ESG 2025 Comparisons

In 2025, ESG regulation in the EU and Germany shifted toward simplification rather than expansion.

The European Commission introduced so-called Omnibus Packages, and lawmakers agreed to streamline the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD), raising thresholds and reducing trickle‑down obligations to ease compliance. The EU Deforestation Regulation (EUDR) was postponed by one year to December 2026 and simplified, focusing responsibility on the first placer and reducing downstream duties. The EU Taxonomy framework was also lightened with fewer data points and non‑materiality exemptions starting in 2026 for FY2025 reporting. These changes reflect a regulatory trend toward increased proportionality and competitiveness rather than stricter ESG obligations.

In Germany, proposals emerged to slim down the Supply Chain Act (LkSG), including abolishing annual reporting obligations. In this context, the German Ministry for Economics (BMWE), together with the German Ministry for Labour (BMAS), instructed the Federal Office for Economic Affairs and Export Control (BAFA), which is the competent authority for enforcing the LkSG, to stop reviewing annual reports as a “pre-emptive measure”. Also, BAFA disabled the access to its official interface where economic operators could submit the annual reports. Hence, in practice, while there is still a formal obligation to submit such reports, this obligation will not be enforced.

No significant changes have been observed in general enforcement practices under the LkSG to date. In particular, BAFA continues to investigate supply chain-related concerns, and pending cases remain on the docket.

2025 saw a clear shift from expansion to simplification in EU environmental legislation. Instead of tightening obligations, lawmakers focused on lighter reporting duties and exemptions for smaller businesses. After the final adoption of the Omnibus Package in mid-December, the CSRD and CSDDD thresholds were raised – for the CSRD – to (i) a net turnover exceeding EUR450 million and (ii) an average of more than 1,000 employees for individual sustainability reporting (ie, at the company level) and – for the CSDDD – to (i) a net turnover exceeding EUR1.5 billion and (ii) and an average of more than 5,000 employees. Also, under the CSDDD, mandatory climate transition plans as well as civil liability regimes are now completely removed, and reporting requirements under the CSRD are scaled back to reduce the administrative burden.

In a similar vein, a new de minimis threshold was introduced for the EU’s CBAM (Carbon Border Adjustment Mechanism). Now, only importers exceeding 50 tonnes per calendar year across the different product categories (excluding electricity and hydrogen) remain in-scope. The amendment act also introduces an additional transitioning provision allowing in-scope importers to register by 31 March 2026 for FY 2026.

Moreover, the application of the EU Deforestation Regulation (EUDR) was postponed by another year to 30 December 2026 for larger operators and to 30 June 2027 for smaller operators. The EUDR has also been simplified: due diligence obligations have been streamlined by limiting the requirement to provide a due diligence statement to the operator that first places the commodity on the EU market. Downstream operators are only required to retain and pass on the statement’s reference number. Micro and small primary operators are permitted to submit a one-time simplified annual declaration,

At a national level, the draft amendment bill to the LkSG proposes eliminating administrative fines and liability for environmental violations in the value chain, whereas sanctions for serious human rights-related breaches as well as the failure to set up a grievance mechanism are retained. This development signals a shift toward a more lenient and targeted enforcement approach. However, existing statutory sanctions for environmental offences (eg, under the German Criminal Code, the Federal Environmental Protection Act or the Circular Economy Act) remain intact.

In Germany, the proposed reform of the LkSG aims to remove administrative fines and liability for minor due diligence breaches, concentrating enforcement on serious human rights violations.

The most significant change was the proposed downscaling of the LkSG. Following the federal election, the new CDU/CSU-SPD coalition announced that LkSG will be replaced by a law transposing the EU Corporate Sustainability Due Diligence Directive (CSDDD). Until the draft bill is adopted and takes effect (likely 2027–2028), existing LkSG obligations will not be sanctioned except for certain severe human rights violations, and annual reporting duties will be lifted. This move reflects strong political pressure to reduce bureaucracy and compliance costs for German companies.

At the EU level, the Omnibus package dominated the ESG agenda. After months of negotiations, it was adopted in mid-December. The new CSRD and CSDDD provisions provide for significant reductions in the scope of application and further delay implementation. The EU is thereby responding to concerns over regulatory burden and competitiveness and extending the transition periods.

