GERMANY: New German Corporate Governance Code

Sept 2, 2022 Benn-Ibler Rechtsanwälte

The new German Corporate Governance Code (Deutscher Corporate Governance Kodex, DCGK) 2022 came into force on 27 June 2022. In its current version, the code incorporates, among other things, the German Financial Market Integrity Strengthening Act (Gesetz zur Stärkung der Finanzmarktintegrität, FISG), as well as principles and recommendations on taking environmental and social sustainability into account when managing and supervising publicly listed companies.

According to the preamble, corporate governance is the legal and factual framework for management and supervisory bodies of publicly listed companies. The code contains principles, recommendations, and suggestions for executive and supervisory boards, which are intended to help ensure that companies are managed in the best interests of these companies. In accordance with social market-economy principles, and taking into account the interests of shareholders and employees, management and supervisory boards must ensure the continued existence of companies along with sustainable value creation. As a set of rules, the DCGK contains so-called ‘soft’ regulations. The principles and recommendations set forth and standardised in the code are therefore not legally binding. However, Section 161 of the German Stock Corporation Act (Aktiengesetz) legally requires management and supervisory boards of publicly listed companies to provide an annual statement that these recommendations have been and are being complied with, or which recommendations have not been applied, and the reasons for this.

The amendments to the 2022 Code focus especially on principles and recommendations for the incorporation of environmental and social sustainability into the management of publicly listed companies as well as on the adaptation to the amendments to the German Stock Corporation Act arising from the Financial Market Integrity Strengthening Act and the Second Leadership Principles Act (Führungspositionen-Gesetz, FüPoG II).

According to Recommendation A.1, management should systematically identify and assess the risks and opportunities for their company as pertaining to social and environmental factors, as well as the environmental and social impacts of the company's activities.

Recommendation A.3 clarifies that corporate risk management systems should also include sustainability objectives.

In addition, the updated DCGK incorporates the amendments to the FISG, i.e., the newly established duties of a company to create an internal control and risk management system.

Explanatory Statement by the Government Commission on the Amendment to the German Corporate Governance Code