Germany: Environment

Modern environmental law is based on general principles, including the precautionary principle (early prevention of pollution), environmental management (continuous sustainable measures) and environmental remediation (facilitating recovery after damage). Article 20a of Germany’s Basic Law (Grundgesetz) sets out the state goal (Staatszielbestimmung) that the natural foundations of life and animals are to be protected by legislation, executive measures and judicial decisions. This constitutional aim has also been espoused by the 16 states (Länder) in their respective constitutions and accompanied by a continuous strengthening of environmental regulations.

In Germany, legislative power to pass environmental laws is divided between the Federal Republic (Bund) and the Länder, which is why it has not been possible to pass a uniform German Environmental Code (Umweltgesetzbuch). The last major attempt in 2009 failed. Instead, environmental protection is governed by numerous individual laws at federal and state level along with sectoral laws, such as building and planning laws. In the past few decades, EU law has had a great impact on German environmental law. This particularly includes procedural laws (such as the Environmental Impact Assessment Act (Umweltverträglichkeitsprüfungsgesetz) and the Environmental Damage Prevention and Remediation Act (Umweltschadensgesetz)) and public access to environmental information (in particular based on the Environmental Information Act (Umweltinformationsgesetz) and the Freedom of Information Act (Informationsfreiheitsgesetz)). Main areas are covered by the following environmental laws:

• Immission Control Act (Bundes-Immissionsschutzgesetz) and several immission control ordinances (Bundesimmissionsschutzverordnungen)
• Nuclear Energy Act (Atomgesetz) and Radiation Protection Ordinance (Strahlenschutzverordnung)
• Climate Protection Act (Klimaschutzgesetz)
• Renewable Energy Sources Act (Erneuerbare-Energien-Gesetz)
• Building Energy Act (Gebäudeenergiegesetz)
• Nature Conservation Act (Bundesnaturschutzgesetz) and Mining Act (Berggesetz)
• Soil Protection Act (Bundes-Bodenschutzgesetz)
• Water Management Act (Wasserhaushaltsgesetz)
• Recycling Act (Kreislaufwirtschaftsgesetz)
• Chemicals Act (Chemikaliengesetz)
• Genetic Engineering Act (Gentechnikgesetz)
• Supply Chain Act (Lieferkettensorgfaltspflichtengesetz)

Climate and resource protection law have given rise to new legal areas relating to environmental protection. Recently, climate change has fostered rapid changes in environmental law. In 2021, numerous bills were introduced, all focusing on moving closer to environmental goals and paving the way towards renewable energy. Moreover, participation rights have been extended not only to individuals but also to environmental organisations, enhancing the enforcement of these laws. Under the new Supply Chain Act, companies must adopt a statement on their human rights strategy that must also specify (a) the procedure for how the company will comply with human rights and environmental due diligence obligations in its supply chain; (b) the concrete risks that the company faces and (c) the human rights and environmental expectations that the company has in respect of its employees and suppliers.

In December 2021, a new coalition government was formed comprising the centre-left Social Democrats (SPD), environmentalist Greens, and the neoliberal FDP. Their coalition agreement for the upcoming four years aims to significantly speed up, modernise, de-bureaucratise and digitalise planning and approval procedures and improve staffing at public authorities. By involving citizens earlier, public approval is to make planning faster and more effective. Where appropriate, private project managers are to help facilitate the speedy realization of projects early on.

Whereas federal laws regulate key areas of environmental law, enforcement and implementation of these laws are generally assigned to the federal states. Depending on the project and its impact, environmental laws may be enforced at the local, state, federal or European level.

At federal level, since December 2021, the newly formed Federal Ministry for the Environment, Nature Conservation, Nuclear Safety and Consumer Protection (Bundesministerium für Umwelt, Naturschutz, nukleare Sicherheit und Verbraucherschutz (BMUV)) has been setting environmental policy through legally binding ordinances (Verordnungen) and guidelines. Often in collaboration with the Federal Ministry for Economic Affairs and Climate Action (Bundesministerium für Wirtschaft und Klimaschutz (BMWK)) and the Federal Environment Agency (Umweltbundesamt (UBA)), the BMUV has also published non-binding recommendations and leaflets intended to aid in the implementation of those ordinances and guidelines.

Administrative authorities have various enforcement instruments at their disposal: there are permit requirements for projects; necessary measures and shut down orders or permit withdrawals can be imposed. In the event of non-compliance with permit conditions or legal obligations, the authorities can conduct the relevant measures themselves at the owner’s expense or enforce obligations by periodic penalty payments. Non-compliance can also be subject to criminal or administrative fines.

Before any construction measure or operation may commence, the developer needs to ensure that it complies with all applicable requirements and environmental standards, which is usually assessed in a permit procedure.

The extent of regulatory involvement and assessment varies depending on the applicable permit procedure, which is determined by the type, scale, and scope of the individual project. Therefore, a project may require several licences from different authorities, with each authority reviewing the project parts falling within their respective purviews.

The authorities may require that plan approval proceedings (Planfeststellungsverfahren) be conducted for more complex projects. Certain legal frameworks provide for an early commencement of construction works (vorzeitiger Beginn), which can be crucial when adhering to ambitious construction schedules while respecting specific protection seasons for example.

