German election: what a Merz-led coalition will mean for impact companies

The CDU-CSU political group, led by German political veteran Friedrich Merz, came first in Sunday’s elections in Germany, reaching just under 30% with an agenda that largely focussed on migration, security and the economy.

The far-right AfD party also recorded its strongest result, coming in second with just over 20%, with the formerly-reigning Social Democrats (SPD) trailing in third with around 16%. Having ruled out working with the AfD, the CDU is likely to seek a coalition with the SPD in order to form a government.

The main priorities for the new CDU-led coalition will be the issues that dominated the election. But the CDU election manifesto, as well as Merz’s political alliances in Europe, offer some insights into what his Chancellorship might mean for climate and energy policy – and how that could affect impact-focussed businesses.

In summary (or kurzgesagt as the Germans say), it’s not the most optimistic outlook, but it's not all bleak either.

Economic stability comes first

The CDU is widely seen as the German business community’s preferred party, as they offer the continuity and stability of a party long-experienced in government. The conservative promise of a stable regulatory environment, however, heralds an attendant conservativism on climate policy.

While the CDU and Merz accept the need to pursue net-zero, they are far more concerned with economic stability and therefore unwilling to accept anything approaching radical on energy and climate policy.

Case in point, the CDU and its political family in the EU parliamentary bloc the European People’s Party are broadly against the EU’s plans for expanding corporate sustainability reporting, emissions standards and other climate requirements, arguing they place too much burden on business.

Merz, known to be very close to the business and finance worlds, has also taken aim at domestic regulations on chemicals, renewable energy and carbon standards, and his fiscal hawkishness makes it hard to imagine any increase in public sector investment for the green transition.

Reasons to be (somewhat) cheerful

On the other hand, commentary from people close to Merz across the German media indicate he has an appreciation for how green technologies may be used to maintain Germany’s position as an industrial leader. He has also in the past signalled an interest in emissions-capture as a sector that German industry could make use of.

Aside from anything else, Merz is nothing if not committed to maintaining a stable playing field for German business, meaning he is unlikely to tear up the climate regulations already committed to under the previous coalition.

Looking beyond Merz himself and more closely at other CDU party members reveals some further reason for optimism, says Magnus Drewelies, CEO of carbon management platform CEEZER and founding member of the German Association for Negative Emissions, the country's largest carbon-removal industry body.

Speaking to Impact Loop, Drewelies, who is familiar with the focus of many of the CDU's representatives, says there is continued enthusiasm among some in the party for particularly market-based carbon removal and storage innovation. This enthusiasm is not incompatible with Merz's agenda.

"I would assume that, in alignment with the general push from Merz to revitalise the economy, a market-based approach to climate change mitigation and prevention would be very well fitting," says Drewelies.

A lot of course will depend on the make-up of the coalition, and to what extent CDU representatives will have the ear of the new chancellor. While measured, Drewelies says he still sees potential for climate-friendly investment and infrastructure build-up under the new regime. He also cautions, however, that if Merz starts to try and move back German's climate timelines, that might dampen investor enthusiasm, at a time when ambitious funding amounts are needed.

All told, the picture of a Merz-led coalition is a mixed one. The next German government will largely be bound to stick to current climate targets, and is unlikely to get in the way of the investments in renewables and climate tech that could keep Germany on top of the industrial ladder.

On the other hand, what Friedrich Merz clearly lacks is a vision for – or indeed much obvious interest in – the green transition. Under his stewardship, and considering all the other issues which are likely to take up a lot of his time, one ought not to expect too much climate momentum in Germany for the time being.