The Federal Office for Economic Affairs and Export Control (BAFA) is the competent authority when it comes to the oversight of LKSG adherence. It can request information, conduct on-site inspections, issue orders, and impose administrative fines.

Following the CDU/CSU–SPD coalition agreement, the government intends to abolish the LkSG and replace it with an EU-aligned law transposing the Corporate Sustainability Due Diligence Directive (CSDDD); until then, reporting shall be discontinued and sanctions are to be limited to severe human rights violations. BAFA, as the competent authority, has stopped examining LkSG annual reports and adjusted its enforcement practice accordingly, pre-empting the legislative change. It was, nonetheless, instructed to amplify its communication activities, including the support of co-operation between companies (and by extension, with relevant stakeholders) as part of a more facilitative oversight approach. Other environmental authorities continue to exercise their usual regulatory responsibilities within their jurisdictions.

In the next two to five years, significant ESG pressure will affect multiple sectors, including financial services, heavy industry and energy, construction and real estate, automotive and electronics, food/forestry and retail, mining and raw materials, aviation/maritime logistics, textiles and packaging, water/waste utilities, and digital/tech.

The drivers vary:

• anti‑greenwashing rules and regulatory oversight for finance;
• ETS/CBAM and efficiency mandates for industry and energy;
• EPBD and national building laws for property;
• product‑life cycle and battery due diligence for manufacturing; and
• deforestation rules and green claims scrutiny for consumer chains.

Cutting across all sectors, CSRD/ESRS reporting and CSDDD/LkSG‑style due diligence demand thorough governance and supplier controls.

Geopolitical developments keep European policymakers focused on supply chain resilience and energy security, reshaping ESG governance from a disclosure exercise into a board-level risk management mandate. Additionally, the EU kept expanding its global human rights sanctions regime to include additional individuals and entities linked to abuses in Syria, Russia and Belarus, as well as other regions. These measures – asset freezes and travel bans – heighten compliance risks and require companies to strengthen human rights due diligence within their compliance frameworks.

Following the European Parliament elections and the formation of the new Commission, the EU’s sustainability agenda has pivoted toward streamlining rather than expanding obligations. This shift was catalysed by the 2024 Draghi competitiveness report – commissioned by President von der Leyen – which called for simplification of ESG regulation to preserve Europe’s competitiveness and reduce regulatory burden.

The Commission’s 2025 “Sustainability Omnibus” Packages consequently introduce postponements and scope reductions to core files (CSRD/CSDDD/Taxonomy), explicitly tying ESG policy to a competitiveness narrative and a “reduce bureaucracy” promise under the new term. These reforms reflect political pressure from member states and business groups facing weak growth and inflationary aftershocks, and acknowledge the fragmented politics of the new Parliament.

Germany’s 2025 CDU/CSU–SPD coalition agreement marked a decisive recalibration: the government announced plans to abolish the national Supply Chain Act (LkSG) and replace it with a law transposing CSDDD, with limited interim sanctions (only for severe human rights abuses). Politically, the move signals responsiveness to industry concerns over compliance costs and duplication, and alignment with the EU’s intent to simplify and harmonise common standards. For companies, this means reviewing contracts, revising due diligence governance, and preparing for an EU‑level enforcement logic.

US pushback on DEI has created a compliance gap with certain EU ESG rules. Executive Orders 14151 and 14173 (2025) ended DEI programmes in federal agencies and require contractors to certify non-discriminatory practices, making even voluntary diversity targets risky. Several US states have also banned mandatory DEI training and closed DEI offices.

This contrasts with EU laws (CSRD, CSDDD), which mandate diversity disclosures and double materiality assessments. Multinational companies now face opposing obligations: US policies seem to penalise certain DEI practices – eg, related to hiring or purchasing, while EU rules require diversity and inclusion efforts. Failure to comply with EU standards can lead to reputational and financial risks as investors demand ESG-aligned reporting. For German companies, US anti-discrimination laws and Executive Orders apply only in limited circumstances. It is also important to note that US equality principles do not override mandatory local laws, such as Germany’s 30% gender quota for supervisory boards of listed companies with equal co-determination.