Pursuant to Section 13(1) of the Climate Protection Act, all public authorities at local, state and federal level must consider the objectives of that Act and its implementation in their planning and decision-making. Thus, the competent authority must consider and accommodate climate protection aspects when granting environmental permits. However, this requirement does not necessarily result in climate protection matters taking precedence.

Generally, all object-related permits follow the asset, for example, if ownership is transferred or the operator changes. This applies, for example, to building permits (even if there is a transfer of ownership before construction has started) and immission protection permits. Some permits stipulate that the permit holder must notify the competent authority of any transfer of ownership in advance or without undue delay.

Personal concessions, i.e. permits issued to an applicant based on his or her personal qualifications, typically do not pass to other entities or persons. This applies, for example, to radiation protection permits and certain permits under waste laws. In such cases, either a new permit needs to be applied for or, in certain exceptional cases such as spinoffs, the authority might stipulate conditions for its consent.

The applicant has a right to administrative and judicial review. He can either take legal action against the unlawful rejection of his application or can challenge certain conditions of the permit. Usually, a prior administrative objection proceeding (Widerspruchsverfahren) is required, meaning that the applicant must have appealed the authority’s decision to the same (or higher) authority first. If the matter cannot be resolved at that level, the applicant can file suit with the administrative courts. In some federal states, however, a prior objection proceeding is not generally required (e.g. in Bavaria, Hesse and North Rhine-Westphalia) and the applicant can seek recourse with the administrative courts directly. In both cases, the applicant must react to the authority’s decision within one month of receiving it.

An administrative court may either refer the case back to the authority and require it to issue a permit or require the authority to reconsider the application in light of the court’s decision.

It should be noted that the German authorities have rather wide discretion with regard to some environmental decisions, for instance in ordering necessary measures under the Federal Soil Protection Act or in issuing permits under the Water Management Act. However, with, for instance, building permits or permits under the Federal Immission Control Act, the authority has no discretion and is obliged to grant the permit if the project meets all requirements.

Third parties have a right to appeal and subsequently file a lawsuit against an administrative decision granting a permit if the permit affects their subjective-public rights (subjektiv-öffentliches Recht). While that requirement does not apply to environmental associations, they are only allowed to appeal for a detailed judicial review of a decision within the scope of their responsibility as determined by their right to self-government (Federal Administrative Court (Bundesverwaltungsgericht), decision of 29 April 2020 – case no. 7 C 29/18). A municipality can appeal a plan approval decision of a superior authority if the project creates nuisances that severely impair municipal facilities or building areas designated in a development plan of the municipality. For the important high-voltage power lines that are currently being planned in Germany, the Federal Administrative Court denied a municipality the right to object to the federal sectoral planning decision (Bundesfachplanungsentscheidung) because that decision constituted only the initial step in a tiered planning procedure, which will result in a final decision that may be challenged in court (decision of 24 March 2021 – case no. 4 VR 2/20).

In accordance with EU requirements, Germany has adopted the Environmental Impact Assessment Act (Gesetz über die Umweltverträglichkeitsprüfung). An EIA is a formal assessment process that supplements, but does not replace, fulfilling the requirements for regulatory permits, particularly in the case of environmentally sensitive industries, plants and projects. The relevant obligations depend on the type and scope of the project or facility. The assessment is usually part of the original permit proceeding as there is no stand-alone environmental permit. If a project is to be expanded and will thereby exceed a certain size or certain performance values, an (additional) EIA is subsequently required.

Projects that require an EIA must be announced to the public and accompanied by public hearings, at which the applicant must provide project-related information. For the public hearing that the competent authority is required to conduct, it must prepare a comprehensive report on the project’s likely impacts. Additionally, the EIA reports must be submitted not only to all agencies concerned, but also disclosed to the public. Ultimately, the competent authority will consider all elements in its final decision on the permit and any conditions.

Since the EIA is an integral part of the approval procedure, it cannot be challenged separately under German law. However, the European Court of Justice (ECJ), in referring to Article 11 of the European EIA Directive, has increasingly endorsed that separate action may be taken against a deficient EIA procedure. In its Altrip ruling (decision of 7 November 2013 – case no. C-72/12), the ECJ stated that any defect in the environmental impact assessment allows individuals to challenge it before the courts. Hence, the courts will also repeal or suspend a plan approval decision if a required preliminary assessment was not conducted or conducted incorrectly, regardless of whether the error affected the final decision and whether the plaintiff’s own rights were actually violated.

Contaminated soil and the resulting contamination of groundwater are mainly regulated by the Federal Soil Protection Act. The law aims to protect the soil and groundwater from future pollution and governs the liability and remediation of contaminated land.

In principle, the polluter is held liable and obliged to remediate harmful soil changes, including any groundwater contamination, and to prevent any dangers, considerable disadvantages or considerable nuisances for the individual or the public. However, this liability also applies to the polluter’s universal successor, the property’s (current and certain former) owner and the occupant. Under certain circumstances, individuals or entities who are liable under commercial or corporate law for the property’s owner may also be held liable.

