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In 2024, sustainability was still considered a positive term – promising, socially desirable, often part of a company’s “DNA.” Since then, the mood has changed significantly: Instead of innovative strength and competitive advantage, buzzwords such as paternalism, bureaucratic burden, and competitive barrier now dominate.

The current debates surrounding new omnibus proposals from the EU are particularly responsive to this trend: the sustainability framework, originally intended to promote innovation and competition, is in danger of being undermined by additional obligations and documentation requirements.

WHAT HAS HAPPENED IN GERMANY WITH REGARD TO SUPPLY CHAINS?

Against the backdrop of the current change in sentiment, the German government has decided to water down the German Supply Chain Act (LkSG). The draft bill will exempt companies from certain documentation requirements in the future. This slimmed-down version is to apply until the EU-wide Supply Chain Directive (CSDDD) is transposed into national law in 2027.

The government cites an annual reduction in the burden on the economy of around 4.1 (!) million euros as a benefit. Whether this figure is accurate is highly questionable – especially since it is insignificant in relation to the overall economy, accounting for just 0.01% of Germany’s GDP in 2024.

DEBATE WITH BLINDERS ON? THE BENEFITS PERSPECTIVE IS (ONCE AGAIN) LEFT OUT

I discussed the topic with Prof. Dr. Julia Hartmann (EBS University). She has been researching supply chains and the real impact of regulation on companies (“Real Impact on Firms”) for years: “We empirically examined 150 regulated and about 150 unregulated companies and found no significant evidence of the alleged bureaucratic burden. The amount of 4.1 million euros cited is negligible and, above all, obscures the benefits to society. Research clearly shows that corporate engagement in the supply chain—whether mandatory or voluntary—has noticeable positive effects on people and the environment.”

Added to this are the benefits for the companies themselves, for example in terms of supply chain resilience or reputation risk avoidance. Prof. Hartmann has already empirically proven and explained these benefits in the context of the coronavirus pandemic in 2022:

“Another scientific finding that may be relevant for economic decision-makers is that companies with a sustainability-oriented purchasing strategy have come through the pandemic much better. […] Investors clearly had the impression that these companies were strategically better positioned in their supply chain to deal with pandemic-related problems in the supply chain.” (On the sense and nonsense of sustainable supply chains)

Weighing human rights against pennies

4.1 million euros – spread across the entire German economy – is like trying to weigh human rights against pennies. What is most surprising is that the original LkSG legislation states that companies without regulatory pressure may have blind spots in this area, which could pose a real reputational risk:

“To ensure sufficient compliance, a legally binding and internationally compatible due diligence standard is required. (…) This should strengthen the rights of people affected by corporate activities while safeguarding the legitimate interests of companies in legal certainty and fair competition.”

A glance at the degree of achievement of SDG indicator 8.7 (child labor) shows how real the reputational risks of child labor are, for example. Despite declining numbers, the goal of ending all forms of child labor worldwide by 2025 remains a long way off, and companies are regularly accused of child labor in the media.

WHAT DOES THIS MEAN FOR COMPANIES IN THE LONG TERM?

Germany is also waiting for Europe: The EU Supply Chain Due Diligence Directive (CSDDD), the European counterpart to the LkSG, will apply to companies with more than 1,000 employees. Under pressure from various business-friendly lobby organizations, implementation has also been postponed here. This is the current status: Member states must transpose the directive into national law by July 2027. The first binding rules will take effect on July 26, 2028.

And here, too, there is a watering down: The EU Commission proposes that companies should only have to audit direct suppliers in future (which is initially similar to the German law) and that due diligence checks should be carried out every five years rather than annually – which seems almost arbitrary in our dynamic, fast-paced world.

This continues the current trend: sustainability is required by regulation, but at the same time it is weakened by political compromises. This is a lose-lose situation: frustration with bureaucracy continues to smolder, the actual benefits are lost sight of in the debate – and uncertainty among companies remains.

HOW YOU CAN STRENGTHEN YOUR COMPANY BY TAKING DECISIVE ACTION

For companies, the weakening of the supply chain law is by no means a green light. The transition period is an opportunity to do some strategic groundwork.

1. Systematically analyze benefits: Fair and resilient supply chains strengthen your positioning, protect against reputational risks, and act as an early warning system.
2. Create regulatory clarity: Check which parts of your supply chain are already documented and which gaps exist with regard to EU regulations.
3. Leverage efficiency potential: Standardize and digitize your ESG and supply chain processes to reduce costs and time expenditure.
4. Involve stakeholders: Work with investor relations, purchasing, customers, banks, and other stakeholders to further develop the added value identified in 1 – this will help you gain acceptance and capital market relevance.

With more than 25 years of experience in the capital market and sustainability consulting, we are happy to support you in individual steps in this process or guide you holistically toward a confident and benefit-focused approach to sustainable supply chain management.