Increasing regulatory requirements and external stakeholder expectations are raising the pressure on companies to examine their ESG strategies comprehensively at every level, to refine them, and even to formulate one from scratch. In light of this, it is not surprising that demands have been voiced internationally for some time that the general meetings of listed companies should also be involved in the relevant deliberations. But what factors and underlying conditions have to be considered under applicable German law regarding general meeting resolutions, currently referred to using the catchphrase 'say-on-climate'?
To date, no say-on-climate resolutions are known to have been passed in Germany by the general meetings of German listed companies. On the contrary, sustainability issues have traditionally been of minor importance at general meetings. One possible reason for this historic reluctance might be the strict rules imposed by the German Stock Corporation Act: it assigns primary responsibility for deciding on a company's strategic direction – within the limits set down by its articles of association – to the executive board, which is advised and monitored by the supervisory board in taking those decisions. Special scenarios in which the general meeting should handle questions of corporate management are few and very specific, such as the conclusion of certain enterprise agreements or the approval of transformation measures.
Exceptions to this general rule are possible if the executive board decides that it wants to submit certain questions of corporate management to the general meeting for approval. If the executive board makes the request, it is possible, in principle, to have the general meeting adopt a resolution on the company's climate strategy – or even on its sustainability strategy as a whole. Details are still unclear, however, as to the legal and factual consequences of such a resolution by the general meeting. In the particular circumstance where the executive board is pursuing an ambitious sustainability strategy at the expense of the company's profitability, having the general meeting pass a resolution can reduce the risk of personal liability to the executive board members and, indirectly, to the supervisory board members.
Conversely, a low-key climate action plan can, of course, be 'ratified' in this way by the general meeting, and any ambitions to go beyond it could thereby be curbed long term. Logically, presenting a resolution to the general meeting only as an 'act of consultation' should not result in the executive board later being bound by every detail of that approved strategy. Rather, the executive board must retain the flexibility to adapt the company's goals and strategies to changing situations throughout the year without needing to have an additional resolution passed (if necessary, in coordination with the supervisory board), and to even disregard the originally approved strategy. The question as to whether such flexibility is in fact possible once a resolution has been passed has not yet been clarified in every aspect.
Where the executive board chooses not to put say-on-climate items on the agenda, there is currently no refined system under German stock corporation law that would permit shareholders to have such items put on the agenda. The prevailing view of legal literature is that the general meeting cannot be forced to pass a resolution - for example, by way of a formal request for additions to the agenda. Alternative approaches – possibly in the form of additional requests aimed at amending the company's articles of association (in order to add certain sustainability targets to the company object, for example) or the directors' and officers' remuneration system (with sustainability targets) – are comparatively 'invasive' by nature and will in most cases fail to achieve the intended aim of a jointly approved strategy. Likewise, refusing to approve the board members' acts because the company's climate strategy is not submitted to the general meeting will most likely fail to have the desired effect.
According to current opinion, the only option that shareholders essentially have at present to make ESG issues part of the general debate is by submitting questions for discussion at the general meeting, without being able to force the meeting to resolve on a particular matter.
ESG and all of its aspects will continue to have a decisive influence on German stock corporation law and the corporate governance of German listed companies, leading to perceptible changes sooner or later. It already seems foreseeable, and should in principle be welcomed, that in Germany, resolutions on the ESG strategy – or more specifically the climate strategy – of companies will also appear on the agendas of their general meetings. If it is possible to achieve broad approval for a specific ESG strategy through corresponding resolutions, this can provide relief for the executive board (and indirectly also for the supervisory board) and at the same time send a clear signal to third parties that certain goals are part of the stated corporate strategy.