The competent authorities enjoy wide discretion as to whom they ultimately request to perform remediation. They must exercise their discretion in accordance with the effectiveness principle of hazard prevention, meaning that they must select the person responsible that is most suitable to effectively remove the risk to public safety. The party held responsible has a claim to compensation from the other parties.

Under the Water Management Act and state water laws, the polluter may also be held liable for the contamination of groundwater and surface waters. Additionally, under the Immission Control Act, the operator of an industrial facility may be responsible for any contamination of the business premises.

With regard to environmental matters, civil law provides for strict liability (Gefährdungshaftung) of operators of certain facilities if certain legally protected rights are violated. The Environmental Liability Act (Umwelthaftungsgesetz) for example identifies life, health, physical safety and property as protected, including for instance facilities in the energy, mining and livestock sector as well as in the metal, chemical and wood industry. A claim for removal and injunctive relief (Beseitigungs- und Unterlassungsanspruch) may be derivable from the Civil Code (Bürgerliches Gesetzbuch).

The Environmental Damage Prevention and Remediation Act (Gesetz über die Vermeidung und Sanierung von Umweltschäden) covers the environmental damage to certain species and environmental habitats. Thereunder, the polluter may be ordered to remediate the damage that occurred after 30 April 2007. If the damage was caused by different parties, the person charged by the authorities has a claim against the others for compensation.

Apart from administrative orders, contracts under public law are often used to address decontamination, mitigation and/or monitoring measures. Both the private parties and the public authorities must adhere to these contracts and, generally, no additional conditions can be subsequently imposed regarding the known issues dealt with in the contract.

Under the Federal Soil Protection Act, landowners and occupants must take all reasonable measures to avert the threat of harmful soil changes originating or further disposing from their land. Hence, if there are foreseeable and reasonably probable soil changes, there is an explicit legal obligation to examine soil for contamination, which applies regardless of any official measures that have already been initiated.

The competent authorities have the legal power to carry out or order necessary measures to investigate potential contamination and to comply with the objectives of the Federal Soil Protection Act. They may demand information about the legal situation of a piece of land or carry out soil analyses (Section 9 and 10 of the Federal Soil Protection Act; Section 7 of the Environmental Damage Prevention and Remediation Act). In addition, the authorities can order specific measures be taken by the responsible persons, depending on the individual case. If there is ‘reasonable suspicion’, the authorities can order the obligated parties under the Soil Protection Act to conduct risk assessments. Thus, before, parallel to or even after remediation, monitoring measures can also be imposed.

Anyone wishing to conduct commercial activity in which hazardous substances are or will be used is generally obliged to prepare a report on the initial condition and submit it to the competent authority before the activity commences.

Many of the states (Länder) have enacted laws requiring the landowner and the occupant, for instance the tenant, plant operator or developer, to report to the authorities any reasonable suspicion of soil or groundwater contamination on their property. Non-compliance can result in a fine. For example, the North Rhine-Westphalian State Soil Protection Act (Landesbodenschutzgesetz NRW) stipulates a reporting obligation for the polluter and the polluter’s universal successors as well as for former landowners, the current landowner and the occupant. They must notify the competent authority without delay of any indications of possible contamination or adverse soil changes. Comparable duties are stipulated in the event of specific indications (konkrete Anhaltspunkte) in the Bavarian State Soil Protection Act (Landesbodenschutzgesetz Bayern) and in the event of known indications (bekannte Anhaltspunkte) in the Hessian State Soil Protection Act (Landesbodenschutzgesetz Hessen). The authority will then order necessary soil assessments, monitoring or remediation measures.

In the event that the former owner caused the contamination, there is a legal claim for reimbursement of the remediation costs against other parties legally responsible for it (Section 24(2) of the Soil Contamination Act, Section 9(2) of the Environmental Damage Prevention and Remediation Act). Generally, claims for compensation become time-barred three years after the claimant becomes aware of the facts on which the other party’s responsibility is based.

Other difficulties often arise in the course of enforcement due to the burden of proof. In addition, liability may be excluded by contract, although this restriction of liability will only affect the contracting parties. Thus, the transferor can oblige the purchaser to exclude all claims for compensation in future transfers of ownership to third parties. However, this does not affect the authority’s right to hold the responsible person liable.

Waste within the meaning of Section 3(1) sentence 2 of the Recycling Act is ‘any substance or object which its owner discards, intends to discard or is required to discard.’ The legal definition is in line with the European understanding of the term ‘waste’ (European Waste Framework Regulation (2008/98/EC)).

Permit requirements and control mechanisms vary depending on the category of waste involved. The law differentiates according to the substance and the extent to which people are exposed to the substance, for example during storage, transport, collection or disposal. The main instrument of regulatory control is the system of waste classification and registration. It aims to ensure accountability for waste flows even across borders.

In October 2020, the Recycling Act was amended to conform with the new Waste Framework Directive of 2018 – the implementation of which will continue over the next few years. The new provisions expand the obligations for separate collection of waste to include further waste streams and increase the quotas for both the reuse and recycling of waste. The reform aims to improve consumer awareness and to introduce a cost-sharing regime for environmental cleanups  in a way that is fair to those who caused its pollution. However, the reform was criticised by municipalities for failing to provide the public authorities responsible for waste management with a right to act on commercial collections.