Over the coming year the dominant legal developments centre on two pillars reshaping governance, disclosure and liability:

• the CSRD; and
• the CSDDD.

The CSRD (and ESRS implementing standards) expands double-materiality reporting, requiring comparable, audited non-financial statements integrated into management reports and affecting risk management, internal control and audit processes.

Simultaneously, the CSDDD embeds mandatory value-chain due diligence duties (human rights and environmental), elevating oversight expectations for boards and senior management.

In December 2025, the Omnibus reform introduced material adjustments to scope and thresholds (raising employee/turnover cut-offs and delaying timelines). Practically, this means corporate governance programmes will need strengthened compliance functions, clearer allocation of ESG responsibilities and remuneration and risk frameworks to ensure oversight and documented decisions on sustainability strategy.

Depending on the legislative context, there may be certain differences between listed and non-listed companies. Recent developments in sustainability reporting, however, show a trend towards harmonisation, focusing on the companies’ size rather than their listing status.

For instance, at the outset, the CSRD differentiated between listed and non-listed companies with listed companies being captured regardless of their size. With the Omnibus reform, requirements for listed and non-listed companies were harmonised by exempting smaller non-listed companies. With the latest amendment, CSRD obligations apply based on a size threshold (turnover exceeding EUR450 million and more than 1,000 employees for individual reporting), instead of the listing status.

Entities out of scope are encouraged to voluntarily adopt reporting standards, such as the Voluntary Standard for SMEs, the so-called VSME developed by the EFRAG (European Financial Reporting Advisory Group).

Regarding the CSDDD, there was and is no distinction between listed and unlisted entities. Instead, governance obligations apply based on a size threshold. With the latest amendment, the relevant size threshold was increased to a turnover exceeding EUR1.5 billion and 5,000 or more employees.

Besides, capital market regulations (transparency rules, shareholder rights, takeover law) impose additional governance duties on listed issuers (investor disclosure, market-sensitive ESG reporting, stewardship expectations) that do not apply to non-public firms.

National rules may add layers for both listed and non-listed entities, and typically differentiate based on their legal form.

ESG requirements significantly expand the role and responsibilities of directors and officers by transforming sustainability considerations into enforceable legal duties. Under German law, directors and boards already face personal liability for compliance failures that cause financial harm to the company. This now explicitly includes ESG-related obligations:

• Management boards of stock corporations must implement risk monitoring systems (Section 91(3) German Stock Corporation Act). The German Corporate Stabilisation and Restructuring Act extends this duty to all managing directors, requiring continuous monitoring of risks that could threaten the company’s existence. The Supply Chain Due Diligence Act adds obligations to minimise human rights violations and environmental risks.
• Courts have reinforced these duties – eg, the OLG Nuremberg decision (30 March 2022) holding a managing director liable for failing to establish an adequate compliance system. Recent enforcement trends show regulators increasingly scrutinising ESG governance.
• Directors can exempt themselves from liability under the business judgement rule only if they demonstrate decisions were made in the company’s best interests, based on adequate information and proper deliberation. For ESG, this means thorough documentation of how environmental and social factors were considered in decision-making and risk management.
• Directors must now ensure the company has adequate processes for CSRD reporting, due diligence across value chains (CSDDD), and for identifying, mitigating and monitoring ESG risks.

Practically, boards should:

• embed ESG into risk management and internal controls;
• allocate explicit responsibility (committees or named officers);
• oversee external assurance and disclosures; and
• consider ESG in remuneration and capital allocation.

Failure to integrate foreseeable ESG risks such as climate, human rights, or supply chain issues can be treated as governance failures by regulators, investors, or courts. In jurisdictions like Germany, non-compliance may lead to administrative fines, civil liability, and reputational damage. Proactive oversight and documented compliance programmes are therefore essential.

Germany and the EU do not have a single harmonised “social enterprise” corporate form; instead, a mix of established civil and corporate law vehicles are used.

