GERMANY: BaFin Starts Consultation on its Guidelines on Sustainable Investment Funds

Thursday August 12 2021

The Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin) has published  draft for its Guidelines on sustainability-oriented investment funds (only available in German). The draft sets out requirements that asset management companies will be obliged to meet in future when setting up retail investment funds labelled as sustainable or marketed explicitly as sustainable. They have three options to choose from: minimum investment ratio, sustainable investment strategy or sustainable index. The fund industry has until 6 September 2021 to comment on BaFin’s plans.

The minimum investment ratio in sustainable assets set out in the draft is 75 percent. These assets must contribute substantially to achieving environmental or social goals. Maximum limits will also apply, such as a maximum of ten percent on energy generation from fossil fuels or fossil fuels used in other ways. Alternatively, funds may also pursue a sustainable investment strategy, for instance using a best-in-class approach. In this case, assets offering the best prospects from a sustainability perspective are chosen from an investment universe or given a stronger weighting in the portfolio. Finally, a sustainable investment fund can also be designed to track a sustainable index.

Other than this, BaFin closely monitors and supports the ongoing work on the topic of sustainability at national and international level. Examples are the sustainability “traffic light” labels of the German Sustainable Finance Strategy or the consultation report of the International Organization of Securities Commissions (IOSCO) on the Recommendations on Sustainability-Related Practices, Policies, Procedures and Disclosure. The BaFin Guidelines now submitted for public consultation supplements the existing European regulations. The EU Disclosure Regulation and Taxonomy Regulation specify the disclosure requirements which asset management companies must observe at company and product level but do not define how the fund rules of a retail fund must be structured. The abbreviation ESG stands for environmental, social and governance.

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