In the course of 2022, amendments to the Electrical and Electronic Equipment Act (Elektro- und Elektronikgerätegesetz) will enter into force: in addition to online retailers, the operators of online marketplaces and fulfilment service providers will also be affected by the comprehensive changes, such as the new product return and information obligations. From 2022 on, old devices may also be returned to food retailers (with at least 800 square metres of sales area) if new devices are occasionally offered there.

Waste producers remain responsible for their waste. Under the Recycling Act, it is possible to contract third parties to treat, recycle or dispose of waste, or to outsource the entire operation of waste management to third parties. However, transferring the treatment of waste or its disposal to a third party does not release the producer of the waste from liability under German law. Furthermore, the external contractual partner must meet strict standards and, in particular, demonstrate the necessary reliability.

Different legal frameworks for various types of products govern the obligations regarding the take-back of waste. The Packaging Ordinance (Verpackungsverordnung) required manufacturers and distributors to take back used packaging of goods for recycling or disposal. As of January 2019, the new Packaging Act (Verpackungsgesetz) regulates the market placement, return and high-quality recycling of packaging and implements the European Packaging Directive. Since January 2022, certain plastic carrier bags intended to be filled at the point of sale are prohibited.

Waste avoidance and recycling have been further intensified through the new Act on the Implementation of Requirements of the Single-Use Plastics Directive and the Waste Framework Directive in the Packaging Act and in Other Acts (Gesetz zur Umsetzung von Vorgaben der Einwegkunststoffrichtlinie und der Abfallrahmenrichtlinie im Verpackungsgesetz): the reforms include a ban on many single-use plastic products, the obligation to label packaging and other plastic products and an obligation to offer reusable packaging in the to-go sector (from 2023). Since 2021, almost all disposable plastic bottles and beverage cans have been subject to a 25-cent deposit (including those containing non-carbonated fruit juices and alcoholic mixed drinks). Starting in 2024, the content will no longer play a role: the deposit will then also apply to milk and milk products sold in disposable plastic bottles and beverage cans.

Under the End-of-Life Vehicles Ordinance (Altfahrzeugverordnung), the manufacturer or importer must take back end-of-life vehicles and organise their recycling. The Electrical and Electronic Equipment Act and the Battery Act (Batteriegesetz) require manufacturers and importers to set up a collection system for electronic waste that is accessible to consumers at no charge. From 2022 on, old devices may also be returned to food retailers (with at least 800 square metres of sales area) if new devices are occasionally offered there.

The new Battery Act entered into force on 1 January 2021 in implementation of the European Battery Directive, setting up registration obligations and the return system. The former notification obligation with the Federal Environment Agency’s Battery Act Register and registration with the Waste Electrical Equipment Register (Elektro-Altgeräte Register) are now mandatory.

Asbestos and other deleterious materials were widely used in construction in Germany. There is no general obligation for the property owners to investigate the existence of asbestos within their premises, or to remove existing asbestos materials in buildings irrespective of risk aspects. For example, in technical risk assessments, so-called ‘bound asbestos’ is often found to have a low risk profile. If there is a relevant risk, public authorities can request appropriate measures to address those risks.

Identified asbestos issues generally need to be addressed in the course of construction or demolition works. In these cases, owners and contractors must ensure that the material is disposed of safely in compliance with the applicable waste and hazardous materials regulations, which may lead to substantial additional costs.

Product regulation in Germany is based on EU law, in particular Regulation 1907/2006/EC (REACH) on the Registration, Evaluation, Authorisation and Restriction of Chemicals, Regulation 1272/2008/EC (CLP) on Classification, Labelling and Packaging of Substances and Mixtures and Regulation (EU) 2019/1021 on Persistent Organic Pollutants (POPs). Those Regulations as well as their recent and upcoming changes per se also apply in Germany and thus affect German law.

Further relevant product and waste legislation include the Ordinance on the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (Elektro- und Elektronikgeräte-Stoff-Verordnung), the End-of-Life Vehicles Ordinance, the Packaging Act and the Battery Act.

The competent authority for monitoring REACH, CLP and biocides is the Federal Institute for Occupational Safety and Health (Bundesanstalt für Arbeitsschutz und Arbeitsmedizin). It is responsible for risk management and operates the national REACH-CLP biocide helpdesk.

The recent reform of the Recycling Act extends the liability of producers to include the objectives of resource efficiency and reparability of their products. To tackle the destruction of distributed, but returned goods, a new duty of care requires producers to ensure that the usability of their products is maintained during distribution. Finally, the Packaging Act was supplemented by a ban of plastic bags in effect since January 2022.

On 1 November 2020, the new Act on Energy Saving and the Use of Renewable Energies for Heating and Cooling in Buildings (Gesetz zur Einsparung von Energie und zur Nutzung erneuerbarer Energien zur Wärme- und Kälteerzeugung in Gebäuden, GEG) entered into force, consolidating the former Act for Saving Energy in Buildings (Gesetz zur Einsparung von Energie in Gebäuden), the former Ordinance on Energy-Saving Thermal Insulation and Energy-Saving Equipment in Buildings (Verordnung über energiesparenden Wärmeschutz und energiesparende Anlagentechnik bei Gebäuden) and the former Act on the Furtherance of Renewable Energies in the Heat Sector (Gesetz zur Förderung Erneuerbarer Energien im Wärmebereich). The European requirements for the energy performance of buildings, such as the lowest energy building standard, are fully implemented in the GEG. It defines in particular certain requirements for the energy quality of (new and existing) buildings, the preparation and use of energy performance certificates assessing a building’s energy efficiency and the use of renewable energies in buildings.

