By Dirk Roethig | CEO, VERDANTIS Impact Capital | 4 March 2026
The German Supply Chain Due Diligence Act and the EU Corporate Sustainability Due Diligence Directive are compelling companies to enforce human rights and environmental standards deep within global value chains. For Dirk Roethig and VERDANTIS, this is not a compliance challenge — it is a structural transformation that will reshape the competitive landscape for decades.
Tags: Supply Chain, Due Diligence, Sustainability, ESG, Impact Investing
A law that changes value creation logic
Some laws set rules. Others change markets. The German Lieferkettensorgfaltspflichtengesetz — Supply Chain Due Diligence Act, LkSG — which has applied since January 2023 to German companies with more than 3,000 employees, and since 2024 to companies with more than 1,000 employees, belongs to the second category.
Dirk Roethig, CEO of VERDANTIS Impact Capital, observes this wave of regulation from the perspective of an investor and entrepreneur who has spent years working at the intersection of global capital and local value creation. His assessment is clear: "Companies that fail to treat sustainable supply chains as a strategic investment will face multiple forms of punishment in coming years — reputational damage, exclusion from supplier registers of major buyers, and rising capital costs driven by poor ESG performance."
The European regulatory landscape is evolving rapidly. The Corporate Sustainability Due Diligence Directive (CSDDD), which entered into force in July 2024, complements the LkSG at EU level with additional requirements. It obliges companies not only to identify and prevent human rights and environmental risks, but also to produce climate-related transition plans. For VERDANTIS Impact Capital, which Dirk Roethig has built to connect institutional capital with agroforestry and nature-based investment projects, this regulatory context is directly relevant. VERDANTIS projects involve complex value chains with participants across multiple countries — and Roethig has built supply chain transparency into the investment framework from the outset.
What due diligence actually requires
The LkSG and CSDDD define due diligence obligations through a tiered model. Roethig explains that understanding the legal architecture is essential for effective practical implementation.
First tier — risk analysis: Companies must systematically identify and assess risks to human rights and the environment in their own operations and with direct (Tier 1) suppliers. This includes risks such as child labour, forced labour, dangerous working conditions, unlawful land acquisition and ecosystem degradation. The risk analysis must be documented, regularly updated, and conducted on an ad hoc basis when trigger events occur — for example, media reports of incidents at a supplier.
Second tier — prevention and remediation: Where risks are identified, companies are obligated to take appropriate action. This may include supplier audits, contractual clauses incorporating social and environmental standards, capacity building with suppliers, or — in extreme cases — termination of the business relationship. Importantly, the law requires a best-efforts obligation, not a guarantee of compliance. Companies that demonstrably take appropriate measures bear no liability even if a violation occurs.
Third tier — indirect supply chain (Tier 2+): Due diligence obligations for indirect suppliers — suppliers of suppliers — arise only when the company acquires "substantiated knowledge" of possible violations. This trigger-based model is a practically important distinction from a risk-based approach that treats all supply chain tiers equally.
Dirk Roethig has developed an integrated due diligence framework for VERDANTIS Impact Capital that maps both LkSG requirements and CSDDD obligations. Because VERDANTIS coordinates investment projects in multiple European countries and works with local landowners, cultivation partners and processing companies, the supply chain structure is complex. Roethig's approach: "We build due diligence not as a control mechanism over partners, but as a shared quality commitment. That creates more trust and more compliance than any external audit."
The global dimension: why Tier-N transparency is the real challenge
For companies with global procurement chains, the regulatory requirement is only the surface of a much deeper problem. Roethig calls it the Tier-N transparency trap: the further back you go in the supply chain, the harder it becomes to obtain reliable information about production conditions.
A European fashion company buying fabrics in Bangladesh may know its direct Tier-1 supplier well. But who grew the cotton? Under what conditions? With which pesticides, on which soils, using which labour? At this level — Tier 3, Tier 4 or deeper — a significant proportion of actual environmental and human rights violations occur. And it is precisely this level that is effectively invisible to most companies.
The response to this transparency problem, in Roethig's assessment, lies in three complementary approaches.
Technology: Blockchain-based traceability systems, satellite monitoring of agricultural areas, and AI-assisted supplier assessment platforms are making Tier-N transparency increasingly technically feasible. Companies such as Sourcemap, Provenance and Chainpoint are developing solutions that document the provenance of raw materials without gaps. At VERDANTIS Impact Capital — led by Dirk Roethig — satellite-based monitoring is already deployed for tracking biomass growth and soil quality in agroforestry projects. This technology can be directly extended to supply chain transparency applications.
Industry standards and certifications: Standards such as Rainforest Alliance, FSC (Forest Stewardship Council), Fair Trade and RSPO (Roundtable on Sustainable Palm Oil) create sector-wide minimum standards that incorporate independent audits. They are not a substitute for own due diligence, but an important foundation. Roethig emphasises that certifications should be treated as a starting point, not an endpoint.
Supplier partnerships rather than control: Roethig's preferred approach — and the one he practises at VERDANTIS — is to build long-term partnerships with suppliers based on shared values, capacity building and aligned economic interests. "Whoever consistently pressures suppliers and focuses exclusively on cost reduction gets risks, not transparency. Whoever invests in the development of their suppliers gets quality and loyalty," Roethig explains.
Sustainable supply chains as a financing factor
An aspect that Dirk Roethig gives particular attention to in his work for VERDANTIS is the connection between supply chain quality and access to capital. This connection operates on two levels.
