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 the German federal constitution (Grundgesetz) sets out the state goal (Staatszielbestimmung) to protect the natural foundations of life and animals by legislation and by executive and judicial action. This constitutional aim has been embodied by the 16 federal states (Länder) in their individual constitutions as well and is accompanied by a continuous strengthening of environmental regulations.

In Germany, legislative power to pass environmental laws is divided between the Federation (Bund) and the Länder which is why it has not been possible yet to pass a uniform German Environmental Code (Umweltgesetzbuch). The last major attempt in 2009 failed. Instead, environmental protection is provided by numerous individual laws on federal and state level provide along with sectoral laws, such as building and planning laws, in which environmental protection regulations are integrated. In the past decades, EU Law had a great impact on German environmental law. This includes in particular 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 Act (Erneuerbare-Energien-Gesetz) and Energy Conservation Act (Energieeinspargesetz)
• 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)

New legal areas for environmental protection result from climate and resource protection law. Recently, climate change promotes a fast-moving environmental law. In 2020, once more, numerous legislation has been introduced, all focused on moving closer to environmental goals and flattening the path towards renewable energy. Moreover, extended participation rights, not only for individuals but also for environmental organisations, enhance the enforcement of these laws.

It is widely criticised that strengthened environmental protection and extended public participation has slowed down permitting procedures, eventually daunting investors. Several acts have been passed to accelerate the procedures. One of them, the Investment Acceleration Act (Investitionsbeschleunigungsgesetz), came into force in December 2020 and aims at accelerating approval procedures (e.g. for overhead wires along train lines), concentrating administrative and judicial review (e.g. for onshore wind turbines) and streamlining building and planning laws (e.g. rendering certain spatial planning procedures obsolete).

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 on a local, state, federal or European level.

At federal level, the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (Bundesministerium für Umwelt, Naturschutz und nukleare Sicherheit (BMU)) also determines environmental policy through legally binding ordinances (Verordnungen) and guidelines as well as not directly binding recommendations or leaflets that guide the implementation in practice, often in collaboration with the Federal Ministry for Economic Affairs and Energy (Bundesministerium für Wirtschaft und Energie (BMWi)) and the Federal Environment Agency (Umweltbundesamt (UBA)).

Administrative authorities have at their disposal various instruments, such as permit requirements for projects, requests of necessary measures as well as shut down orders or permit withdrawals. In case of non-compliance with permit conditions or legal obligations, they 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 compliance 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, whereas each authority reviews the project parts in its respective scope.

For example, plan approval proceedings (Planfeststellungsverfahren) can be required for more complex projects. Certain legal frameworks provide for an early commencement of construction works (vorzeitiger Beginn), which can be essential to adhere to ambitious construction schedules while respecting eg specific protection seasons.

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

Generally, all object-related permits follow the asset, for example upon transfer of ownership or change of operatorship. This applies to building permits (also including a transfer before the construction started) and immission protection permits. Some permits stipulate that the permit holder must notify the competent authority of the transfer in advance or without undue delay.

Personal concessions, ie permits issued to an applicant based on his or her personal qualifications, do typically not transfer to other entities or persons. This applies, for example, to radiation protection permits and certain permits pursuant to 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 a consent.

The applicant has a right to administrative and judicial review. He either can take legal action against the unlawful rejection of an application or can challenge certain conditions of the permit. Usually, a prior administrative objection proceeding (Widerspruchsverfahren) is required, meaning that the applicant appeals the authority’s decision to the same (or higher) authority first. If the case cannot be resolved at that level, the applicant can file the case to the administrative courts. In some federal states, however, a prior objection proceeding is not generally required (eg Bavaria, Hessia, North Rhine-Westphalia) and the applicant can directly submit the case to the administrative courts. In both cases, the applicant must react within one month of receipt of the authority’s decision.