The transitional period for issuing energy performance certificates for existing buildings expired on 1 May 2021. Energy performance certificates for buildings that were sold, rented, leased or transferred based on heritable building rights up to that deadline had and still have to be issued according to the previous regulations. New energy performance certificates also include the CO₂ emissions of the building as additional information.

Further, as regards energy audits, large companies are obliged to undergo comprehensive energy consultations every four years pursuant to the Act on Energy Services and Other Energy Efficiency Measures (Gesetz über Energiedienstleistungen und andere Energieeffizienzmaßnahmen). It serves as an instrument to identify measures to increase energy efficiency and reduce energy costs. An on-site inspection with experts is mandatory.

Since 2021, a CO₂ price must be paid through a national emissions trading scheme for emissions from the combustion of fossil fuels for heating and fuelling pursuant to the Federal Emissions Trading Act (Brennstoffemissionshandelsgesetz). It obliges companies trading in fuels such as heating oil, natural gas, petrol and diesel to purchase a certificate for the CO₂ emissions of their products. These certificates will be issued at a fixed price that increases annually. It started in 2021 at EUR 25 per tonne of CO₂.

Germany and its federal states have adopted various laws with a view to reducing greenhouse gas emissions, some of which implement EU laws. The Climate Protection Program 2030 (Klimaschutzprogramm 2030) and Energy Efficiency Strategy 2050 (Energieeffizienzstrategie 2050) of 2019 along with the Federal Climate Protection Act (Bundes-Klimaschutzgesetz) of 2019 set ambitious goals for climate neutrality by 2050.

In one of its most notable decisions of 2021, the Federal Constitutional Court (Bundesverfassungsgericht, decision of 24 March 2021 – case no. 1 BvR 78/20) instigated a major turn affecting procedural and substantive law by allowing for climate lawsuits based on the German state’s duty to protect possibly affected parties around the globe. The federal government reacted quickly: already in June 2021, the Federal Climate Protection Act was amended with tighter national climate protection targets to make Germany climate neutral by 2045. Greenhouse gas emissions now need to be reduced by 65% by 2030, instead of 55% (compared to the levels in 1990). Compliance will be monitored continuously by an expert council for climate issues.

A key feature of the Climate Protection Program 2030 is the new CO₂ pricing in the transport and heating sectors. CO₂ pricing already applies to the energy sector, energy-intensive industries and the aviation sector within the framework of the European Emissions Trading Scheme (EU ETS). The national emissions trading system is set out in the Fuel Emissions Trading Act, as amended on 8 October 2020, and starts in 2021 with a fixed price system (i.e. the price per ton of CO₂ is set in advance and will gradually increase over the following years) for the emissions certificates auctioned to companies selling heating oil, liquefied petroleum gas, natural gas, coal, petrol or diesel.

The Carbon Leakage Ordinance (Carbon-Leakage-Verordnung) of 28 June 2021 privileges certain applicants through partial compensation for the additional costs under the Fuel Emissions Trading Act in order to maintain cross-border competitiveness and prevent companies from relocating and carbon leakage from occurring. The approval by the European Commission under state aid law is still pending.

A target of 65% renewable energies in the electricity sector by 2030 is set by the Renewable Energies Act 2021 (Erneuerbare-Energien-Gesetz 2021), which came into force on 1 January 2021. Additionally, the Wind Energy at Sea Act (Windenergie-auf-See-Gesetz) has been amended with effect from 10 December 2020, providing for inter alia an increase in the expansion target for offshore wind energy from 15 gigawatts to 20 gigawatts of capacity by 2030.

In contrast, the Coal Phase-Out Act (Kohleausstiegsgesetz), which came into force on 14 August 2020, stipulates the gradual reduction as well as the completion of the phase-out of coal-fired energy generation by 2038 at the latest. In November 2020, the European Commission (under EU state aid rules) approved the competitive tender mechanism introduced by Germany to compensate hard coal-fired power plants for phasing out earlier than foreseen. The approval of the phase-out mechanism for the lignite sector is pending. The new coalition government agreed to ‘ideally bring forward the coal phase-out to 2030 and leave the technology of the combustion engine behind’ in their coalition agreement of December 2021.

While the European and German ESG framework is evolving into a crosscutting theme, German companies and investors are increasingly anticipating this trend. Transaction parties are becoming more and more aware of (and sometimes focussing on) ESG aspects of the target business. ESG criteria have also become widespread in the executive remuneration policies of German companies. The COVID-19 pandemic has accelerated the ESG trend, as many companies with a focus on environmental, social and governance matters have outperformed competitors with a non-ESG-oriented corporate culture.

