas have also been included. The directive refers to numerous international environmental agreements, including the Convention on Biological Diversity, the CITES Convention and the Montreal Protocol.
The requirements of the CSDDD apply to EU companies (based within a member state) with more than 1,000 employees and a net turnover of more than 450 million euros in the EU. For companies based outside the EU, the directive applies if they generate a net turnover of more than 450 million euros within the EU. The directive provides for a staggered application in three phases (Art. 37 para. 1 CSDDD):
- From July 26, 2027: Application to companies with over 5,000 employees and EUR 1.5 billion in turnover generated in the EU, as well as non-EU companies with a turnover generated in the EU of more than EUR 1.5 billion;
- From July 26, 2028: Extension of the application to EU companies with over 3,000 employees and EUR 900 million in worldwide turnover, as well as non-EU companies with a turnover generated in the EU of more than EUR 900 million;
- From July 26, 2029: Extension of the application to EU companies with over 1,000 employees and EUR 450 million in worldwide turnover.
In addition, companies will be required to create and implement a climate plan to reduce their impact on climate change (Art. 1 para. 1 lit. c CSDDD). This plan should be compatible with the 1.5-degree target of the Paris Climate Agreement and the European climate neutrality target.
The CSDDD contains concrete provisions on the scope of the obligations in the supply chain as well as on the concrete design of the due diligence obligations and on civil liability. The entire chain of activities must be taken into account, which, according to the CSDDD, includes both the activities of upstream business partners – from the development, extraction, procurement, manufacture, transport, storage and delivery of raw materials, products or parts of products – and the activities of downstream business partners, such as the distribution, transport and storage of a product, provided that these activities are carried out for the company or in its name (Art. 3 para. 1 lit. g CSDDD). Companies must report annually on compliance with their due diligence obligations, unless they are subject to the EU Directive on Sustainability Reporting (CSRD) (Art. 16 para. 1 CSDDD).
1.2 Implementation in the Member States
The EU member states are obliged to transpose the requirements of the CSDDD into national law by July 26, 2026 and to submit the necessary legal texts to the European Commission. It is to be expected that Germany will adapt its existing Supply Chain Due Diligence Act (“LkSG”) in accordance with the new EU requirements and possibly tighten it further. This could – as will be shown below – also lead to additional requirements for international and thus also Swiss companies that maintain business relationships in the EU.
1.3 Current Status of Implementation in the EU Member States
With the introduction of the CSDDD, the European Union is striving to harmonize existing national regulations. The aim is to create a uniform legal basis for corporate due diligence obligations throughout the EU. This harmonization is intended not only to bring together the different approaches of the member states, but also to provide companies with clear and consistent guidelines for their activities throughout the EU. This will create a level playing field and increase legal certainty for companies. The CSDDD will thus act as a catalyst for a coherent implementation of sustainability and human rights standards in corporate activities and supply chains throughout the EU.
The current status of the implementation of the provisions of the CSDDD and the previous laws on (supply chain) due diligence in the individual EU states vary considerably.
Germany and France are currently the only EU member states that have specific laws on corporate responsibility in supply chains. Germany has – as mentioned – enacted the Supply Chain Due Diligence Act (LkSG), while France has had similar requirements for companies with regard to their due diligence obligations since 2017 with the “Loi de Vigilance”. These two laws cover both environmental and human rights aspects in the supply chains. Other EU states have not yet enacted comparable laws at the national level.
Other countries in Europe have some similar, but less far-reaching regulations than in the EU: Norway does not have comprehensive due diligence legislation like the CSDDD in the EU, but promotes corporate responsibility through political initiatives for transparency in relation to human rights and the environment. In the United Kingdom, the Modern Slavery Act of 2015 obliges companies to combat forced labor and human trafficking, but not to comprehensive responsibility for the entire supply chain, as required by the CSDDD.
2. The German Supply Chain Due Diligence Act
The German Supply Chain Due Diligence Act (“LkSG”) came into force on January 1, 2023 for companies with more than 3,000 employees and has been in force since January 2024 for companies with over 1,000 employees. It obliges large companies to comply with human rights and environmental standards along their supply chains. Swiss companies that supply German companies or are themselves active in Germany are therefore also affected by this law. Many supply contracts now expressly stipulate compliance with the due diligence obligations provided for in the LkSG along the entire supply chain. As a result, even smaller companies or suppliers who are not directly subject to the law may be indirectly obliged to comply with corresponding standards in order to continue their business relationships with German contracting parties.
2.1 Objectives and Scope of the LkSG
The LkSG is intended to prevent companies from violating human rights or supporting environmentally harmful behavior in their supply chain. This includes protection against child labor, forced labor, poor working conditions and environmentally harmful practices. The law obliges companies to ensure human rights and environmental standards along their direct supply chains. The legislation initially only applied to companies in Germany with at least 3,000 employees, but from 2024 the threshold was lowered to 1,000 employees.
2.2 Impact on Swiss Companies
- Swiss companies with a German branch: Swiss companies with a branch in Germany and a number of 1,000 employees in Germany must directly implement the due diligence obligations of the LkSG.
- Supply relationships with Germany: Swiss companies without their own German branch are also affected by the regulations if they are direct suppliers of German companies that are subject to the LkSG. In such cases, German contracting parties are increasingly expecting their Swiss suppliers to also meet the requirements of the LkSG and submit a declaration of reliability regarding compliance with human rights and environmental standards.
