Germany Softens Stance on EU Supply Chain Sustainability Law

Key Takeaways:

• Germany Softens Stance: Germany's government now aims to "de-bureaucratize" and "streamline" the EU’s Corporate Sustainability Due Diligence Directive (CSDDD) rather than scrap it entirely, following earlier calls for its removal by Chancellor Merz.
• CSDDD Background: The CSDDD, adopted in May 2024, requires businesses to address human rights and environmental risks across their supply chains, covering issues like child labor, pollution, and deforestation.
• Regulatory Adjustments: The full implementation of the CSDDD has been delayed until 2028 as part of the EU’s Omnibus Act, with proposed changes including reducing monitoring frequency and limiting due diligence to direct business partners.
• Government Collaboration: Germany is working with the European Commission to propose streamlining measures in line with the broader effort to reduce regulatory burdens across Europe.
• EU Consensus: The shift in Germany’s approach follows similar calls from France to delay or revise the CSDDD, with both countries focusing on regulatory simplification.

Deep Dive

Germany has adjusted its earlier position on the European Union’s Corporate Sustainability Due Diligence Directive (CSDDD), softening calls for the law’s outright removal. A spokesperson for the German government, Stefan Kornelius, clarified today that instead of scrapping the law, the government aims to streamline its implementation, as reported by Reuters and The Economic Times.

The shift in tone comes after a statement made earlier this month by German Chancellor Friedrich Merz, who had suggested to European Commission President Ursula von der Leyen that the EU should “cancel this directive.” Following Merz’s comments, French President Emmanuel Macron also voiced support for sidelining the CSDDD, aligning France’s position with that of Germany.

The CSDDD, first proposed by the European Commission in 2022 and adopted in May 2024, is a landmark regulation requiring companies to identify, assess, and mitigate human rights and environmental risks within their supply chains. These obligations encompass a broad spectrum of issues, including child labor, pollution, and deforestation, and apply to both upstream and, in some cases, downstream activities such as distribution and recycling.

Despite being initially introduced as a comprehensive piece of legislation, the CSDDD was scaled back during negotiations to reduce its impact on smaller companies and limit its reach. Additionally, as part of the EU’s Omnibus Act, which aims to ease regulatory burdens on businesses, the full implementation of the CSDDD has been delayed until 2028. A series of adjustments to the law are also under discussion, including limiting full due diligence to direct business partners and reducing the frequency of due diligence monitoring from annually to every five years.

Merz’s call for the CSDDD’s repeal came shortly after Germany’s coalition government agreed to phase out its own Supply Chain Act (LkSG) in favor of the EU law. Kornelius responded to the apparent contradiction between Merz’s remarks and Germany’s coalition agreement by explaining that while the LkSG would be eliminated, the aim is to simplify the EU law in line with the Commission’s broader reform initiatives.

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