The trend is mirrored in the German public sector. For example, the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht) announced the commencement of a consultation on a guideline for sustainable investment funds on 2 August 2021, referring to a danger of greenwashing that needs to be addressed. An update of the guidelines on ‘good-practice approaches’ to treating sustainability (i.e. ESG) risks is envisaged for 2022, which should be considered by the companies it supervises (i.e. credit institutions, insurance companies, pension funds, capital management companies and financial services institutions) when implementing risk management systems.

The new Supply Chain Act (Lieferkettensorgfaltspflichtengesetz) was adopted by the German Parliament on 11 June 2021 after intense discussions. It imposes graduated requirements for corporate due diligence on human rights violations and environmental damage along the entire length of the supply chain. However, the project for supply chain legislation at European level has again been postponed by the Commission, but is finally expected in 2022.

The EU framework for determining and classifying green business activities and investments, as stipulated in the EU Taxonomy Regulation (2020/852), is applicable in Germany. The Taxonomy Regulation aims to unite and align public and private investments with the climate goals of the Paris Agreement and is the cornerstone of several EU laws affecting, inter alia, company reporting, disclosure, bond issuance, and environmental labels and benchmarks. Enshrined in the Regulation, among other things, is the ‘do no significant harm’ (to the environment) principle, which is a key pillar of the EU Green Deal and how the envisaged EU Recovery Fund is to provide financing. Published in July 2021, the first Delegated Act under the EU Taxonomy Regulation defined reporting duties. On 31 December 2021, the EU Commission presented the second Delegated Act, classifying both nuclear and natural gas as sustainable energy sources and which has proved controversial in several EU member states.

The EU Sustainable Finance Disclosure Regulation (2019/2088, SFDR) is applicable in Germany and other EU member states as of 1 January 2022. This Regulation stipulates disclosure obligations for financial service providers regarding how they have considered sustainability issues in their (business) strategies, (investment) processes and (financial) products. In addition to publications on financial service providers’ websites, the Regulation also deals with disclosures in pre-contractual information (e.g. fund prospectuses) and periodic reports (e.g. annual reports). Finally, on 22 October 2021, the European Supervisory Authorities (ESA) published the final report on the regulatory technical standards (Level 2 RTS) that underpin the SFDR.

Pursuant to the EU Non-Financial Reporting Directive (2014/95, NFDR) and the German rules transposing it, large German companies are already required to include non-financial statements and diversity information in their annual reports. Under the NFDR and the Taxonomy Regulation, large companies will now also be required to publish ESG data on the impacts of their activities. In February 2021, the European Financial Reporting Advisory Group (EFRAG), asked by the European Commission to develop European non-financial reporting standards, published its proposal for relevant and dynamic EU sustainability reporting standards. Inspired by EFRAG’s recommendation, the European Commission proposed a Corporate Sustainability Reporting Directive (CSRD).

N/A

N/A

N/A

N/A

Public law liability for soil and groundwater contamination (e.g. investigation and remediation obligations) is governed, in particular, by the Federal Soil Protection Act (Bundes-Bodenschutzgesetz) and the respective laws of the German federal states. This liability under public law cannot be excluded by private law agreements. The Federal Soil Protection Act stipulates a general liability to perform remediation irrespective of source, legality or fault. The liability is rooted either in a person’s actions that contributed to the contamination (conduct-based liability) or in the civil law ownership or possession of the contaminated land (condition-based liability). Thus, under the Federal Soil Protection Act, the responsibility for residual pollution and harmful changes to soil lies not only with the polluter, but also with the legal successors of the polluter, the current (and certain former) owners of the contaminated property, the party actually in control of the property and, under certain circumstances, with any party that is responsible under corporate or commercial law for the legal entity owning the property. German case law allows for a ‘piercing the corporate veil’ only under extraordinary circumstances. Such cases include material undercapitalisation of the company, commingling of assets and wilfully destructive interference by the parent company (e.g. unjustifiably depriving the subsidiary of material assets). Responsibility lies also with every former owner of the contaminated property if that owner transferred ownership after 1 March 1999 and knew or must have known about the soil contamination.

There is no statutory ranking order pursuant to which the responsible parties must be held liable. Rather, liability is allocated at the discretion of the authorities to ensure that the property is remediated effectively. Several responsible parties can have a compensation claim against one another, regardless of who is held liable by the competent authority. The other responsible parties may be required to indemnify the person or entity who eventually carries out the remediation proportionately to their respective contributions to the contamination. Such compensation claim can be modified or waived by an agreement.

Private law liability for damage to third parties is governed by civil law provisions as well as by the Environmental Liability Act (Umwelthaftungsgesetz), which establishes the standard of strict liability with respect to certain damage caused on or after 1 January 1991. Liability lies with the legal entity owning or operating the site that has caused the environmental impact. Liability of shareholders or of the parent company to a subsidiary pursuant to ‘piercing the corporate veil’ principles only applies in narrow, exceptional cases. Liability under private law can be limited or excluded to a broad extent through mutual agreement between parties.

To the extent that environmental impacts are the result of an intentional or negligent criminal or administrative offence, the person responsible might also be held liable under those laws. In principle, criminal law only applies to natural persons, but legal persons can also incur monetary penalties under the Administrative Offences Act (Ordnungswidrigkeitengesetz) if, for example, corporate representatives are responsible for the criminal or administrative offence and the violation relates to a duty of the corporation or if the criminal benefits accrue to the corporation.

