German Supply Chain Due Diligence Act (LkSG) and Vietnamese Suppliers: What Manufacturers Need to Know

The LkSG Is Now in Effect for Large and Mid-Sized German Companies

Germany’s Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz — LkSG), which entered into force on January 1, 2023, creates binding human rights and environmental due diligence obligations for German companies with operations and supply chains in Vietnam.

As of 2024, the law applies to German companies with 1,000 or more employees. The EU Corporate Sustainability Due Diligence Directive (CS3D), once implemented into national law, will extend comparable obligations across EU member states and apply to a broader company population.

For German manufacturers that have established or are establishing production operations in Vietnam — or that source from Vietnamese suppliers — LkSG compliance is an operational reality, not a future planning item.

What the LkSG Requires

Core Obligations

The LkSG requires German companies to:

• Establish a risk management system covering their own operations and direct suppliers.
• Conduct an annual risk analysis to identify human rights and environmental risks in their supply chains.
• Publish an annual due diligence report.
• Establish a grievance mechanism accessible to affected persons in the supply chain.
• Take preventive and remedial action where risks are identified.

Obligations extend to indirect suppliers where the company has substantiated knowledge of potential violations.

Protected Rights and Environmental Standards

The LkSG covers a defined list of international human rights instruments and environmental conventions, including prohibitions on forced labor, child labor, serious violations of occupational health and safety, and environmental destruction that leads to human rights impacts.

The EU CS3D extends the scope further to include climate-related obligations aligned with the Paris Agreement.

How LkSG Applies to Vietnam Operations

Own Operations in Vietnam

A German company’s Vietnamese subsidiary or production facility is part of its “own operations” under the LkSG. This means the full suite of due diligence obligations — risk analysis, preventive measures, grievance mechanism, reporting — applies directly to how the Vietnamese entity operates.

German headquarters cannot treat Vietnamese operations as being outside their LkSG scope simply because they are managed locally.

Vietnamese Direct Suppliers

Vietnamese companies supplying directly to German companies are subject to LkSG due diligence obligations at the direct supplier level. German buyers must:

• Conduct supplier risk assessments based on country, sector, and commodity risk profiles.
• Obtain contractual commitments from direct suppliers to comply with the German company’s code of conduct.
• Perform audits or third-party assessments where risk levels warrant.
• Take remedial action where violations are identified.

Key Risk Areas in the Vietnamese Context

Labor Rights

Vietnamese labor law generally provides strong statutory protections. However, in practice, risk areas that LkSG due diligence frameworks commonly identify in Vietnamese manufacturing environments include:

• Working hour compliance (overtime limits under Vietnamese Labor Code).
• Freedom of association (Vietnam’s trade union structure differs from OECD norms).
• Migrant worker recruitment practices in certain industries.
• Occupational health and safety in smaller supplier facilities.

Environmental Risks

Vietnam’s environmental regulatory framework has strengthened substantially under the Law on Environmental Protection 2020. However, enforcement intensity varies by sector and region. LkSG environmental due diligence should assess:

• Wastewater treatment compliance.
• Hazardous waste management.
• Chemical handling and storage practices.
• Air emission compliance.

Practical Implementation in Vietnamese Supply Chains

Supplier Code of Conduct

German manufacturers sourcing from or operating in Vietnam should have a supplier code of conduct that is contractually binding on Vietnamese suppliers and explicitly addresses the rights covered under LkSG. The code must be communicated in a language and format that Vietnamese supplier management can meaningfully understand and implement.

Risk Assessment Methodology

Vietnam’s risk profile under LkSG frameworks varies significantly by sector. Electronics assembly typically has different risk characteristics than garment manufacturing or agricultural processing. Risk assessment methodologies should reflect sector-specific realities rather than applying a uniform country-level rating.

Audit and Verification

For high-risk suppliers, on-site audits conducted by qualified third-party auditors provide the most defensible evidence of due diligence. German companies operating in Vietnam should establish clear audit protocols, including audit frequency, scope, corrective action processes, and escalation paths for critical findings.

Grievance Mechanism Accessibility

LkSG requires companies to establish a grievance mechanism that is genuinely accessible to workers and affected persons in their supply chain. For Vietnamese operations, this requires attention to language, cultural accessibility, and protection against retaliation for those who raise concerns.

The Intersection With Vietnamese Law

German LkSG compliance does not replace or supersede Vietnamese legal obligations. German manufacturers operating in Vietnam must comply simultaneously with:

• Vietnamese Labor Code requirements (working hours, wages, social insurance, health and safety).
• Law on Environmental Protection 2020 and implementing regulations.
• Vietnam’s anti-corruption and anti-bribery framework.
• Sector-specific regulatory requirements applicable to the manufacturing activity.

In most cases, LkSG-compliant due diligence in Vietnam will require a level of operational practice that meets or exceeds local legal minimum standards. However, the two compliance frameworks operate independently and must both be satisfied.

Strategic Implications for German Manufacturers in Vietnam

LkSG compliance in Vietnam is not primarily a legal risk management exercise — it is increasingly a commercial and reputational factor. German OEM customers are requiring LkSG compliance documentation from their Vietnamese supplier networks. Companies that cannot demonstrate compliance will face procurement disadvantages.

German manufacturers that establish robust LkSG-compatible operations in Vietnam from the outset will be better positioned for the long term than those that treat compliance as a retrospective audit exercise.

This material is for general informational purposes only and does not constitute legal, tax or professional advice. Companies subject to LkSG should seek specific legal advice based on their supply chain structure, sector risk profile, and German regulatory obligations.

About the Author: Attorney Vu Manh Quynh is the Managing Partner of ECOVIS Vietnam Law, advising international investors on Foreign Direct Investment (FDI), manufacturing expansion, and corporate governance in Vietnam. He leads the German Desk at ECOVIS Vietnam Law, advising German and European companies on supply chain compliance, market entry, and cross-border investment structuring. Contact: vietnam@ecovislaw.vn