Consultation on BaFin’s guidelines for German ESG funds

On 2 August 2021, the German Federal Financial Supervisory Authority (BaFin) published a consultation paper seeking views on its draft guidelines for sustainable funds (Guidelines). The consultation paper is available in German only.

The Guidelines set forth the requirements for the structuring of investment conditions of sustainable German retail funds (Publikumsinvestmentvermögen) to counteract “greenwashing”. The BaFin does, however, not intend that requirements stipulated in the SFDR and the Taxonomy Regulation will be affected by the Guidelines. The Guidelines are not applicable to non-German funds which are registered for distribution in Germany.

The primary feature of the Guidelines is as follows: Investment conditions of sustainable German retail funds will only be approved by the BaFin if the investment conditions of the respective fund contain certain information. More specifically:

1. The investment restrictions stipulate that at least 75 % of the fund’s investments are invested in sustainable assets (nachhaltige Vermögensgegenstände) – in order to determine a sustainable investment, the requirements set forth in Art. 2(17) SFDR shall be taken into account;

2. the investment conditions stipulate that sustainability aspects/factors are of decisive importance in the selection of assets for at least 75 % of the fund’s investments – it shall be ensured that none of the environmental and social objectives referred to in Art. 2(17) SFDR or in Art. 9 Taxonomy Regulation are significantly harmed; or

3. the investment conditions contain, where a sustainable index is tracked as part of a passive investment strategy, a detailed explanation of the sustainability character of the respective index – by the composition of the index, it shall be ensured that none of the environmental and social objectives referred to in Art. 2(17) SFDR or in Art. 9 Taxonomy Regulation are significantly harmed.

The requirements set forth in the Guidelines shall not apply to German retail funds whose investment conditions have already been approved by the BaFin at the time of publication of the consultation paper.

The consultation period ends on 6 September 2021. Prior to the public consultation, certain stakeholders, including industry associations, were asked to provide feedback. It is expected that the BaFin will publish a final version of the guidelines in November 2021. The full impact of the Guidelines, including the interaction with other ESG regulations at a European level, cannot be assessed until the final version of the Guidelines is issued by the BaFin. However, it is anticipated that the Guidelines may impose a competitive disadvantage for Germany as a location of domiciliation of funds.

Simmons & Simmons is closely monitoring the legal developments on ESG at a European and national level. For more information, please visit our microsite on Sustainable Finance and ESG Investment.