Environmental liability is based either on conduct or condition. This premise also affects the allocation of liability after a transaction.

In a share deal scenario, generally neither the acquirer nor the seller of the shares in the legal entity that owns contaminated land becomes per se liable for the contamination. Rather, both the conduct-based and condition-based liability for the pre- and post-acquisition contamination stays with the acquired legal entity. However, the historical polluter and, within certain limits, the former property owner remain responsible for the remediation under soil protection law (cf. above, also regarding scenarios involving a ‘piercing of the corporate veil’).

In an asset deal scenario, the risk of environmental liability is mitigated further: in general, the acquirer would assume the condition-based liability for any contamination (even the historical contamination). As pointed out above, the seller might under certain circumstances also remain responsible as the former owner or historical polluter at the property. In contrast, the acquirer would generally not assume the conduct-based liability (under public and private law) for any contamination caused by activities conducted at the property in the past. In some cases, environmental issues can be addressed by structuring the acquisition accordingly.

In both share and asset deal scenarios, consideration should be given to the contractual allocation of liability (e.g. by including counter indemnity provisions or warranty clauses in the purchase agreement). The risk of (potential) environmental liability can also be reflected in the purchase price or mitigated to some extent by obtaining warranty and indemnity insurance or environmental impairment insurance.

Under general principles of private law, soil contamination can constitute a material defect of a property that may entitle the acquirer under statutory liability rules to seek remediation, reduce the purchase price, rescind the purchase agreement or claim compensation. However, such rights do not apply in cases of material defects of which the acquirer is aware at the time of conclusion of the purchase agreement. However, the non-disclosure of material defects such as contamination that are known to the seller can constitute fraudulent misrepresentation and entitle the acquirer to compensation.

In Germany, it has become more common to conduct a technical environmental due diligence and thus to have soil and groundwater contamination, any ensuing risks and the need for further action assessed by an expert. Such due diligence might also be required when obtaining environmental insurance. However, in most cases, technical environmental due diligence is limited to a ‘phase 1 desktop review’, whereas a ‘phase 2 site investigation’ tends to be carried out only if there are concrete indications of (potential) contamination. Investigations to identify the baseline situation in particular may help to ascertain the level of contamination at the time of the acquisition and distinguish contamination caused by past activities on the property from future activities. However, environmental investigations generally require the consent of the owner of the affected property and may draw public attention. In many cases, the authorities have to be informed about new information on contamination issues (cf. above).

The environmental insurance regime makes a distinction in environmental liability between damage to third parties and damage to the environment itself. Environmental liability insurance (Umwelthaftpflichtversicherung) concerns private liability claims of third parties with respect to personal or property damage and certain cases of financial loss caused by harmful environmental impacts. By contrast, environmental impairment insurance (Umweltschadensversicherung) covers certain claims resulting from public law obligations. Environmental impairment insurance comprises three levels: basic coverage and two supplemental coverage components (one of them includes the extensive liability resulting from the Federal Soil Protection Act).

Both insurances are governed by the principle of declaration. That means, instead of providing blanket coverage, only the risks that are explicitly listed in the insurance contract documentation are covered. In practice, risk components are used describing types of risk relating to plants, products, services and other activities. No insurance cover exists for deliberate breaches of laws or administrative orders. Environmental insurance is particularly important for the operators of (industrial) plants that are capable of causing substantial environmental damage in the event of an accident or technical failure.

In recent transactions on the German M&A market, ever more buyers are taking out warranty and indemnity insurance. Buyers’ protection under these W&I insurances may include certain environmental risks.

Public registers for environmental information exist only with regard to certain areas. State and local authorities keep public registers of contaminated sites and sites suspected of being contaminated (Altlastenverzeichnisse). However, sites not listed are not necessarily unaffected by contamination. Moreover, the federal states maintain water registers (Wasserbücher), which provide information about water conservation areas, flood areas and water permits. Emission inventories (Emissionskataster) collect information about an area’s air pollutant emissions during a certain period. For chemical substances, the European Chemicals Agency (ECHA) requires companies to provide information about manufactured or imported hazardous substances pursuant to the REACH Regulation and registration dossiers make this information available to the public. Lists are constantly updated; in July 2021, ECHA expanded the REACH candidate list to include eight additional SVHC (substances of very high concern).

Transaction parties may apply for access to a relevant authority’s information. Proof of a specific legal interest or a power of attorney from the property owner, as well as the payment of a fee, may be required to obtain an information letter from the authority.

The Environmental Information Act (Umweltinformationsgesetz) at the federal level provides that (in principle) every person is entitled to access environmental information possessed by public bodies. State-owned or state-controlled private entities may also be subject to such an obligation. Relevant state laws provide for similar obligations. The applicant does not need to prove a specific legal interest. However, the information request must be sufficiently precise. Fees can be charged if the request is more complex. However, access to the requested information can be denied for several reasons (e.g. in order to protect business secrets, intellectual property rights or personal data, or based on public interests such as security aspects).

Further, with regard to potential third-party claims under the Environmental Liability Act due to damage caused by the operation of a plant, the public authority that has permitted or monitored the operation of the plant is obliged to provide plant-related information to the damaged party in order to enable the enforcement of those claims.