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 (eg ordering the necessary measures under the Federal Soil Protection Act or permits under the Water Management Act). For others, however, such as 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 to file a case against an administrative decision granting a permit if the permit affects their subjective-public right (subjektiv-öffentliches Recht). Although the requirement of a potential infringement of subjective rights does not apply to environmental associations, they may only appeal for a detailed judicial review of a decision within the scope of their responsibility determined by their right of self-government (Federal Administrative Court (Bundesverwaltungsgericht (BVerwG)), 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, which severely impair municipal facilities or building areas designated in a development plan of the municipality (BVerwG, decision of 10 April 2019 – case no. 9 A 22/18).

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

Projects that require an EIA must be publicly disclosed and are accompanied by public hearings for which the applicant must provide project-related information. The EIA reports must be submitted to all affected agencies and to the public. The authority must conduct a public hearing and prepare a comprehensive report on the likely impacts. 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), referring to Art. 11 of the European EIA Directive, increasingly promotes that action can be taken against a deficient EIA procedure separately. In its Altrip ruling of 7 November 2013 (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 repeal or suspend a plan approval decision also if a preliminary required assessment was not or incorrectly conducted, 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 regulates the liability and remediation of contaminated land.

In principle, the polluter is held liable and obliged to remediate harmful soil changes, including groundwater contamination, to avoid any dangers, considerable disadvantages or considerable nuisances for the individual or the public. However, this liability also applies to the polluter’s universal successor as well as the property owner and the occupant of the real property, such as a tenant, certain former owners of the property as well as under certain circumstances persons or entities who are liable under commercial or corporate law for the owner.

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

The polluter may also be held liable for the contamination of ground water and surface waters pursuant to the Water Management Act and state water laws. Furthermore, the operator of an industrial facility may be responsible for any contamination of the business premises pursuant to the Immission Control Act.

With regard to civil law on environmental matters, operators of certain facilities should be aware of the strict liability (Gefährdungshaftung) for the violation of certain legally protected rights, such as life, health, physical safety and property pursuant to the Environmental Liability Act (Umwelthaftungsgesetz). The liability covers inter alia 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 follow from the Civil Code (Bürgerliches Gesetzbuch).

The Environmental Damage Prevention and Remediation Act covers the environmental damage of certain species and environmental habitats. Hereafter, 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 compensation claim against the others.

Apart from administrative orders, contracts under public law are often used to regulate decontamination, mitigation and/or monitoring measures. Both the parties and the authorities must adhere to these contracts and, generally, no additional conditions can be imposed subsequently 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 from their land. Hence, in case of 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 authority to carry out or order necessary measures to investigate potential contaminations and to comply with the objectives of the Federal Soil Protection Act. They may demand information about the legal circumstances or carry out soil analyses (section 9 and 10 Federal Soil Protection Act, section 7 Environmental Damage Prevention and Remediation Act). In addition, the authorities can order specific measures to 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 carry out investigations to assess the risk. Thus, in particular monitoring measures can be imposed even after remediation.

The operator of a commercial activity in which hazardous substances are used is generally obliged to prepare a report on the initial condition and submit it to the competent authority before the activity is started for the first time.

Many federal states have enacted laws requiring the landowner and the occupant, such as tenants, plant operators or developers, 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 case of specific indications (konkrete Anhaltspunkte) in the Bavarian State Soil Protection Act (Landesbodenschutzgesetz Bayern) and in case of known indications (bekannte Anhaltspunkte) in the Hessia 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 compensation of the remediation costs against other parties legally responsible for it (section 24(2) Soil Contamination Act, section 9(2) 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 again 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 has been amended in accordance with the new Waste Framework Directive of 2018. The new provisions extend the obligations for separate collection of waste to further waste streams and increase the quotas for reuse as well as for recycling. The reform aims to improve consumer awareness as well as sharing the costs of cleaning up the environment in a way that is fair to those who caused its pollution. However, the reform was criticised i.a. by municipalities as lacking a right of action with regard to commercial collections for the public authorities responsible for the waste management.

