Following the German federal election in February 2025, the new coalition consisting of CDU/CSU and SPD (the Coalition) has reached a coalition agreement, unveiled on April 9, 2025. This agreement marks the culmination of extensive negotiations and sets the agenda for the new government’s term. From an ESG perspective, the agreement tackles various regulations and seeks to reduce bureaucratic burdens.
ESG: The German Supply Chain Due Diligence Act and the EU Omnibus Package
At the forefront of the Coalition’s ESG initiatives is the decision to abolish the German Supply Chain Due Diligence Act (Lieferketten-Sorgfaltspflichtengesetz, LkSG). According to the coalition agreement, the LkSG will be replaced by a new law on corporate responsibility, transposing the EU’s Corporate Sustainability Due Diligence Directive (CSDDD) (for further details on the CSDDD, see this Latham article), which is currently subject to an “Omnibus” initiative on the EU level (see below). The transition from the LkSG to the new law aims to reduce bureaucracy and improve enforcement, with existing due diligence obligations not being sanctioned until the new law is in place, except for severe human rights violations.
The LkSG, adopted in 2021, requires companies with at least 1,000 employees to identify, address, and report on human rights and environmental risks in their supply chains. Initially perceived as a milestone in ESG regulation, the LkSG later faced criticism for its high financial cost and bureaucratic burden, which was deemed to affect global competitiveness of in-scope German companies. Political pressure led to a delay in reviewing reports until 2026, and discussions considered pausing the LkSG until the CSDDD would be transposed and take effect.https://www.reuters.com/world/europe/german-government-considers-pausing-supply-chain-law-two-years-says-minister-2024-06-07/.
Now, the Coalition plans to abolish the LkSG entirely. In-scope companies and (direct and indirect) suppliers of German in-scope companies should monitor developments closely and implement necessary steps, especially if they have amended their supplier agreements for LkSG compliance. Many German in-scope companies may have concluded amendments to existing agreements in their supply chain, demanding their suppliers comply with the LkSG. Such clauses may have to be monitored and paused or renegotiated depending on the wording. The necessary actions will largely depend on the legislative developments at the EU level in relation to the CSDDD and the Omnibus initiative.
In this regard, the Coalition supports the EU’s Omnibus initiative to reduce administrative burdens. As part of the initiative, the EU published a first Omnibus package regarding sustainability, consisting of a set of legislative proposals to amend (1) the EU Corporate Sustainability Reporting Directive (CSRD); (2) the CSDDD; (3) the EU Taxonomy Regulation; and (4) the Carbon Border Adjustment Mechanism (CBAM). For details on the Omnibus initiative, see this Latham blog post. The Coalition advocates for a bureaucracy-light approach, particularly for small and medium-sized enterprises, which aligns with the overall objectives of the Omnibus initiative.
Climate and Energy Initiatives
According to the coalition agreement, the Coalition is committed to “achieving climate neutrality by 2045, in line with the Paris Agreement.” It plans to advance the emissions trading system and introduce ETS 2, as per the 2023 revisions of the ETS Directive. The Coalition supports the proposed simplifications to the CBAM as part of the Omnibus package, aiming to enhance the mechanism’s efficiency in order to prevent carbon leakage, while also providing compensation for affected exports.
The agreement emphasizes CO2 capture and storage technologies (CCS/CCU) and the rapid development of the hydrogen economy, aiming for a supportive regulatory framework.
Environmental and Resource Management
In environmental policy, the Coalition focuses on voluntary measures, incentives, and self-responsibility to meet environmental standards. The Coalition also aims to simplify environmental permitting processes. Against this background, the coalition agreement opposes the EU’s Deforestation Regulation (EUDR), which aims to prevent the import of products linked to deforestation and forest degradation and will start to apply on December 30, 2025.
The Coalition highlights resource efficiency and the circular economy, supporting projects for extracting and processing critical raw materials in Europe and investing in the national raw materials fund.
Conclusion
The coalition agreement between CDU/CSU and SPD aims to reform ESG regulation by emphasizing reduced bureaucracy and enhanced competitiveness. The planned abolishment of the LkSG is a first concrete step. Businesses must stay informed and adapt to the evolving regulatory landscape to ensure compliance.
Latham & Watkins will continue to monitor developments in relation to the LkSG and other German ESG and supply chain laws.
ENDNOTES
- https://www.reuters.com/world/europe/german-government-considers-pausing-supply-chain-law-two-years-says-minister-2024-06-07/.