N/A

COVID-19 continues to have a severe impact on administrative planning and approval procedures that require public participation. In response, the Planning Security Act (Planungssicherstellungsgesetz) has been renewed until 31 December 2022, allowing a wide range of authorities to (temporarily) conduct public participation by electronic means in order to ensure that planning and approval as well as special decision-making procedures can still be carried out in a legally secure manner and without delays. Section 246b of the Federal Building Code (Baugesetzbuch) contains special regulations for health-related facilities in the wake of the COVID 19 pandemic, widely exempting them from building regulations until the end of 2022.

Further, several reporting requirements and deadlines were amended or extended due to COVID-19, whereas others were phased out already in 2021. For example, the Federal Office for Economic Affairs and Export Control (Bundesamt für Wirtschaft und Ausfuhrkontrolle) granted extensions for the performance of mandatory energy audits to large companies pursuant to the Act on Energy Services and Other Energy Efficiency Measures (Gesetz über Energiedienstleistungen und andere Energieeffizienzmaßnahmen) only until the end of February 2021. The Act to Mitigate the Consequences of the COVID-19 Pandemic in Civil, Insolvency and Criminal Procedure Law (Gesetz zur Abmilderung der Folgen der COVID-19-Pandemie im Zivil-, Insolvenz- und Strafverfahrensrecht), which came into force on 1 April 2020, has been extended until 31 August 2022.

New government takes over

In December 2021, a new coalition government was formed comprising the Social Democrats (SPD), the Greens, and the FDP. Their coalition agreement for the upcoming four years aims to substantially increase the use of renewable energies such as solar, wind and biomass. At the same time, the shutdown of the remaining nuclear power plants is set for 2022. The new coalition intends to revise the decision to phase out electricity generation from coal by 2030. Accelerated, modernised, de-bureaucratised and digitalised planning and approval procedures, improved staff capacities and private project managers are to facilitate the necessary investments.

Emission-related updates

The new Fuel Emissions Trading Act (Brennstoffemissionshandelsgesetz) of 2021 was supplemented by the Carbon Leakage Ordinance (Carbon-Leakage-Verordnung) in June 2021. The Ordinance aims to prevent companies from relocating and carbon leakage from occurring. The approval by the European Commission under state aid law is still pending.

A revised version of the technical guideline on air quality (TA Luft) entered into force on 1 December 2021. For technical installations, the state of the art was reviewed and adapted, especially with regard to particularly relevant air pollutants such as nitrogen oxides or fine particulate matter. New additions to the TA Luft include requirements relating to odour pollution caused by technical installations and limits for ammonia and fine particulate matter emissions from the exhaust of large animal husbandry facilities. The TA Luft now also stipulates how nature conservation requirements are to be taken into account when approving installations.

In reaction to the Federal Constitutional Court’s (Bundesverfassungsgericht) landmark decision of June 2021, the Climate Protection Act was amended, tightening national climate protection targets to make Germany climate neutral by 2045. Greenhouse gas emissions now need to be reduced by 65% by 2030 instead of 55% (compared to the levels in 1990). Compliance will be monitored continuously by an expert council for climate issues.

Energy-related updates

As part of the high-voltage power line planning under the Grid Expansion Acceleration Act (Netzausbaubeschleunigungsgesetz), the Federal Demand Plan Act (Bundesbedarfsplangesetz) was amended in January 2021 designating specific power line projects that will be advanced under the supervision of the Federal Network Agency (Bundesnetzagentur). The amendment aims to update the list of projects of high importance for the overall security of electricity supply in Germany.

The new coalition government agreed to substantially accelerate the planning of infrastructure projects, in particular the expansion of electricity generation from renewable sources. The relationship between climate protection and the protection of species is to be clarified further. Under certain conditions, it is to be presumed that the exemption requirements of the Federal Nature Conservation Act apply to certain projects.

The national hydrogen strategy (Nationale Wasserstoffstrategie) includes 38 measures to foster the use of hydrogen as an energy source and its storage. A home market for hydrogen is to be developed and the way paved for importers to distribute their hydrogen. To this end, 62 large-scale hydrogen projects were selected to receive EUR 8 billion in government funding in 2021 as part of a joint European hydrogen project (Hydrogen IPCEI – Important Project of Common European Interest). The new coalition government plans to expand infrastructure, significantly increase the targets for electrolysis performance, promote European and international climate and energy partnerships for climate-neutral hydrogen and its derivatives on an equal footing, and introduce quotas for green hydrogen in public procurement to create lead markets.

Infrastructure-related updates

The number of newly registered electric cars in 2020 has more than doubled compared to the previous year. This trend has continued in 2021. A new Fast Charging Act (Schnellladegesetz) aims to enable the nationwide establishment of a fast-charging infrastructure (minimum of 150 kW) for battery electric vehicles with 1,000 locations by 2023. The Fast Charging Act assigns to the Federal Ministry for Digital and Transport (Bundesministerium für Digitales und Verkehr) the task of determining the nationwide demand for fast-charging locations and serving this demand through a (Europe-wide) tender in at least 18 regional lots. In addition, there will be nationwide lots for fast-charging stations at rest areas along federal highways.