- Indirect suppliers: Indirect (indirect) suppliers are only included in the due diligence obligation if there is concrete evidence of human rights violations or environmentally harmful behavior. In practice, however, a German business partner may insist that the Swiss supplier also checks its own suppliers and prepares a risk analysis.
2.3 Requirements and Due Diligence Obligations
Swiss companies may already be required today – despite the largely absence of Swiss legislation corresponding to the LkSG or the CSDDD – to implement the following measures:
- Risk management: Companies must implement a system for identifying human rights and environmental risks along the entire supply chain and define an internal responsibility for this monitoring (§ 4 LkSG).
- Regular risk analysis: The risk analysis must ensure that companies identify the parts of their supply chain that have particularly high risks (§ 5 LkSG). This includes a directory of suppliers, sorted by location and risk factor.
- Policy statement: A policy statement on human rights standards, adopted by the company management, describes the identified risks as well as the planned measures for prevention and remedy (§ 6 para. 2 LkSG).
- Preventive and remedial measures: In the event of human rights violations or environmental damage, remedial measures must be initiated immediately (§ 7 LkSG). The law also requires companies to anchor preventive measures with direct suppliers and, if there are indications, with indirect suppliers (§ 6 and § 9 para. 3 no. 2 LkSG).
- Complaint procedure: A complaint procedure must enable those affected to report violations (§ 8 LkSG). It should be easily accessible, for example by publishing it on the company website.
- Reporting obligation: Companies must report annually on their due diligence obligations and the measures taken (§ 10 para. 2 LkSG). For Swiss companies without a German location, this obligation does not apply in principle. German companies can request information from their (Swiss) suppliers as part of their reporting obligations, provided that this is contractually agreed. In practice, such an obligation is often stipulated in supply contracts. This can be done in the form of questionnaires, audits or proof of compliance with standards. (Swiss) suppliers are not legally obliged to cooperate, but the provision of such information may be a prerequisite for the business relationship. As a result, part of the administrative burden may fall on Swiss companies.
2.4 Practical Implementation
In practice, companies must take the following steps to comply with the LkSG:
- Code of conduct for suppliers: A written code of conduct, for example in the form of a Code of Conduct, bindingly stipulates which standards suppliers must comply with.
- Evidence and control rights: Evidence must be requested from suppliers, such as training documents, and risk-based controls must be carried out.
- Termination of business relationships in the event of non-compliance: If a supplier does not meet the legal requirements or there are concrete violations, it may be necessary to terminate the business relationship.
2.5 Sanctions and Control
The German Federal Office for Economic Affairs and Export Control (BAFA) monitors compliance with the provisions of the LkSG and can impose fines of up to EUR 8 million or 2% of worldwide turnover in the event of violations (§ 24 para. 2 and 3 LkSG). Companies that violate the law may also be excluded from public contracts in Germany (§ 22 LkSG). In addition, violations can lead to reputational damage, which can have a negative impact on business. So far, no concrete sanctions have been imposed under the LkSG.
3. Conclusion and recommendations
Swiss companies with business relationships with the EU should not only closely monitor the developments of the CSDDD and its implementation into national law, but also take measures now to meet future requirements. Experience with the German Supply Chain Due Diligence Act (LkSG) makes it clear that early preparation is crucial to minimize operational risks and legal consequences. This also applies to Swiss companies that are only indirectly affected – for example, as suppliers in a supply chain. Experience shows that such regulations lead to the fact that even indirectly involved companies must increasingly demonstrably fulfill due diligence obligations in order to remain competitive.
Concrete recommended steps for Swiss companies:
- Establishment of internal compliance structures: Establishment of an internal control system and preparation of a clearly structured report on the measures taken to comply with due diligence obligations.
- Risk analysis and management: Implementation of a structured risk management system that identifies and addresses human rights and environmental risks along the entire supply chain. This can be done through the use of specialized software or the development of company-specific tools.
- Contract review: Critical review and adaptation of supplier contracts to integrate CSDDD- or LkSG-compliant clauses or to identify any obligations to cooperate.
- Process optimization: Definition of clear processes for fulfilling obligations to cooperate, including the establishment of an effective complaint procedure.
- Training and awareness: Regular training for employees and suppliers to ensure compliance with new standards.
Time frame:
- Short term (6-12 months): Implementation of internal compliance structures and implementation of a comprehensive risk and contract analysis and creation of an action plan;
- Medium term (1-2 years): Implementation and optimization of processes and systems;
- Long term (2+ years): Continuous monitoring and adaptation to changing regulatory requirements.che requirements.
The industry-specific challenges are as follows:
- Textile industry: Here, the focus is particularly on fair working conditions and environmental standards in production countries. The textile industry is often confronted with problems such as low wages, lack of occupational safety and long working hours.
- Food industry: Here, sustainable agriculture and ethical sourcing are in the foreground. Challenges arise in particular when sourcing raw materials from regions where environmental destruction, land grabbing or poor working conditions are widespread.
- Technology sector: In the technology industry, increased due diligence is required when sourcing raw materials such as rare earths and metals that are used for electronic components. These raw materials often come from conflict regions where human rights violations and environmental destruction are the order of the day.
Inaction entails considerable risks: In addition to legal sanctions and possible exclusions from public tenders, there is also the threat of reputational damage, which can have serious effects on business relationships. Our experience shows that a proactive adaptation proves not only inevitable, but also profitable: It strengthens long-term competitiveness and the trust of business partners.
