The German coalition agreement: opportunities and challenges for ESG management

On 9 April 2025, the German parties CDU/CSU and SPD presented their coalition agreement for the new legislative period. Pending approval by a CDU party committee and the SPD members, the agreement outlines significant changes in sustainability politics with major implications for corporate ESG management. 

Key topics include:

• The German Supply Chain Due Diligence Act (LkSG) is set to be abolished and replaced by the national transposition act relating to the EU Corporate Sustainability Due Diligence Directive (CSDDD). However, when taking a closer look, in-scope companies cannot suspend their compliance efforts. The LkSG will not be abolished immediately. Instead, the coalition agreement suggests to only remove the LkSG reporting obligation immediately. This aligns with current practice: Guidance by the Federal Office for Economic Affairs and Export Control (BAFA) already sets out that it will not enforce the LkSG reporting obligations before 1 January 2026. In addition, the application of the LkSG is envisaged to be suspended until the CSDDD implementation law is enacted in such way that breaches of due diligence obligations are not penalised "except for severe human rights violations". The definition of "severe human rights violations" does, however, remain undefined in both the LkSG and the coalition agreement, leaving its criteria unclear. Companies subject to the LkSG should thus adhere to their legal obligations until the measures outlined in the coalition agreement are enacted and effective and provide more clarity on what exactly is being expected from them. 
• The coalition partners also announce their support for the EU Omnibus initiative, particularly advocating for a "bureaucratic-light solution" for SMEs. The draft of the first Omnibus package, presented by the EU Commission in February, proposes a simplification of the CSDDD, the Corporate Sustainability Reporting Directive (CSRD), the Taxonomy Regulation, and the Carbon Border Adjustment Mechanism (CBAM) (read more here). With its first part, the recently enacted "Stop-the-Clock" Directive, the implementation deadline for the CSDDD and the entry into application of the CSRD for certain companies have been delayed (read more here).
  • More specifically, for the CSDDD, the coalition agreement takes a position neither on the timing of the implementation, nor the content of what should be changed. However, we would expect that the future German government will await the conclusion of the EU legislative process before presenting a draft implementation bill.
  • As regards the CSRD, the coalition agreement does not provide guidance on when the government will address the implementation during the new legislative period, which is remarkable considering that Germany has been behind schedule with the implementation since July 2024. Companies affected by the CSRD therefore face legal uncertainties: On the one hand, the "first wave" of companies, for which the Omnibus initiative does not provide for a postponement of the start of application (i.e., public interest entities), must prepare for various scenarios depending on when the government enacts the CSRD implementation law. The situation is even more complex for those companies in the "first wave" that are reporting across different member states and dealing with varying regulations due to the implementation delays. On the other hand, the "second and third wave" of companies (i.e., large companies and public interest SMEs), potentially excluded from the scope by the Commission's Omnibus proposal, might need to undertake unnecessary work as precautionary measures. 
  • Regarding CBAM, the coalition partners aim to support the reliefs proposed in the first Omnibus package (see here) and make the regulations "less bureaucratic and more efficient".
• In the area of conflict minerals, the coalition aims to prevent "excessive regulation", too. The EU Conflict Minerals Regulation, largely applicable since early 2021, has introduced due diligence obligations for conflict minerals across Europe for the first time (read more here) and is thus far not part of the Commission’s Omnibus initiative.
• Additionally, the coalition partners plan to lobby at EU level to ease the burden on the German forestry industry under the Deforestation Regulation (EUDR) by introducing a "zero-risk variant”. Their plans reflect a proposal made by the EU Parliament, which was subsequently not pursued due to objections from the Council and Commission. The proposal envisaged considerably less stringent requirements for states without deforestation risk, including Germany (read more here).
• Finally, the coalition agreement announces a policy paper with short-term implementable measures based on the National Circular Economy Strategy. The agreement specifically addresses measures related to raw material imports, packaging law, waste law, and (probably also with a view to the Right2Repair Directive, see here) sustainable consumption. Additionally, there are plans for further sector-specific regulations, such as extended producer responsibilities in the textile sector, waste-related requirements for batteries and electronic devices, as well as chemical recycling. Reporting obligations related to the circular economy are also to be reviewed.

These plans suggest far-reaching changes to the current ESG landscape, so that it will be interesting to see to what extent the coalition parties are able to implement their plans, particularly at EU level. As is usually the case with coalition plans, this is by no means a foregone conclusion.

Read more on the coalition agreement and its impact on business on our German website, including on climate change and energy policy.