In Germany, operators commonly use:

• eingetragener Verein (e.V.) (registered association) for membership-based non-profits;
• Stiftung (foundation) where an endowment model is required;
• gemeinnützige GmbH (gGmbH) (non-profit limited liability company) when commercial activity is paired with non-profit status; and
• co-operatives or regular GmbHs with tailored statutes or provisions that embed social purpose.

At EU level, the Social Economy Action Plan and accompanying guidance encourage member states to lower administrative barriers and support scaling, but they stop short of imposing an EU-wide corporate form: the Commission defines “social enterprises” by purpose (primacy of social objective, reinvestment rules), not by a single legal entity.

ESG law and market rules recalibrate the relationship between management and shareholders, particularly the fiduciary obligations incumbent on the management. The building blocks of appropriate corporate strategy as well as disclosure obligations increasingly include certain non-financial considerations and obligations. Mandatory reporting regimes (CSRD/ESRS) and investor–stewardship rules (SRD II and related guidance) enhance transparency about climate and human rights-related topics, enabling shareholders to engage and vote on ESG strategy with more complete information.

This does not eliminate directors’ primary statutory duties, but it reframes the “best interests” analysis: directors must identify and manage foreseeable ESG risks (financial and reputational) and document the decision-making process – failure to do so can attract regulatory scrutiny and activist litigation.

Institutional investors also face disclosure/engagement duties that push them toward active stewardship rather than short-term exit, strengthening dialogue channels (engagement policies, AGM votes, binding/consultative shareholder proposals depending on national law).

Contractually, ESG requirements increasingly appear in financing and shareholder agreements (reporting, transition targets, clawbacks), so shareholders and companies must negotiate concrete governance mechanisms (board ESG committees, named sustainability officers, KPI-linked remuneration) to reduce agency friction.

Across the EU and Germany, 2025 marked a shift from drafting rules to implementing and simplifying them. In November, the European Commission tabled the SFDR 2.0 proposal, focusing on three product categories (“Sustainable”, “Transition”, “ESG Basics”) alongside clearer disclosure and minimum portfolio thresholds – now awaiting co‑legislature negotiations.

On the corporate side, the EU Taxonomy was amended for further simplification: a mid‑year delegated act streamlined templates, introduced a 10% materiality threshold, and clarified so-called DNSH (Do No Significant Harm) criteria – changes that apply to 2026 reporting on FY2025.

The pending SFDR 2.0 negotiations are expected to define category tests and exclusions, with market application not before 2028 under the current timetable. ESG ratings supervision starts in July 2026, with authorisation windows for EU and third‑country providers through autumn 2026. The taxonomy simplifications take effect for FY2025, and together with the Omnibus package for the CSRD and CSDDD, collectively steer sustainable finance toward a simpler, more enforceable rulebook.

Entities raising or providing finance must map a multi-layered legal landscape:

• EU Taxonomy Regulation – for classifying environmentally sustainable activities and taxonomy-based disclosures;
• SFDR – disclosure obligations for financial market participants and advisers regarding how sustainability risks and principal adverse impacts are considered;
• CSRD/ESRS – corporate sustainability reporting that feeds into investor due diligence;
• ESMA/ESAs guidance and fund-naming rules – to avoid greenwashing in fund marketing; and
• national banking and prudential rules that may require ESG risk integration.

Access to sustainable finance has improved significantly but still encounters certain fragmentation.

Generally, the EU has created a layered infrastructure – Taxonomy, SFDR, CSRD and dedicated instruments (green bonds, sustainability-linked loans). Germany in particular, benefits from a highly developed banking sector, strong export finance capabilities and active green bond markets, making finance relatively accessible for creditworthy, well-prepared borrowers with clear transition plans.

However, barriers persist for smaller enterprises and many social-economy actors: compliance costs (reporting, assurance), lack of in-house ESG expertise, and rigid KPI/data requirements can pose significant hurdles for SMEs and social enterprises. Market fragmentation (different standards, evolving taxonomy scope) and ongoing concerns about greenwashing enforcement also raise transaction costs.

A just transition presents systemic tensions: capital reallocates toward low-carbon, transparent borrowers, creating risks of stranded assets (oil and gas, coal) and credit withdrawal from carbon-intensive regions.

