Sustainability

The EU is aiming for a climate neutral economy by 2050 and wants to support sustainable economic sectors and production processes by directing capital flows into corresponding activities. As an important financial intermediary, the fund industry is happy to play a key role in this endeavour. Asset managers have a longstanding track record of financing sustainable projects and companies. As early as 2012, the BVI introduced its "Guidelines for Responsible Investment”. However, the EU legislator has not yet laid down any generally applicable definition of what is sustainable.

Since August 2022, investment advisors must ask their clients about their sustainability preferences and offer suitable products, whilst funds with sustainability features (according to Articles 8 and 9 of the SFDR) must comply with new mandatory product characteristics. However, details and harmonised standards are still lacking. Therefore, the BVI and the German Banking Industry and Derivatives Associations have developed a joint target market concept for sustainable financial products. The concept provides a reliable minimum standard for the German market which is by date unique in Europe.

Nevertheless, there is much room for interpretation remaining, as clear regulatory guidelines do not exist. Among others, determining the minimum share of sustainable and taxonomy-aligned investments at fund level proves to be difficult, due to a lack of binding and consistent calculation methods. This may result in products pursuing a similar investment strategy whilst reporting significantly different shares of sustainable investments.

The BVI is calling for minimum standards to cover not only the requirements for sustainable financial products, but also for global ESG data and corporate reporting. However, a sense of proportion will be key: If the regulatory bar will be set too high, financing will be restricted to the green niche rather than supporting the necessary transformation of the economy.

In addition to a lack of standards, inconsistencies in the legislative timetable are causing problems for the fund industry. For example, funds with sustainability features already have to provide information on the share of taxonomy-aligned investments, although the required company data will not be available until 2023, and even then, gradually and from EU companies only. Not surprisingly, most funds under Articles 8 and 9 of the SFDR will report very low taxonomy-aligned investment shares, even down to zero percent.

At the end of September 2022, fund companies in Germany managed a total of 717 billion euro in retail funds and Spezialfonds with sustainability features.

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