Waste producers remain responsible for their waste. In accordance with the Recycling Act, it is possible to contract third parties to treat, recycle or dispose of the waste, or outsource the entire operation of the 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) requires manufacturers and distributors to take back used packaging of goods for recycling or disposal. Beverage packaging also falls within the scope of the regulation. Under the End-of-Life Vehicles Ordinance (Altfahrzeugverordnung) the manufacturer or importer must take back end-of-live vehicles and organise their recycling. The Electrical and Electronic Equipment Act (Elektro- und Elektronikgerätegesetz) 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.

The Battery Act is expected to be amended in the course of 2021. The envisaged changes might have a substantial impact on producers and importers of batteries and rechargeable power packs. The foundation ‘Elektro-Altgeräteregister’ (EAR) will be entrusted with the task to manage the manufacturer directory and registration and will be competent to issue administrative acts (Verwaltungsakte), which will likely cause additional fees. It is yet to be seen whether the approximately 10,000 producers currently registered in the existing directory will be transferred to the new battery register. After the reform, the EAR will be responsible to determine the responsibility of producers as manufacturers under the Battery Act as well as the qualification of products as batteries. The EAR will also control the compliance with the collection (now 50%) and recovery rates (now 50-75% depending on the battery type) of those take-back systems. Related administrative procedures might last several months.

Asbestos and other deleterious materials were widely used in construction in Germany. There is no general obligation for the property owners to carry out investigations with regard to 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 trigger 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 (Verpackungsgesetz) 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, inter alia by 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 the 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 from January 2022 onwards.

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) has come into force, merging 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 energy performance of buildings, such as the lowest energy building standard, are fully implemented in the GEG. It determines in particular certain requirements for the energy quality of (new and existing) buildings, the preparation and use of energy performance certificates assessing the building’s energy efficiency and the use of renewable energies in buildings.

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.

Germany and its federal states have adopted various laws in relation to the reduction of greenhouse gas emissions, some of them implementing EU laws. The Federal Government has adopted the Climate Protection Program 2030 (Klimaschutzprogramm 2030) setting out, inter alia, the target to reduce greenhouse gas emissions by 55% by 2030 (compared to the levels in 1990). In December 2019, the Federal Climate Protection Act (Bundes-Klimaschutzgesetz) has come into force, which stipulates the goal of greenhouse gas neutrality by 2050 for Germany and provides for legally binding climate protection targets for each year and individual economic sector (ie how much CO2 each sector may emit per year). With the Energy Efficiency Strategy 2050 (Energieeffizienzstrategie 2050), the Federal Government has further set a target for reducing primary energy consumption by 2030.

A key pillar of the Climate Protection Program 2030 is the new CO2 pricing in the transport and heat sectors. CO2 pricing already applies to the energy sector, energy-intensive industry 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 (Brennstoffemissionshandelsgesetz) as amended on 8 October 2020 and starts in 2021 with a fixed price system (ie the price per ton of CO2 is set in advance and will gradually increase over the next years) for the emissions certificates auctioned to companies selling heating oil, liquefied petroleum gas, natural gas, coal, petrol or diesel.

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

In addition, 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.

ESG issues are a hot and evolving topic at the European and national level. While the European and German ESG framework is evolving into a major crosscutting theme, German companies and investors anticipate this trend to an increasing degree. Though a specific ESG due diligence is certainly not common at this stage, transaction parties are increasingly aware of (and sometimes focussed on) ESG aspects of the target business. ESG criteria have also become increasingly widespread in German executive remuneration policies. 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 non-ESG-oriented corporate culture.

The trend is mirrored in the German public sector. For example, the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht) has published guidelines on ‘good-practice approaches’ on the treatment of sustainability (ESG-)risks, which can be applied by the companies it supervises (eg credit institutions, insurance companies, pension funds, capital management companies and financial services institutions) when implementing risk management systems. The introduction of a supply chain act (Lieferkettengesetz) in Germany, which is supposed to oblige German companies to ensure that foreign business partners comply with elementary human rights and environmental requirements, is discussed controversially.

With respect to environmental and climate (green) goals, Germany published its framework for green federal securities in August 2020. The new green securities will be issued alongside conventional federal securities (twin bonds). Moreover, the major German state lender KfW considers ESG criteria and sustainability ratings in its investment decisions. KfW has been supporting the green bond market as an investor and issuer since 2014. Under the Sustainable Finance Strategy initiated in 2019, the Federal Government aims to make Germany a leading market for sustainable finance.