“Old-economy” corporates face higher funding costs or risk market exclusion unless they can credibly demonstrate transition pathways; without public de-risking instruments, they could be forced into expensive transition finance or insolvency.

“Non-bankables” – small social enterprises, frontier SMEs, or companies in high-emission sectors lacking audited ESG data – may struggle to meet taxonomy/SFDR data demands and assurance costs, limiting their access to labelled finance.

Lastly, distributional risks include job losses, regional decline and weakened social objectives if capital shifts without social conditionalities such as reskilling or regional investments.

Supervisory fragmentation, measurement gaps, and litigation risk remain core challenges in sustainable finance.

Greenwashing is still the dominant concern: supervisory authorities are increasing respective thematic reviews and enforcement; fines and criminal investigations are possible where marketing diverges from actual product alignment. A related risk is “greenbleaching” (relabelling entire firms as green without aligning underlying activities) as companies adopt ESG branding while portfolios lag.

Meanwhile, “anti-ESG” political initiatives (laws or procurement rules disallowing ESG considerations) create legal uncertainty for asset managers and banks, even as EU investor stewardship and taxonomy frameworks still push in the opposite direction.

Liability exposure will likely grow. Misleading disclosures can trigger regulatory sanctions, civil or even criminal liability allegations as well as investor litigation; and directors who fail to integrate foreseeable ESG risks may face fiduciary breach allegations.

Practical challenges persist: aligning taxonomy, CSRD, SFDR, and national rules to avoid conflicting obligations and to ensure assurance processes are meaningful.

There has been a clear, gradual shift in Germany, driven primarily by EU-level action: from voluntary norms and supervisory guidance toward binding, enforceable requirements. What began as market‑led frameworks and best practice is increasingly embedded in legislation, assurance standards and supervisory practice.

In corporate reporting, the transition from narrative sustainability reports to mandatory and auditable disclosures has been decisive. The CSRD requires a sustainability statement within the management report, mandates the general use of European Sustainability Reporting Standards (ESRS), and introduces limited assurance standards, to be developed by July 2027 by the EU Commission. The planned phase-in of stricter reasonable assurance requirements has now been removed with the new CSRD Omnibus package alongside sector-specific ESRS. Voluntary standards remain relevant for out-of-scope companies.

In a similar vein, KPI reporting under the EU Taxonomy Regulation has introduced statutory datapoints such as KPIs on turnover, capital expenditure and operating expenditure. The December 2025 Omnibus reforms streamlined templates and included materiality thresholds while preserving the mandatory legal nature of taxonomy KPIs.

For financial products, supervisory “soft law” is increasingly taking on a binding character. ESMA’s Guidelines on funds’ names using ESG or sustainability‑related terms have been incorporated into national administrative practice. These guidelines set quantitative thresholds and exclusions as conditions for labelling and marketing financial products, such as an 80% threshold for the portfolio assets meeting sustainability objectives. In practice, these expectations are treated as de facto rules, reinforced by prospectus scrutiny and ongoing supervision by authorities such as the German BaFin.

Regarding supply chain due diligence obligations, Germany has been one of the frontrunners in the EU to codify guidelines into black letter law. The German Supply Chain Act (LkSG) established a comprehensive framework for corporate due diligence obligations back in 2023. EU-wide harmonisation followed with the Corporate Sustainability Due Diligence Directive (CSDDD), which was reformed recently with the Omnibus package. A central aspect of the reform is the narrower scope of application, now targeting only the biggest multinational corporations with over 5,000 employees and an annual turnover exceeding EUR1.5 billion.

In Germany, supply chain due diligence has shifted from voluntary practice to binding law, but the near‑term trajectory is mixed: national rules are being eased while an EU‑wide regime is set to replace them with a narrower scope and later start dates.

The Supply Chain Due Diligence Act (LkSG) requires in‑scope companies to implement risk management systems, conduct risk analyses, adopt preventive and remedial measures, and maintain a grievance mechanism across their own operations and suppliers. In September 2025, the federal cabinet proposed a draft amendment bill to remove annual reporting obligations and restrict fines to certain serious human rights violations. In practice, BAFA had already been instructed by the relevant German ministry to defer the enforcement of reporting requirements. Substantive due diligence duties remain in force.

