As Chief Executive Director Dr Thorsten Pötzsch explains, BaFin is taking this step in order to protect investors from being green washed. “A fund that uses the ESG label must deliver on its promise of sustainability”, says Pötzsch who is currently also in charge of BaFin’s Securities Supervision/Asset Management Sector. BaFin only approves the fund rules of retail funds if they comply with the statutory requirements. Investors may not be misled by a fund’s name or how it is marketed. In future, funds may only be marketed with the “sustainable” label if the fund rules provide either for compliance with a minimum investment ratio in sustainable assets or adherence to a sustainable investment strategy or require that the fund tracks a sustainable index.

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.