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 identify 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. It contains, among other things, the ‘do no significant harm’ (to the environment) principle that is a key pillar of the EU Green Deal and the spending under the envisaged EU Recovery Fund. The adoption of the implementing regulations under the Taxonomy Regulation is pending.

The EU Sustainable Finance Disclosure Regulation (2019/2088, SFDR) on sustainability‐related disclosures in the financial services sector shall apply in Germany and other EU member states for the most part as of 10 March 2021. This regulation stipulates disclosure obligations of financial service providers regarding the consideration of sustainability issues in their (business) strategies, (investment) processes and (financial) products. In addition to publications on the website of the financial service provider, the regulation also deals with publications in pre-contractual information (eg fund prospectuses) and regular reports (eg annual reports). The European Commission confirmed in October 2020 that the regulatory technical standards (Level 2 RTS) that underpin the SFDR will enter into force at a later point in time.

Moreover, pursuant to the EU Non-Financial Reporting Directive (2014/95, NFDR) and transposing German rules, 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 also be required to publish ESG data on the impacts of their activities. In June 2020, the European Commission tasked the European Financial Reporting Advisory Group (EFRAG) to develop European Non-financial Reporting Standards.

Public law liability for soil and groundwater contamination (investigation, remediation obligations), which cannot be excluded by agreements under private law, is governed, in particular, by the Federal Act on Soil Protection (Bundes-Bodenschutzgesetz) and respective laws of the federal states. The Federal Act on Soil Protection stipulates a general public law remediation liability irrespective of source, legality or fault. The responsibility is rooted either in a person’s actions that contributed to the contamination (conduct-based liability) or in civil law ownership or possession of the contaminated land (condition-based liability). Thus, the responsibility for residual pollutions and/or harmful changes to the soil under the Federal Act on Soil Protection 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, with the party actually in control of the property and, under certain circumstances, with any party that is responsible under corporate or commercial law for a legal entity owning the property. The 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 willfully destructive interference by the parent company (eg unjustifiably depriving the subsidiary of material assets). Responsibility lies also with every former owner of the contaminated property, provided that such owner transferred the 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 land is remediated effectively. Several responsible parties can have a compensation claim between each other, regardless of who is held liable by the competent authority. Insofar, the other responsible parties, as the case may be, are required to indemnify the person or entity who eventually carried out the remediation on a pro rata basis (in accordance with their respective contribution to the contamination). Such compensation claim can be modified or waived by an agreement.

Private law liability for damage to third parties is regulated by civil law provisions as well as by the Environmental Liability Act (Umwelthaftungsgesetz), which sets up the standard of strict liability with respect to certain damage caused from 1 January 1991 onwards. Liability lies with the legal entity owning or operating the site that causes the environmental impacts. Liability of the shareholders or a parent company vis-à-vis a subsidiary pursuant to the principles of ‘piercing the corporate veil’ only applies in narrow exceptional cases pursuant to German law. Liability under private law can be limited or excluded to a broad extent by way of mutual agreement.

To the extent certain actions lead to an intentional or negligent criminal or administrative offence, the person responsible for the respective environmental impacts might also be held liable under criminal law and administrative offence provisions. In principle, criminal law only applies to natural persons. Entities can be addressed by penalty fees under the Act on Administrative Offences (Ordnungswidrigkeitengesetz (OWiG)), among other things, if corporate representatives are responsible for the criminal or administrative offence and the violation relates to a duty of the corporation or the criminal benefits accrue to the corporation.

Environmental liability is based either on responsibility of conduct or on responsibility of 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 holding the contaminated land become per se liable for contamination. Rather, both the conduct-based and condition-based liability for pre- and post-acquisition contamination stays with the acquired legal entity. However, the polluter of historic contamination and, within certain limits, also the former property owner stay responsible for remediation under public 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 condition-based liability for contamination (also with respect to historic contamination). As pointed out above, the seller might under certain circumstances also remain responsible as former owner or polluter for historic contamination at the property. In contrast, the acquirer would generally not assume 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 via the acquisition structure.

