BaFin, the German Financial Supervisory Authority, has clarified some aspects of the sustainable financial disclosure regulation (SFDR) addressed by the European Commission.

According to BaFin, the term ‘promotion’ as used in Article 8 of the SFDR, explained by the Commission last year, does not have the same meaning as ‘to advertise’, commonly used in German.

The Commission goes well beyond the German meaning, the regulator said. Therefore, BaFin believes that the right interpretation of “promote” in German is “Fördern”, an alternative translation for the English word ‘promote’ that is in line with the statutory requirement of Article 8 of the SFDR as intended by the European Commission.

This interpretation means that promoting financial products does not necessarily require advertising them, for example through marketing communications or television advertising.

BaFin however thinks that it is not sufficient if only information on sustainability risks in investment decisions is provided within the meaning of Article 2 No. 22 of the SFDR.

The “promotion” must be targeted and communicated. It can be based on active or passive investment strategies, and it does not mean only “being invested” in, for example, an (ecologically) sustainable economic activity, it said.

BaFin also recommends use of the statement “no data collected” if financial market participants fail to collect data on the environmental objectives or objectives set out in Article 9 of the SFDR, and not “zero” as recommended by the European Commission.

By using the word “zero”, according to BaFin, it remains unclear whether data were collected or not, or if reasonable efforts to collect data were made, but were partially or completely unsuccessful.

According to BaFin, there are no pre-contractual disclosure obligations under the Disclosure Ordinance for financial products that are no longer sold.

BaFin also clarified that financial investment brokers do not fall under the SFDR because they are not considered financial services institutions or investment firms under current laws.

Investment firms fall under the SFDR regulation if they meet the definition in article 4 (1) No. 1 of MiFID II. For these, however, the exception laid down in Article 17 Paragraph 1 of the SFDR applies.

Net inflows of pension funds dip

Net inflow of pension funds in Spezialfonds decreased year-on-year in the first six months of 2022 by €4.7bn to a total of €11.6bn, according to the quarterly report published by Kommalpha. However, cash inflows for pension funds stood at €29.4bn, almost at the level of last year.

According to Kommalpha, the second quarter of 2022 was “decent” in terms of the net inflows and cash inflows into Spezialfonds, but not “euphoric”. A total of €15.6bn was allocated to Spezialfonds in Q2, compared with €31.8bn in Q1 this year.

Cash inflows amounted to €57.7bn in the second quarter, €25bn below the figure in the first quarter.

Insurance companies and pension funds were again the main drivers of net inflows in Spezialfonds in the second quarter, followed by private non-profit organisations.

Spezialfonds of insurance companies collected €7.3bn net in June, and Spezialfonds of pension institutions €5.3bn, with April being the strongest month. Private non-profit organisations collected €3.8bn.

With regard to cash flowing into Spezialfonds, insurance companies, pension institutions and private non-profit organisations took the top three spots in the second quarter.

Spezialfonds of insurance companies collected €22.8bn in cash, Spezialfonds of pension funds produced €14bn and private non-profit organisations added €8.6bn.

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