German Supply Chain Act to be abolished

The German Supply Chain Act has been in force since 1 January 2023 and provides for substantive due diligence and reporting obligations. It has been seen as a precursor to EU sustainability directives. Its abolition had been the subject of political debate in Germany. Confirmation that the German Supply Chain Act is to be abolished was included in the so-called coalition agreement reached by political parties set to form the next government in Germany following the recent federal elections.

The agreement provides for the immediate abolition of the reporting obligations under the Supply Chain Act, with the remainder of its provisions to be “eliminated completely” thereafter.

According to the agreement, the Supply Chain Act, which only came into force on 1 January 2023, “will be replaced by a law on international corporate responsibility” which will itself implement the EU’s Corporate Sustainability Due Diligence Directive (CS3D) “in a low-bureaucracy and enforcement-friendly manner”. Until the Supply Chain Act is revoked by Germany’s parliament, it is still in force. It is not yet clear when precisely the Act will be revoked.

The CS3D provides a framework for sustainability due diligence for large EU companies and non-EU companies with significant EU activity. The CS3D is not just a disclosure regime – it places a duty on in-scope companies to identify and address actual and potential adverse human rights and environmental impacts within their own operations, those of their subsidiaries, and their “chains of activities”. This duty is backed not only by the threat of turnover-linked fines but also by a civil liability framework set out in CS3D for intentional or negligent breaches of certain of the obligations it imposes.

The CS3D came into force on 25 July 2024, though EU member states were given two years from then to implement the directive into national law. However, EU law makers are currently discussing a package of reforms to the EU’s sustainability rules – including CS3D – which will and impact when the rules take effect. This so-called Omnibus I Directive will not only consolidate the obligations under the EU’s Corporate Sustainability Reporting Directive (CSRD) and CS3D due diligence directive, but is also expected to substantially simplify the obligations for undertakings. The exact scope of the simplifications is still under review by EU lawmakers.

As part of this review process, the Council of Ministers adopted the so-called Stop-the-Clock Directive on 14 April 2025. That directive is designed to postpone the obligations under the CSRD and the CS3D.

The CSRD requirements for large companies that have not yet started reporting will now apply only for financial years starting 1 January 2027 as opposed to 1 January 2025. For certain listed “public interest” SMEs, the requirements apply for financial years starting 1 January 2028 instead of 1 January 2026.

The revised CS3D regime is set to become EU law in the coming days. The directive will not need to be transposed into the national laws of EU member states until 25 July 2027, one year later than is currently provided for. The application of the requirements was equally postponed for one year, and will apply from 26 July 2028, for the first wave of companies in-scope – large EU companies with over 5,000 employees and a net turnover exceeding €1.5 billion, as well as non-EU companies meeting the same turnover threshold within the EU.

The EU’s other law-making institution, the European Parliament, had adopted the Stop-the-Clock Directive earlier this month. The new legislation will enter into force 20 days after it has been published in the Official Journal of the EU and EU member states will have until 31 December 2025 to transpose it into national laws.

Substantive changes to both the CSRD and CS3D are expected to be made as part of a second wave of reforms now that postponement of the provisions have been agreed.