Both in share and asset deal scenarios, consideration should be given to the contractual allocation of liability (eg to include 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 a warranty & indemnity (W&I) insurance or environmental impairment insurance.

Under general principles of private law, contamination of the soil can constitute a material defect of a property that may entitle the acquirer under statutory liability rules to request remediation, reduce the purchase price, rescind from the purchase agreement or to claim compensation. However, such rights do not apply with respect to material defects (ie contamination) of which the acquirer is aware at the time of conclusion of the purchase agreement. Yet non-disclosure of material defects in the form of contamination known to the seller can lead to fraudulent misrepresentation and related compensation claims of the acquirer.

Technical environmental due diligence has become more and more common in Germany in order to have any soil and groundwater contamination, ensuing risks and the need for further action assessed by an expert. Such due diligence may be required also when obtaining an environmental insurance. However, in most cases the technical environmental due diligence is limited to a so-called ‘phase 1’ desktop review, whereas a ‘phase 2’ site investigation is mostly only carried out in case of concrete indications for (potential) contamination. Investigations to identify the baseline situation may particularly help to ascertain the level of contamination at the time of the acquisition to differentiate contamination caused by activities on the property in the past from potential future activities. However, environmental investigations generally require consent by the respective 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 follows the distinction in environmental liability between damage to third parties and damage to the environment itself. The environmental liability insurance (Umwelthaftpflichtversicherung) concerns private liability claims of third parties with respect to personal or property damage and limited cases of financial loss caused by harmful environmental impacts. By contrast, the environmental impairment insurance (Umweltschadensversicherung) concerns claims resulting from public law obligations. The environmental impairment insurance comprises three levels: basic coverage and two supplemental coverage components (one of them including the extensive liability resulting from the Federal Soil Protection Act).

Both above-mentioned insurances are governed by the principle of declaration. Ie instead of providing blanket coverage, only risks are covered that are explicitly listed in the insurance contract documentation. In practice, respective risk components are used which describe risk groups related to the areas of 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 the transaction context, buyers increasingly take out a W&I insurance in the German M&A market. Buyer’s protection under these W&I insurances may include certain environmental risks.

Public registers for environmental information only exist with regard to certain areas. For instance, public registers of (potential) contamination (Altlastenverzeichnisse) by the state or local authorities list contaminated sites and sites with a suspicion of contamination. However, non-listed sites are not necessarily unaffected by contamination and vice versa. Moreover, the federal states maintain water registers (Wasserbücher) that provide information about water conservation areas, flood areas and water permits. Emission inventories (Emissionskataster) collect information about an area’s air pollutant emissions within a certain period of time. For chemical substances, the European Chemicals Agency (ECHA) requires companies to provide information about manufactured or imported hazard substances pursuant to the REACH Regulation and respective registration dossiers make this information available to the public.

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

The Environmental Information Act (Umweltinformationsgesetz) provides at the federal level that (in principle) every person shall be entitled to access environmental information held by public bodies. State-owned or state-controlled private entities may also be subject to such an obligation. Respective state laws provide for similar obligations at the state level. 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. Yet access to the requested information can be denied for several reasons (eg 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 which has permitted or monitored the operation of such plant is obliged to provide plant-related information to the damaged party in order to facilitate the enforcement of those claims.

COVID-19 has had severe impact on administrative planning and approval procedures that require the involvement of public participation. In reaction, the Planning Security Act (Planungssicherstellungsgesetz) has come into force on 20 May 2020, allowing a wide range of authorities to (temporarily) conduct public participation by electronic means/online 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.

