Why German business shouldn’t fear a greener government

Should Germany’s Green party score a big enough share of the vote in a federal election on 26 September to enter the next coalition government, business should embrace the opportunity to accelerate a shift to sustainable business models, argue IMD professors Patrick Reinmoeller and Karl Schmedders.

Long ignored by German industry, which feared being throttled by regulation, Germany’s Green party has a strong chance of playing a role in the next coalition government with opinion polls predicting they will secure between 15% and 17% of the vote, up from around 8% four years ago. 

Devastating floods in Germany this summer have heightened concerns about the impact of climate change and piled pressure on companies and politicians to do more to try to limit the impact of global warming. 

Following a successful challenge by a group of young climate activists, Germany’s top court ruled in late April that the government must overhaul its climate laws by the end of next year to set out how it will cut emissions to almost zero by 2050. Ironing out the details of this plan will be on the to-do list of the next government. 

The Greens have put forward an ambitious manifesto. They want to achieve greenhouse gas neutrality in 20 years through a massive expansion of renewables and by phasing out coal-fired power stations and combustion engines by 2030. Annalena Baerbock, the Greens’ candidate for chancellor, has framed this as a “pact with industry” and an opportunity for politics and business to collaborate on the road towards climate neutrality. 

So how should German industry approach a government in which the Greens may form a part? 

Embrace the opportunity to be at the forefront of sustainable innovation 

Patrick Reinmoeller, Professor of Strategy and Innovation at IMD, said it had been a mistake for industry to ignore the Green party for so long, as they had missed out on the chance to capitalize on sustainability sooner. 

“Seizing that opportunity earlier would not have led to the rise of Tesla,” he said, noting that the Tesla model 3 was the third best-selling mid-size car in the world in the first half of 2021, according to market intelligence company Focus2move.com. 

While the pledge to phase out combustion engines by 2030 is ambitious, Daimler, the inventor of the modern motor car, already announced plans in July to spend more than 40 billion euros (46 billion USD) on electrification, with Chief Executive Ola Källenius saying the luxury carmaker wants to be dominantly, if not completely, all electric by the end of the decade. 

Likewise, German utility RWE, which used to rely heavily on nuclear and coal, issued a 500 million euro green bond in June 2021 to fund wind and solar expansion. Chief Executive Markus Krebber has called for the new federal government to speed up the shift to renewable energy by increasing targets. 

Reinmoeller said it was right for industry to view tougher targets as an impetus for phasing out old technology. “COVID and a renewed sensitivity of our dependence on the natural environment is forcing a change on companies,” he said. 

Moreover, business might be able to use any policies that emerge from a partly Green government as an excuse to pass on the higher costs of transformation to customers, he said. 

Even the Greens’ call to end industrial livestock farming in the next 20 years could offer a huge opportunity for German farmers. While they may have to endure some short-term pain, in the long run they will have a first-mover advantage in sustainable farming. 

“I think it’s an opportunity to take on the challenge and do something earlier than others,” he said.