Germany, long a leader in European regulatory frameworks, is repositioning itself on one of the European Union’s most ambitious legislative proposals: the Corporate Sustainability Due Diligence Directive (CSDDD).

Once a staunch advocate for mandatory environmental and human rights due diligence, Germany has recently taken a more nuanced and pragmatic stance—calling for alignment with EU norms while simultaneously seeking to reduce regulatory burdens on its domestic businesses.

The shift signals a broader tension within the EU: how to promote meaningful sustainability compliance without undermining economic competitiveness in a volatile global market. This article explores the legal and policy implications of Germany’s evolving position, the replacement of its national Supply Chain Act (LkSG), and what it means for corporations, legal advisors, and compliance professionals across the bloc.

From National Leadership to European Convergence

The German Supply Chain Act (LkSG)

Germany’s Supply Chain Due Diligence Act (LkSG), in force since January 2023, was one of the most comprehensive national frameworks in Europe, requiring companies with 3,000+ employees (and, from 2024, 1,000+) to:

• Identify and assess human rights and environmental risks across their supply chains
• Implement preventive and remedial measures
• Establish complaints mechanisms
• Report publicly on compliance

While lauded by human rights advocates, the LkSG was criticized by business groups for its administrative complexity, legal uncertainty, and disproportionate burden on mid-sized companies.

The CSDDD: A Pan-European Approach

The Corporate Sustainability Due Diligence Directive (CSDDD) is an EU-wide legislative initiative intended to harmonize supply chain obligations across Member States. It mandates that companies:

• Conduct due diligence on actual and potential adverse human rights and environmental impacts across their operations, subsidiaries, and value chains
• Adopt a climate transition plan aligned with the Paris Agreement
• Establish grievance mechanisms and ensure remediation
• Face civil liability and sanctions for non-compliance

Expected to take full effect by 2028, the CSDDD goes beyond the LkSG in scope, liability, and climate obligations.

Germany’s Policy Pivot: Key Developments in 2025

1. Eliminating the LkSG

In a surprising turn, Germany’s new governing coalition (CDU/CSU and SPD) has agreed to repeal the LkSG and align domestic legislation fully with the CSDDD. This shift is framed as an attempt to reduce “duplicative” compliance burdens and increase legal certainty by adhering to a single EU standard.

“We want to simplify sustainability compliance for German businesses and make it competitive by fully integrating with the EU directive.”
– Coalition Agreement, Spring 2025

2. Advocating for CSDDD Reform

Despite supporting harmonization, Germany, along with France, has expressed concerns about the economic impact of the CSDDD. In a joint statement, leaders from both countries urged the EU Commission to review or scale back certain provisions—particularly the extensive value chain liability and the stringency of climate transition requirements.

Legal and Regulatory Implications

A. Transition Risks for German Companies

German businesses currently subject to the LkSG will need to transition their compliance frameworks to align with the broader and more complex CSDDD. This will involve:

• Expanding risk assessments beyond Tier 1 suppliers
• Incorporating climate transition planning
• Preparing for civil liability exposure under EU law

Legal counsel will play a critical role in helping clients reassess policies, renegotiate supplier contracts, and navigate evolving due diligence expectations.

B. Harmonization vs. Flexibility

Germany’s alignment with the CSDDD marks a step toward regulatory consistency within the EU. However, the country’s call to soften some provisions reflects a key legal challenge: harmonization without uniform burden. Smaller and mid-sized enterprises, in particular, may struggle to meet obligations without further guidance or exemptions.

C. The Rise of Strategic ESG Lawyering

As due diligence becomes enforceable under EU law, legal advisors must move beyond compliance checklists to provide strategic ESG counsel. This includes:

• Risk allocation through contractual clauses
• Legal audits of supply chains and ESG data
• Defense preparation against potential litigation by stakeholders or NGOs
• Advising boards on director liability linked to sustainability governance

What Comes Next?

• EU Implementation Timeline: The CSDDD is expected to enter into force in stages from 2027–2028. Companies must start aligning now.
• National Legislation: Germany will draft new domestic laws to replace the LkSG and implement the CSDDD. These laws will clarify enforcement authorities, penalties, and procedural rules.
• Judicial Oversight: The first wave of litigation under the CSDDD is anticipated by the end of the decade. National courts will play a central role in interpreting due diligence duties.

Conclusion: Redefining Corporate Accountability in Europe

Germany’s evolving stance on the CSDDD reveals the legal and political balancing act at the heart of Europe’s sustainability transformation. By repealing its national law in favor of the EU directive, Germany is doubling down on harmonized corporate accountability—but not without reservations.

For legal professionals, this presents a dual challenge: navigating regulatory convergence while preparing clients for a new era of legally enforceable ESG obligations. As the CSDDD reshapes corporate law across Europe, Germany’s role—as both a regulatory leader and reformist voice—will continue to influence the directive’s trajectory and its impact on global business.