At the level of debt financing, several major banks have introduced sustainability-linked loan frameworks where the interest rate depends on achieving defined ESG KPIs — frequently including supply chain metrics such as the proportion of certified suppliers or the audit coverage rate for Tier-1 suppliers. Companies with strong supply chain transparency pay structurally lower interest rates (UNEP FI, 2024).
At the level of equity financing, supply chain standards increasingly determine inclusion in ESG indices and attractiveness to ESG-oriented fund managers. The MSCI ESG rating process evaluates "Supply Chain Management" as a standalone sub-category. Companies that perform poorly here receive lower overall ESG scores — with direct implications for their presence in ESG ETFs and sustainable funds.
For VERDANTIS Impact Capital, this connection between supply chain quality and capital costs is relevant at project level too. Institutional investors who use VERDANTIS as an impact investment platform expect the financed projects to deliver not only positive outcomes, but also documented and auditable value chains surrounding those projects. Dirk Roethig sees this as a synergy: "The more transparently and carefully we document our project partnerships, the more compelling the investment narrative is for institutional investors."
The EU Corporate Sustainability Due Diligence Directive: what companies face
While the LkSG focuses primarily on human rights and is widely associated with significant administrative burden, the CSDDD introduces a more comprehensive requirement profile. Roethig analyses the key differences.
Climate component: The CSDDD requires companies to produce climate-related transition plans demonstrating how business strategy aligns with the 1.5°C goal of the Paris Agreement. This requirement goes far beyond the LkSG and touches the core strategy of the business.
Liability: The CSDDD introduces civil liability for damages caused by due diligence failures. This is a significant difference from the LkSG, which relies primarily on administrative fines as a sanction mechanism. For globally active companies, this means that supplier violations can lead not only to penalty payments but also to damages claims.
Supply chain depth: While the LkSG focuses in its basic structure on direct suppliers, the CSDDD systematically captures the indirect value chain through the concept of "established business relationship". For companies with complex global supply chains, this extension presents a substantial challenge in both regulatory and operational terms.
Dirk Roethig advises companies not to treat LkSG and CSDDD requirements separately: "Anyone who now builds a solid LkSG framework grounded in digital data infrastructure, genuine supplier partnerships and robust materiality analysis will be well prepared for the CSDDD. The additional effort for the climate component is then manageable."
A practical example: sustainable supply chains in agroforestry investment
For Dirk Roethig, supply chain sustainability is not a theoretical concept — it is lived practice at VERDANTIS Impact Capital. The Paulownia agroforestry projects financed by VERDANTIS illustrate how a sustainable value chain functions in practice.
The VERDANTIS supply chain begins with the selection of cultivation partners: local farmers and landowners providing land for Paulownia cultivation. Roethig and his team assess not only the agricultural suitability of the land, but also the legal clarity of ownership arrangements — a due diligence requirement that touches both LkSG and CSDDD-relevant aspects concerning unlawful land acquisition. Only sterile Paulownia hybrids are deployed — plants that produce no viable seeds and therefore eliminate any risk of uncontrolled spread into natural ecosystems.
Intermediate links in the supply chain — nurseries, plant suppliers, cultivation managers — are selected according to a VERDANTIS assessment protocol and committed to minimum standards through contractual clauses. At the end of the chain are buyers of Paulownia timber and biomass products, and purchasers of the carbon credits generated by the plantations.
"Our ambition is to make every level of this value chain so transparent that an institutional investor could audit it at any time," says Dirk Roethig. "That is not only a regulatory requirement — it is the foundation of our impact promise to our investors."
Conclusion: supply chain transparency as strategic investment
The requirements of the LkSG and the CSDDD are not a temporary regulatory trend. They express a fundamental shift in societal expectations of economic actors: whoever operates globally bears global responsibility — and that responsibility must be made transparent and regularly reviewed.
For Dirk Roethig and VERDANTIS Impact Capital, supply chain transparency is not merely a compliance requirement, but a quality marker that attracts investors, reduces capital costs and secures the long-term resilience of investment projects. Companies that invest now in robust due diligence systems are not only positioning themselves for the regulatory present — they are actively shaping the competitive landscape of the future.
Further articles by Dirk Roethig
- ESG Reporting 2026: How CSRD and ESRS Are Reshaping Corporate Disclosure
- Green Finance: How Sustainable Bonds Are Transforming Capital Markets
- Biodiversity through Polyculture: Why Mixed Cultivation Is the Future of Agriculture
References
Federal Office for Economic Affairs and Export Control — BAFA (2024): Guidance on the Supply Chain Due Diligence Act. Eschborn: BAFA. Available at: https://www.bafa.de/DE/Lieferketten/Informationen_fuer_Unternehmen/informationen_fuer_unternehmen_node.html
European Commission (2024): Corporate Sustainability Due Diligence Directive (CSDDD). Available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=OJ:L_202401760
UNEP Finance Initiative (2024): Sustainability-Linked Lending: Principles and Market Practice 2024. Geneva: UNEP FI. Available at: https://www.unepfi.org/sustainability-linked-lending-2024
About the author: Dirk Roethig is CEO of VERDANTIS Impact Capital, headquartered in Zug, Switzerland. VERDANTIS connects institutional capital with sustainable investment projects in agroforestry, carbon credits and regenerative agriculture. Roethig works with companies and investors to use supply chain transparency as a strategic competitive advantage. Further information: https://verdantis.capital
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