The Corporate Sustainability Due Diligence Directive (CSDDD) establishes an obligation to identify, prevent and address adverse human rights and environmental impacts across chains of activities, including certain downstream links. Following the Omnibus reform, adopted in December 2025, the threshold for in-scope companies was raised to those with over 5,000 employees and an annual turnover exceeding EUR1.5 billion.

Further, the amended CSDDD reshapes the applied methodology toward a risk‑based “scoping” focus rather than comprehensive mapping and eliminates the requirement for climate transition plans. Lastly, the envisaged EU-harmonised civil liability regime was removed and penalties were capped at 3% of worldwide net turnover. The deadline for the national transposition has been postponed by one year, to July 2028.

What this means in practice:

• For certain large companies active in Germany, EU-level due diligence requirements will heighten expectations around managing salient risks across supply chains, supported by the prospect of administrative fines and penalties for infringements.
• For most companies, the immediate compliance load eases (national annual reporting obligations suspended/abolished; EU scope narrowed and delayed), but there could be indirect effects for suppliers where their customers are in scope. Contractual due diligence obligations aimed at implementing the LkSG standards are very relevant in practice, particularly when it comes to high‑risk geographies or commodities.

Companies (should) prioritise counterparties with transparent data, audit records, and remediation capacity. This can also mean shorter, deeper supplier lists (ie, fewer, better-documented partners), increased use of supplier scorecards, contractual ESG clauses (reporting, right-to-audit, termination for breaches), and procurement incentives for verified ESG compliance.

ESG is integral to M&A: material ESG risks affect valuation, warranties, indemnities, purchase price adjustments and completion mechanisms. Buyers perform ESG due diligence (regulatory exposure, legacy liabilities, climate alignment, labour issues), and sellers provide disclosures and reps.

Failure to uncover ESG liabilities can lead to post-closing disputes; conversely, positive ESG performance can be monetised in valuation. For private deals, the absence of public reporting increases the due diligence burden. Overall, ESG considerations materially influence pricing, deal allocation of risk and post-deal integration.

Distinctions by entity type:

• Companies Under the CSRD: Following the Omnibus reform, companies with more than 1,000 employees and a net turnover exceeding EUR450 million in the EU are covered by the revised CSRD. Pure financial holdings – ie, not involved in the business activities and management of their subsidiaries are exempted and non-EU reporting is limited to parent companies (i) generating more than EUR450 million net turnover in the EU and (ii) having established an EU subsidiary or branch with a net turnover exceeding EUR200 million. These entities must include a sustainability statement in the management report, prepared to European Sustainability Reporting Standards (ESRS).
• Financial Market Participants (FMPs): Asset managers, insurers and other FMPs are covered by the Sustainable Finance Disclosure Regulation (SFDR), which sets entity‑level and product‑level transparency duties. In 2025 the European Commission proposed SFDR amendments to simplify disclosures and introduce three voluntary product categories (“Sustainable”, “Transition”, “ESG Basics”); these proposals are not yet in force.
• Supply Chain Due Diligence: In Germany, the annual reporting obligation is set to be abolished by the recent Supply Chain Due Diligence Act (LkSG) amendment bill. Until the adoption, the supervisory authority (BAFA) has stopped reviewing annual reports as a pre-emptive measure and disabled the official platform where companies could upload their annual reports. The obligation to respond to authority inquiries remains.

For due diligence, the EU Corporate Sustainability Due Diligence Directive (CSDDD) originally envisaged large companies adopting climate transition plans. With the Omnibus reform in December 2025, the obligation to adopt and publish such climate transition plans was removed because the EU legislatures deemed the obligation a disproportionate administrative burden.

Germany’s LkSG does not require publishing transition plans or setting climate targets; in addition, in 2025, the cabinet proposed to remove annual reporting and to limit sanctions to severe cases, while core human rights due diligence remains. The adoption of the draft amendment bill is pending.

In consumer‑facing marketing, the EU Empowering Consumers Directive (EU) 2024/825 will ban misleading, unsubstantiated and irrelevant “green” marketing statements, and restrict “carbon‑neutral” claims based purely on offsetting; member states shall transpose the Directive into national law by September 2026.

