ESG: Environment – Social – Governance

Climate protection is one of the most fundamental issues of our time. For decades, the central climate protection goals were mainly the subject of agreements under international law and as such were hardly enforced. One current development is that state courts, too, are obliging the respective national legislators and governments, and increasingly also private companies, to effectively pursue climate protection goals.

When it enters into force on 1 January 2023, companies with at least 3,000 employees in Germany, and from 1 January 2024, with at least 1,000 employees in Germany, will be required to comply with specific due diligence obligations under the Act on Corporate Due Diligence in Supply Chains (Lieferketten­sorgfaltspflichten­gesetz, “LkSG”). The aim is to avoid human rights and environmental risks, minimise them and prevent them from occurring or put a stop to them. This is both a challenge and an opportunity for companies in Germany that compete internationally.

Investors and other stakeholders are attaching more and more value to social and environmental aspects and using their influence to make sure that companies take these aspects into account. Companies must therefore structure their corporate governance and decision-making processes in such a way that they can meet this expectation. Due to the increasing importance of non-financial reporting, companies are also required to create transparency with respect to environmental, social and governance aspects.

Sustainability considerations meanwhile play an important role with respect to antitrust issues. Investments in a more sustainable economy can be significant. Companies are therefore often faced with the question of whether to undertake these investments on their own or to cooperate with other companies. Such cooperations are subject to antitrust law.

The major social issues of climate change and sustainability have in the meantime become important components of our financing advice. Sustainable financing is how a company finances its response to the global issues of climate change and sustainability (ESG - environmental, social, and governance).

The Act on Corporate Due Diligence in Supply Chains (Lieferketten­sorgfaltspflichten­gesetz, “LkSG”) will enter into force on 1 January 2023. The LkSG will impose extensive “best effort” obligations on companies to protect human rights and environment-related legal standards in their supply chains, which also include their own corporate business area. The aim of the LkSG is to prevent, end or minimise existing human rights- and environment-related risks. The LkSG is highly relevant from a labour law perspective.

ESG factors are becoming more and more important in M&A deals. Both the legislator as well as other stakeholders (investors, customers, NGOs, employees, the state and society at large) are placing stricter ESG requirements on companies. As a result, ESG aspects have now become significant value-creating factors in M&A deals as well.

Ecological conscience, social sustainability and human rights are increasingly becoming the yardsticks against which business finds itself measured. But this development is not new, especially in the context of public law and regulatory law. The challenges it brings with it are taking on a new relevance, however, with CSR (corporate social responsibility) and ESG (environmental social governance) now forming specific aspects of corporate strategy.

One of the main catchphrases in European state aid law in recent years has been the “Green Deal”. EU state aid rules are to play a key role in a transition to a green economy. From 2022 on, the “Guidelines on State aid for climate, environmental protection and energy” (CEEAG) will apply. They are of enormous practical importance, as green aid now accounts for over 50 percent of total state aid in the EU.

Since 1 January 2020, listed companies have been obliged to gear their remuneration structure towards the company’s “sustainable and long-term” development. The legal basis for this is the restated section 87(1), sentence 2 German Stock Corporation Act based on the Act Implementing the Second Shareholders’ Rights Directive (“ARUG II”).

Tax justice and transparency are pressing issues of our time and play a key role in clients’ social responsibility considerations. The cum-ex scandal and the Panama Papers leaks have cast a stark light on the tax strategies of multinational businesses, leading to closer scrutiny of non-financial reporting, transparency, sustainable governance and tax arrangements.