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08.01.2024 | KPMG Law Insights

These legislative changes will affect companies in 2024

New developments mainly concern the major topics of ESG and digitalisation.

Legislation usually follows economic and social developments and trends. This is also reflected in the new legislation for 2024. Two topics were on the agenda of German and European parliaments: the fight against climate change and digitalisation. A number of new legal regulations have been introduced. In addition to sustainability reporting, these also include additional requirements for product compliance and a legal framework for dealing with AI. Companies are facing several new responsibilities. What makes the challenge even greater: The new legislation includes substantial fines in some cases in the event of non-compliance.

Here is an overview of important changes that companies need to be aware of in the new year.

From 2024, the first companies will have to report in compliance with the CSRD

Companies must report on sustainability for the first time for the 2024 reporting year. This is set out in the Corporate Sustainability Reporting Directive (CSRD). From 1 January 2024, public-interest entities with more than 500 employees and that are already subject to non-financial reporting requirements will have to collect data. The reporting requirements cover environmental, social and governance issues.

However, the CSRD also entails a serious risk of liability. Companies should therefore examine the CSRD carefully and at an early stage.

The GEG includes rules for new heating systems and defines requirements for existing buildings

After a long debate, the German Buildings Energy Act (GEG [Gebäudeenergiegesetz]) came into force on 1 January 2024. The “Heating Act”, as the GEG is also known, stipulates that new heating systems must be powered by at least 65% renewable energy and new buildings must be energy efficient. The law also defines a number of requirements for existing buildings. For example, buildings must be adequately insulated. A building automation system may be required for non-residential buildings. The GEG also contains inspection and optimisation requirements for existing heating systems.

Further elements of the European digital strategy have come into force

On 8 December 2023, the European Parliament and member states agreed on a preliminary version of the AI Act. The AI Act is the first law to regulate artificial intelligence (AI) and divides AI into three risk categories. Different requirements apply depending on the risk category. To avoid the high fines imposed by the AI Act, companies should evaluate their AI applications, integrate them into a governance structure and establish an AI risk management system.

The EU Data Act was finally adopted on 27 November 2023. It is intended to improve access to data and ensure its fair use. The law will come into force shortly, but will not apply until 20 months after this date. Companies should use this time to implement the requirements of the Data Act. In some cases, long-term and extensive process adjustments will be necessary.

The Digital Services Act (DSA) is already in force. Providers of digital services have until 24 February 2024 to implement the requirements. The DSA primarily provides for information and transparency requirements that online intermediaries and platforms must comply with to varying degrees if they offer services in the EU. These include, for example, online marketplaces, social networks, content sharing platforms, app stores and search engines.

The MoPeG fundamentally reforms the law governing partnerships

The German Act on the Modernization of Partnership Law (MoPeG), which comes into force on 1 January 2024, is probably the biggest reform that partnership law has ever seen. Important legal modifications include:

  • German civil law partnerships (GbRs) that own real estate or wish to acquire real estate in the future must be entered into a new company register in future. The same applies if the GbR wishes to acquire or change other rights that must be entered in the land registry
  • Limited partners receive inalienable statutory rights to information
  • Partnerships can relocate their administrative headquarters abroad with legal certainty
  • The law on defective resolutions for commercial partnerships is regulated by law for the first time. Arbitration agreements in partnership agreements of commercial partnerships must now meet stricter requirements. Otherwise, existing arbitration agreements may be invalid in future.

Companies should review their partnership agreements to see whether they need to be adapted.

The Future Financing Act aims to facilitate access to the capital market

In November 2023, the German federal parliament and German federal council passed the Act on the Financing of Investments to Safeguard the Future (Financing for the Future Act [Zukunftsfinanzierungsgesetz (ZuFinG)]). The act is intended to make it easier for start-ups, high-growth companies and small and medium-sized enterprises (SMEs) to access the capital market and promote investments in renewable energies. Among other things, employee share ownership is to be facilitated through a significantly higher tax allowance.

In addition, companies will be able to go public in future with just a minimum market capital of one million euros. An underwriter will no longer be required for this.

In future, registered shares can be issued both as central register securities and as crypto securities.

The ZuFinG allows companies to issue multiple voting shares and is intended to facilitate the raising of equity.

