GERMANY Trends and Developments Contributed by: Christoph Nolden, Nicolas Ott, Stefan Mendelin and Thomas Glaser, SZA Schilling, Zutt & Anschütz
ESG activism is now intertwined with fiduciary duty. Boards are targeted that ignoring climate-related shareholder proposals could expose them to liability under directors’ duty of care. European pension funds are increasingly voting against directors at companies without Paris-aligned targets. Several German com- panies in the automotive and energy sectors faced co-ordinated campaigns demanding more aggressive Scope 3 emissions reductions. These campaigns are no longer limited to NGOs; mainstream asset manag- ers are joining, which increases the pressure on super- visory boards. Climate litigation risk is now a board- level issue for German corporates. Cases against energy producers illustrate how NGOs and investors use courts as a “new front” in activism to enforce cli- mate goals. However, following the US development, it is expected that companies will face competing pressures from shareholder proposals both for and against ESG topics. Defence Sector On 5 March 2025, the European Commission pub- lished a Commission Notice (C (2025) 3800/3) clarify- ing the application of its sustainability regulation to the defence sector. This represents a significant regu- latory milestone, as it directly addresses one of the most pressing questions areas in sustainable finance: whether defence-related investments can be deemed compatible with Environmental, Social and Govern- ance (ESG) standards and the EU Taxonomy for Sus- tainable Activities. Over the past two years, the investment landscape has shifted considerably. European ESG funds dou- bled their defence exposure between 2023 and 2024, a trend largely driven by a reassessment of the defini- tion of sustainability in light of geopolitical tensions, national security considerations, and the EU’s stra- tegic autonomy agenda. Investors increasingly rec- ognise that defence, traditionally excluded from ESG portfolios, can in certain contexts contribute positively to the “S” (social) and “G” (governance) dimensions, particularly by safeguarding democratic values, ensur- ing civilian protection and maintaining international stability. The Commission Notice underlines that investments in defence companies are not automatically exclud-
ed from sustainable finance frameworks. Instead, compatibility must be assessed case by case, with emphasis on the following. • Compliance with international law and humanitar- ian standards – Companies must demonstrate that their products and operations do not breach inter- national humanitarian law, human rights obligations or arms embargoes. • Governance safeguards – Robust due diligence, transparency and corruption-prevention mecha- nisms are required to qualify for ESG considera- tion. • Taxonomy alignment – While the EU Taxonomy was initially conceived with environmental objectives at its core, the Notice clarifies that certain defence activities can be indirectly taxonomy-aligned if they demonstrably support peace, resilience, and the security framework necessary for sustainable economic activity. This evolving regulatory approach reflects a broader paradigm shift in sustainable finance. Where ESG frameworks once largely excluded defence on ethical grounds, the current debate recognises the sector’s role in ensuring the preconditions for sustainability. Going forward, the Commission’s clarification is expected to accelerate capital flows into the European defence sector, while simultaneously prompting asset managers to refine their ESG screening methodolo- gies. It also sets the stage for ongoing discussions about “sustainable security”, where investments are judged not only by their environmental footprint but also by their contribution to peace, stability and resil- ience in the face of emerging global threats. Virtual-Only AGMs: Shareholder Pushback In early 2025, resistance grew against purely virtual annual general meetings (AGMs). Groups such as Shareholders for Change, representing more than EUR350 billion in assets, argued that virtual-only for- mats weaken shareholder engagement. The share- holders of Siemens rejected approval to a virtual-only AGM format with 71% of the votes, failing to reach the required 75% threshold. TUI faced similar resistance, with shareholders insisting that hybrid formats bet- ter protect engagement rights. Investors increasingly
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