The Commission’s proposed SFDR 2.0 provides three voluntary categories (“Sustainable”, “Transition”, “ESG Basics”) with 70% portfolio alignment and exclusions; only categorised products would be able to make sustainability claims in names/marketing (this is not yet law as legislative talks continue).

Product ecolabels such as the EU Ecolabel (EU‑wide) and Germany’s Blue Angel (Blauer Engel) are voluntary but regulated schemes with verified criteria and controlled use.

• BaFin (Federal Financial Supervisory Authority) oversees issuer transparency and financial reporting enforcement for listed companies (including sustainability information in the management report), supervises investment managers’ sustainability disclosures, and applies EU guidance on fund names and marketing that use ESG terms.
• BAFA (Federal Office for Economic Affairs and Export Control) oversees the enforcement of the LkSG, including companies’ human rights and environmental due diligence systems, complaints procedures, and related compliance activities.
• BfJ (Federal Office of Justice) runs the publication and late‑filing enforcement regime for statutory reports; sustainability statements prepared under company law are filed and sanctioned for non‑submission via this channel.
• Consumer Protection Enforcement Under the UWG (Act Against Unfair Competition): Misleading environmental or sustainability marketing claims are pursued primarily through civil enforcement before the courts by competitors and qualified associations; public consumer protection authorities of the Länder also act within their remit.
• ESMA (EU-Level) and BaFin (Bational Application): ESMA issues EU‑wide rules relevant to sustainability marketing by funds and directly supervises ESG ratings providers; BaFin applies and enforces these in Germany where they affect market participants.

For mandatory disclosures, the CSRD requires member states to set effective, proportionate and dissuasive sanctions; Germany’s proposed transposition relies on existing company‑reporting enforcement under the Commercial Code, with non-compliance being considered administrative offences.

Overall, the penalty spectrum ranges from administrative fines and publication or marketing restrictions, through civil remedies, to criminal proceedings in egregious cases – eg, fraud. Relevant aspects to determine the non-compliance risks include the relevant statute (company‑law filing, consumer advertising, securities/funds), the intent and impact of the breach, and whether conduct is repeated or persistent, or quickly remediated.

It is difficult to forecast a linear path for ESG reporting. After the Stop-the-Clock Directive in April 2025, the recent Omnibus package in December 2025 further delayed reporting obligations. Under the amended CSRD, the previous reporting deadlines were delayed for two years – ie, until 2028 for the second wave and 2029 or 2030 for the third and fourth wave (depending on possible opt-out options).

In light of the pending national transposition, and potential further adjustment to ensure interoperability between the ESRS, Taxonomy, SFDR and other frameworks, it is crucial for affected companies to proactively prepare for and monitor evolving reporting requirements.

German companies are repeatedly held liable in proceedings before German civil courts, in particular in cases relating to climate change damages or requests to cease and desist from climate-damaging behaviour.

NGOs such as Deutsche Umwelthilfe (DUH), Greenpeace and Bund für Umwelt und Naturschutz Deutschland (BUND) are important parties to consider in ESG-related cases against the government or corporations. NGOs are particularly active in demanding corporate climate action and often challenge alleged greenwashing claims. NGOs file lawsuits strategically because ESG-related cases receive substantial media coverage in Germany.

There have been several greenwashing claims brought by both NGOs and regulatory bodies in Germany, targeting misleading ESG claims in finance, transportation and consumer products. The claims are mostly based on the German Unfair Competition Act (UWG). German courts regularly decide in favour of the NGOs and demand concrete statements from the companies rather than vague or unsubstantiated “green statements” made on websites or product packaging.

Due to successful litigation against greenwashing, German companies are increasingly cautious when it comes to marketing their sustainability efforts.

The number of ESG-related proceedings will increase significantly in the future. Pending court proceedings show that companies are facing multiple challenges. Since ESG-related lawsuits receive substantial media coverage in Germany, NGOs may use uncertainties to their benefit and pursue claims against companies, alleging misconduct and calling for them to enhance their ESG efforts.