Dr Pötzsch, are German retail funds really green?

We are very strict with new retail funds that have sustainability-related names or are explicitly marketed as sustainable. We only grant them authorisation if the investment ratio in sustainable assets is at least 75 percent. Or if they follow an investment strategy that is at least 75 percent sustainability-focused. This is a topic we are taking very seriously, and one we’ve also been supporting and following very closely at European level. ESMA¹ is currently developing guidelines on fund names, and we’re actively involved in the process.

But this is about more than just names. What are the other important factors?

We need lasting transparency. We have binding rules on this in Europe. Anyone marketing a product with environmental or social characteristics or promising a sustainable investment is required to regularly disclose certain information. For example, issuers must transparently disclose the extent to which their sustainability objectives were achieved. Ultimately, it’s clear: we cannot accept greenwashing. A product may not be marketed as more sustainable than it actually is. And this goes beyond protecting individual investors. Greenwashing is a risk for the transformation of our economy. And this risk is exacerbated by the complex and highly fragmented regulation pertaining to ESG. Applying new regulations is no trivial matter for market participants. We need a regulatory framework that is clear, unambiguous and, above all, simple.

Asset managers need reliable ESG² data and ratings for the companies they want to invest in. Only then can they create transparency. Many asset managers are not satisfied with the available products. Is this justified?

Yes. The available ESG data and ratings still show substantial shortcomings. This is another area where I see greater transparency as crucial. The data and rating providers should more carefully explain how they draw up their assessments, which data sources they use and how they deal with gaps in their ESG data. In the medium to long term, the planned European data portal ESAP³ should help to largely remedy the situation. ESAP will require companies to provide their sustainability data in a standardised format so that all users are able to access them. In a draft regulation on ESG ratings, the European Commission also addresses several other problems highlighted in our study. For example, it aims to improve the quality and integrity of ESG ratings, to increase transparency regarding the underlying methodology and to prevent conflicts of interest. I think these are good steps in the right direction.

How should asset management companies deal with the ESG data and ratings that are currently available?

The most important thing is to not apply data or ratings without careful consideration. The companies need to understand what ESG data and ESG ratings represent and what they do not, since no market standard has been established yet. Asset management companies therefore need to take a very close look at these products. What do the data from an external provider actually represent? Which methods does the provider use?

Our study shows that most of the asset management companies surveyed are already asking these questions. That’s a good thing. But the nature and scope of the checks they perform vary widely. In light of this, we must consider at European level whether we need a minimum standard to regulate how asset management companies collect and handle ESG data and ratings.