1/6/2021 | Press Release

BVI study: Taxonomy alone does not provide a benchmark for fund sustainability

  • Standard market ESG strategies with minimum exclusions are sustainable, even though taxonomy-alignment is low
  • The level of taxonomy-alignment depends on further development of the EU criteria
  • The target market concept provides a practical standard for sustainability-oriented investors

Funds applying standard market ESG investment strategies and minimum exclusions achieve better sustainability scores than non-sustainable comparison portfolios even if the share of taxonomy-aligned activities in the fund portfolio is low. Therefore, the share of portfolio alignment with the taxonomy cannot be seen as the sole yardstick for the sustainability of a fund portfolio. This is the result of an analysis by the German Investment Funds Association BVI based on a portfolio simulation. According to the analysis, even in sustainable funds as defined by the EU Disclosure Regulation (SFRD), the portfolio’s share of taxonomy-aligned activities will not exceed the single-digit percentage range for the time being, assuming that the portfolio is sufficiently diversified. The reason for this is that the taxonomy is still in its infancy. So far, the relevant sustainable activities and technical criteria have only been defined for two of the taxonomy's six environmental objectives. Furthermore, the planned social sustainability objectives are still pending. Thus, achieving a higher share of taxonomy-aligned activities in sustainable fund portfolios is dependent on further development of the technical taxonomy criteria.

Another potential reason, derived from the analysis, for low taxonomy-alignment in the sample portfolio is the limited availability of ESG data from companies. In order to establish and then disclose the alignment of portfolio companies' activities with the taxonomy, fund managers require detailed data on a company activities’ revenues, capital expenditures ("capex") and operating expenses ("opex"). Whilst the market can substitute revenues data with estimates, in case of capex and opex even data for estimates is lacking. In addition, there are still significant data gaps for companies based outside the EU, e.g. from the US and China. These gaps will be closed, in part, by the new EU directive on non-financial reporting (CSRD). On a global scale, however, obtaining comparable and robust ESG data remains a challenge. The BVI has been campaigning for improved corporate sustainability reporting for some time and calls for a European Single Access Point (ESAP).

‘The results of our analysis make it clear that the sustainability of fund portfolios cannot be assessed solely on the basis of the EU taxonomy,’ says BVI CEO Thomas Richter. ‘Sales and investors need a standard that is suitable for everyday use when selecting sustainable funds. That is why we are working with our sales partners on a target market concept for sustainable financial investments that will be along the lines of the MiFID II criteria for investors’ sustainability preferences and other EU requirements.’ In contrast to the guidelines for sustainable funds recently proposed by BaFin, this would prevent greenwashing without damaging the attractiveness of Germany as a sustainable funds hub by imposing totally unrealistic standards, adds Richter.

For the BVI analysis, the investment universe of the FTSE World Index was filtered several times in a portfolio simulation using Sustainalytics data: First, minimum exclusion criteria were applied, the remaining securities then were evaluated according to the so-called best-in-class approach. This ESG strategy is consistent with the EU Disclosure Regulation for an ESG strategy product ("Article 8 product") and includes the application of the United Nations Principles for Responsible Investment (PRI) standards. ESG strategies, over and above the usual fundamental criteria, take into account other sustainability aspects both in investment allocation and stock selection. All these steps are consistent with the criteria of the target market concept that BVI is currently developing with sales partners of the fund industry. Further filters applied to the investment strategy were value criteria and finally the sector allocation and stock selection. Ultimately, no more than 450 of the 2568 original stocks in the index remained in the portfolio. This portfolio selection showed significantly lower sustainability risks (ESG risk score) compared to the overall index.

Please note: All results of the study ‘How Taxonomy-aligned are ESG-Strategy Funds? – A practical example‘ can be found here.

The BVI additionally publishes a quarterly overview of the German sustainable fund market entitled 'BVI Snapshot Sustainability'.

Download (pdf)

More about the BVI


Here you will find all our points of view and statements at a glance.

© iStock.com/imaginima

The fund industry

Find out why funds are important for business and society.

© iStock.com/artisteer


In terms of assets under management, the BVI member companies together cover over 95 percent of the German market.

© iStock.com/grandriver
Combined Shape Created with Sketch.