Regulatory body, Bafin, is devising measures to combat greenwashing practices.
The Federal Financial Supervisory Authority (BaFin) has published a draft guideline for sustainable investment funds, aiming to protect investors from potential greenwashing and align German sustainable investment products with international best practices.
According to the draft, a minimum quota of 51% of the fund’s investments must be in sustainable assets for it to qualify as a sustainable investment fund. Acceptable variants include investments in green bonds, real assets, ELTIFs, AIFs, and other investment vehicles that comply with sustainability principles.
To enhance transparency and comparability in sustainable investments, the guideline incorporates a traffic light system from the German Sustainable Finance Strategy. This system classifies investments by their sustainability performance, using colours (green, yellow, red) to indicate the degree of sustainability or risk associated with the assets.
The guideline also aligns with recommendations from the International Organization of Securities Commissions (IOSCO) to enhance disclosure and investor protection in sustainable finance products. IOSCO’s guidance emphasizes clear communication on sustainability factors, minimum sustainability thresholds, and risk management approaches.
Investment funds can be created through various means, including the replication of a sustainable index. The fund industry can choose from three variants: minimum investment quota, sustainable investment strategy, or sustainable index replication.
The minimum investment quota in sustainable assets for investment funds is increased to 75 percent, and sustainable assets must contribute significantly to environmental or social goals. There are upper limits for investments in fossil fuels, with a maximum of 10 percent. In the future, investment funds will only be able to be marketed if the investment conditions provide for either a minimum investment quota in sustainable assets, a sustainable investment strategy, or the replication of a sustainable index.
Thorsten Poetzsch, Bafin’s Executive Director, heads the securities supervision/asset management department at Bafin. He emphasizes that Bafin is closely monitoring the development of sustainability practices in the fund industry and is following and supporting ongoing work on sustainability at the national and international levels.
The fund industry has until September 6 to comment on Bafin's plans for the guideline. The draft guideline supplements the existing European requirements but does not replace the disclosure and taxonomy regulation. BaFin’s stringent middle ground between ambitious sustainability targets and practical investment flexibility aligns with the general framework seen in EU sustainable finance regulations.
[1] This aligns with the general framework seen in EU sustainable finance regulations, although specific percentages and modalities may vary slightly with ongoing consultation processes and finalization of BaFin’s rules.
- Other investment vehicles that comply with sustainability principles, such as those in environmental-science or business, can potentially be considered acceptable variants for sustainable investment funds under the new draft guideline from BaFin.
- The stringent middle ground between ambitious sustainability targets and practical investment flexibility in BaFin's draft guideline for sustainable investment funds mirrors the general framework seen in EU sustainable finance regulations, though specific percentages and modalities may still be subject to changes during the consultation process and finalization of the rules.
