The CDU, CSU and SPD published their coalition agreement on 9 April 2025. It contains several key aspects that affect companies – especially in terms of ESG. The Act on Corporate Due Diligence Obligations in Supply Chains (Lieferkettensorgfaltspflichtengesetz, “LkSG”) is to be repealed and replaced with a new “Act on International Corporate Responsibility” (Gesetz über die internationale Unternehmensverantwortung) (see I.), aimed at transposing the EU’s Corporate Sustainability Due Diligence Directive (CS3D) in a way that cuts red tape and makes enforcement easier. The coalition parties also plan to “actively” tackle simplifying the Carbon Border Adjustment Mechanism (CBAM) (see II.) and to support the simplification measures introduced in the European Commission’s omnibus initiative (see III.).
I. The LkSG
The coalition agreement contains the following statements regarding the LkSG:
“We will also repeal the national Act on Corporate Due Diligence Obligations in Supply Chains (LkSG). It will be replaced by an Act on International Corporate Responsibility that transposes the European Corporate Sustainability Due Diligence Directive (CS3D) with minimal red tape and a focus on effective enforcement. The reporting obligation under the LkSG will be abolished immediately and completely eliminated.
With the exception of serious human rights violations, existing statutory due diligence obligations will not be sanctioned until the new act comes into force. We will support the Commission’s “omnibus initiative” to significantly reduce and defer the extensive requirements for EU sustainability reporting for SMEs, in particular” (lines 1909 to 1917 of the coalition agreement).
- The most striking point is that the reporting obligation is to be abolished “immediately” – presumably before the rest of the LkSG. This would tally with the current practice of the Federal Office for Economic Affairs and Export Control (Bundesamt für Wirtschaft und Ausfuhrkontrolle, “BAFA”), which announced in its FAQs on the LkSG that it would wait until 1 January 2026 to start reviewing whether the reports required under the LkSG had been submitted and published. Abolishing the reporting obligation would, above all, create sought-after legal certainty: After all, BAFA’s practice to date has not changed the fact that the legal obligations as such continue to exist.
- The other statements made in the coalition agreement are not entirely clear, either – despite or perhaps because of their brevity. The fact that the due diligence obligations under the LkSG (with the exception of “serious human rights violations”) are not to be sanctioned until the new Act on International Corporate Responsibility comes into force also suggests that the LkSG will otherwise continue to apply for the time being, and only the reporting obligation and much of the sanctions regime will be dropped in the near future. However, it remains unclear what exactly is meant by “serious human rights violations”. There are no less than three linguistic or structural inconsistencies in this sentence of the coalition agreement: Firstly, it presumably means that violations and not due diligence obligations will not be sanctioned. Secondly, the LkSG does not sanction “human rights violations” as such, but rather the inadequate implementation of compliance measures to prevent and remedy them (“best efforts” obligations). Thirdly, the LkSG does not refer to “serious human rights violations”. It is possible that the coalition wishes to continue sanctioning the failure to take remedial measures when violations have been identified, something that is subject to especially stringent sanctions under the LkSG. For companies, this would primarily mean having to continue conducting regular and ad hoc risk assessments and taking appropriate remedial measures.
- The coalition agreement does not specify how exactly repealing the LkSG and replacing it with the new Act on International Corporate Responsibility will lessen the burden on businesses.
- Based on the above, the coalition agreement should not be seen as a green light to extensively roll back measures already taken or processes already introduced to protect human rights and the environment. This applies to both companies currently directly affected by the LkSG and those indirectly affected. For directly affected companies, the LkSG will continue to apply until it is completely repealed, regardless of whether certain violations are still sanctioned. Indirectly affected companies should note that repealing the LkSG will not affect the validity of contractual obligations, which may need to be renegotiated.
- Especially in long-term supply relationships that continue beyond the deadlines for applying the CS3D, the specific requirements of the CS3D should be considered when drafting further contracts in order to avoid extensive and repeated renegotiations.
- Businesses contemplating (selectively) rolling back individual measures once the LkSG has been repealed should carefully check whether the measure concerned is required under other legislation, such as the announced Act on International Corporate Responsibility – while bearing in mind how such steps may be viewed by the public.
- Companies that wish to continue going above and beyond in Germany despite the elimination of certain ESG obligations should keep an eye on possible implications for their US business given current developments there.
- Even after the LkSG is repealed, liability may still arise under the general provisions of the Civil Code (Bürgerliches Gesetzbuch), Unfair Competition Act (Gesetz gegen den unlauteren Wettbewerb) or Criminal Code (Strafgesetzbuch). The loss of the specific provisions of the LkSG could even lead to a stronger focus on these general provisions. Businesses that become aware of human rights or environmental violations may still be obligated to take action – even without the LkSG – to avoid potential civil or even criminal liability. Liability could also be triggered by a negligent lack of knowledge if effective, tried and tested protective measures were to be subsequently abolished.
II. Simplifying the CBAM
The coalition partners want to prevent what they see as excessive EU regulation, particularly in the case of the CBAM. They aim to “actively” support the simplification measures envisaged by the European Commission as part of its omnibus initiative, making the CBAM “less bureaucratic and more efficient”. If “the CBAM does not provide effective carbon leakage protection”, the coalition partners even want to “continue to regulate the competitiveness of export-oriented industries through the free allocation of certificates” (lines 151 to 159 of the coalition agreement).
III. Support for other aspects of the Commission’s omnibus initiative
The CDU, CSU, and SPD have also announced their support for the Commission’s efforts to simplify the CS3D, CSRD, and EU Taxonomy Regulation – aimed at reducing bureaucracy, particularly for SMEs. Among other things, the coalition agreement states that the parties “will create legal and planning certainty and support businesses in ensuring sound legal compliance” (lines 2002 to 2012). It does not state that the parties are in favour of repealing or suspending the European legislation. Unlike in the case of the CBAM, however, the coalition partners do not explicitly intend to “actively” push for simplifications in these areas. But it is unclear whether this linguistic distinction matters.
IV. Timeline
The timeline remains entirely uncertain. The coalition’s plan for the “immediate” abolition of the reporting obligation suggests – as outlined above – that this obligation, along with much of the sanctions regime, is likely to be eliminated in an initial legislative step. However, the LkSG itself is expected to remain in effect for the time being, until the planned Act on International Corporate Responsibility is introduced at a later stage. Germany currently has until 26 July 2027 to transpose the CS3D into national law as a result of the so-called “Stop the clock” Directive. Given the omnibus initiative, however, the future German government will probably first await the results of the European legislative process and the subsequent adjustments to the CS3D before presenting a detailed draft bill.
V. Conclusion
Following protracted and contentious negotiations, the coalition agreement now includes a plan to abolish the LkSG – reportedly largely at the insistence of the CDU/CSU. However, businesses should be cautious about interpreting this announcement as a green light to swiftly roll back all of their existing human rights and environmental protection measures. For now, the due diligence obligations under the LkSG remain in place, and given current developments at both national and European level, it is not clear what form future legal requirements will take or what the timeline will be.
Forward