Further, several reporting requirements and deadlines were adjusted or extended due to COVID-19. For example, the Federal Office for Economic Affairs and Export Control (Bundesamt für Wirtschaft und Ausfuhrkontrolle (BAFA)) has granted extensions for the performance of mandatory energy audits for large companies pursuant to the Act on Energy Services and Other Energy Efficiency Measures. In the gas sector, the Federal Network Agency (Bundesnetzagentur) has extended the period for the market area conversion from L-gas to H-gas in accordance with the Energy Industry Act (Energiewirtschaftsgesetz). Amendments to the Renewable Energies Act provide for further exceptions, eg with respect to the Special Equalisation Scheme which allows a company with high electricity costs to apply for a reduction in the so-called ‘EEG levy’ that is paid per kilowatt hour for the subsidy of green electricity; while the application for such reduction must still be submitted on time, the required documents can be provided later. Further, certain deadlines for renewable energy plants have been extended to prevent the loss of financial subsidies or penalty payments.

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 further stipulated a payment moratorium for existing continuing obligations in favour of consumers and micro-enterprises, which may suspend payment on electricity, gas and district heating deliveries for a maximum of three months if the payment difficulties are due to the circumstances of COVID-19. This regulation results in the energy supply companies having to fulfill their contractual obligations in advance.

Emission-Related Updates

In December 2020, the Federal Government has adopted the final draft for the revision of the 13th Federal Immission Control Ordinance (13. Bundesimmissionsschutzverordnung), implementing the European Conclusions on Best Available Techniques for large combustion plants into national law. In particular, requirements for monitoring plants as well as emission limit values for pollutants such as nitrogen dioxide, dust, sulphur dioxide, carbon monoxide or methane are redefined by this revision. The new regulations are generally intended to apply from 18 August 2021 onwards.

Energy-Related Updates

Two legislative projects serve to promote non-publicly accessible charging infrastructure for electric mobility: the draft Building Electric Mobility Infrastructure Act (Gebäude-Elektromobilitätsinfrastruktur-Gesetz), which is intended to accelerate the expansion of charging options on and in buildings with a larger number of parking spaces, and the Condominium Modernisation Act (Wohnungseigentumsmodernisierungsgesetz), which grants tenants and flat owners the right to install charging infrastructure and which already came into force on 1 December 2020. Further, amendments to the Motor Vehicle Tax Act (Kraftfahrzeugsteuergesetz) were adopted, implementing the targets of ‘promotion of the switch to electric cars’ and ‘consistent CO2-related reform of the motor vehicle tax’ as set out in the Climate Protection Programme 2030. Moreover, an amendment of the Federal Demand Plan Act (Bundesbedarfsplangesetz) is currently contemplated to determine certain grid expansion projects to be planned and approved on an accelerated basis based on energy industry necessity. With the National Hydrogen Strategy (Nationale Wasserstoffstrategie) of 6 June 2020, the Federal Government has created a framework for action for the future production, transport, use and further use of hydrogen and thus for corresponding innovations and investments.

Infrastructure-Related Updates

With the Investment Acceleration Act (Investitiongsbeschleunigungsgesetz) dated 10 December 2020, measures to accelerate planning and approval procedures in the areas of transport and digital infrastructure have been implemented to be able to realise investments faster and more effectively. On 3 June 2020, the Federal Compensation Ordinance (Bundeskompensationsverordnung) came into force which regulates the avoidance and compensation of impacts on nature and the landscape with respect to federal projects such as the installation of waterways, motorways, power lines or railway operating facilities.

Waste-Related Updates

The latest amendment to the Recycling Act of 29 October 2020 essentially serves to implement the regulations of the amended EU Waste Framework Directive, which were to be transposed into national law by 5 July 2020. The amendment stipulates, inter alia, recycling and landfill quotas, separate collection and treatment obligations as well as product responsibility. Further, in implementation of Directive (EU) 2019/904 obligating member states of the European Union to completely ban single-use plastic products that can be replaced with suitable alternatives, the Ordinance on Banning Single-Use Plastics (Einwegkunststoffverbotsverordnung) has been adopted, applying from 3 July 2021 onwards. Additionally, an amendment to the Battery Act came into force on 3 November 2020, introducing a registration obligation for battery manufacturers, which must further prove that they participate in an approved take-back system for old batteries.