New requirements for product compliance

The EU’s new General Product Safety Regulation (GPSR) has been in force since June 2023 and will be effective from 13 December 2024. It is intended to ensure that only safe products continue to be placed on the market in the EU. The main reasons for the renewal of product safety regulations are advancing digitalization and changing business models.

From 28 February 2024, the new EU Battery Regulation will apply. According to the regulation, batteries should only contain a minimum of harmful substances and have a low carbon footprint. Manufacturers of batteries in particular have a lot to consider: maximum levels for toxic components, labelling requirements, carbon thresholds, a minimum percentage of recycled material and the obligation to issue a battery passport will apply, are just a few.

The German federal government is fighting environmental pollution caused by plastic waste with the Single-Use Plastics Fund Act: In future, a charge will be levied on certain single-use products containing plastic. This affects, for example, tobacco products with plastic filters, drinks containers and to-go food containers. Local authorities can use the proceeds to offset their costs for cleaning and disposing of single-use plastic waste in public spaces.

The EU wants to counter the disposal of new products with the planned Ecodesign for Sustainable Products Regulation. On 5 December 2023, the EU Council and Parliament reached a provisional agreement on a body of text for the regulation. The aim: products should be produced in such a way that they are more durable. In addition, new textiles and shoes may no longer be destroyed. The regulation is likely to be adopted in the course of 2024.

Further due diligence obligations for supply chains

Corporate responsibility for supply chains has been given a new component: In future, certain raw materials and manufactured products must be free from the processes of deforestation and forest degradation if they are to be placed on the European market. This is set out for in the new EU Regulation on deforestation-free products. This affects soy, oil palm, cattle, coffee, cocoa, rubber and wood, as well as certain specifically named products manufactured from these. The Regulation was published in the Official Journal of the European Union in June 2023, but will not apply until 30 December 2024, by which time producers and retailers must be able to guarantee that their products are deforestation-free.

From 1 January 2024, more companies will have to comply with the German Supply Chain Due Diligence Act: From this date, companies with 1000 employees or more will also be covered by the act.

A provisional political agreement on an EU Directive on corporate due diligence in supply chains was reached on 14 December 2023. The draft for the CSDDD (Corporate Sustainability Due Diligence Directive) stipulates that smaller companies are also obliged to comply with human rights and environmental protection along their supply chains.

Changes in labour law 

In its “time clock ruling” back in 2019, the ECJ ordered national legislators to oblige employers to introduce time recording systems. The German Working Hours Act currently only stipulates that working hours in excess of standard amounts must be recorded and an agreement on a new act on recording the time worked is still a long time coming. There is, however, one glimmer of hope: Trust-based working hours will probably continue to exist. At least that is the intention as declared in the German government’s coalition agreement.

Companies need to take note that the scope of application of the German Whistleblower Protection Act is being extended: As of 1 January 2024, smaller companies with 50 or more employees are also required to set up a whistleblower system.

CSRD will be another task for HR and labour law. This is because sustainability reporting not only includes information on environmental issues, but also a great deal of information on employees.

In addition, the minimum wage will be increased from 12.00 euro to 12.41 euro on 1 January 2024.

Other new developments

Since 12 October 2023, companies that have received contributions from third countries must notify the European Commission of these contributions as part of M&A transactions and major procurement procedures. The EU Foreign Subsidy Regulation (FSR) is intended to ensure free competition on the European single market.

Caution with sector investigations: Since 7 November 2023, even law-abiding companies may face the intervention of the German Federal Cartel Office if an investigation reveals a distortion of competition as presented in the 11th amendment to the German Act against Restraints of Competition [Gesetzes gegen Wettbewerbsbeschränkungen (GWB)].

On 14 December, EU states agreed on a further package of sanctions against Russia. Among other things, it provides for a ban on imports of diamonds and a tightening of the price cap for Russian oil exports to third countries.

In November 2023, the German federal parliament and German federal council agreed a resolution to amend the Lobbying Register Act. The lobbying register is intended to make transparent the influence of representatives of special interests on political decision-making processes. The obligation to be entered in the lobbying register has now been expanded.

Some good news: Court proceedings could soon be faster and more efficient thanks to the increased use of video conferencing technology. At the end of November 2023, the German Federal Ministry of Justice published a draft law to this effect.

It remains to be seen to what extent the new legislation will actually contribute to achieving major goals such as digitalisation and combating climate change. In any case, the numerous new obligations will keep companies on their toes in 2024.

 

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