The German financial supervisory authority, BaFin, has opened a consultation process on a series of draft guidelines for sustainable investments of Publikumsfonds which address the concept of greenwashing.
The draft guidelines highlight the requirement to define investment terminology of domestic Publikumsfonds (public investment fund) that are marketed as sustainable, or include references to ESG in its description, or that are labelled as “sustainable” or “green”.
BaFin’s consultation comes after the UK’s Financial Conduct Authority recently set out guiding principles for ESG and sustainable investment funds, and a consultation paper from IOSCO about averting greenwashing.
According to the BaFin draft guidelines, a Publikumsfonds is considered green if at least 75% of its assets are invested sustainably. The investment conditions should provide information on the assets viewed or labelled as sustainable.
A further indicator of the sustainability of a public investment fund is whether it pursues a sustainable investment strategy – for example a “best-in-class strategy” – or whether it considers sustainable aspects and factors when selecting assets for investments, according to BaFin’s guidelines.
A public investment fund must apply certain minimum exclusion criteria and ensure that investee companies or issuers contribute to reach one or more environmental or social goals without eroding activities helping to reach those goals, and taking into account governance aspects.
This requires that the issuer or the portfolio companies generate no more than 10% of the revenues from energy production or the exploitation of fossil fuels, excluding gas, or nuclear power; no more than 5% of the revenues should come from the extraction of coal and oil and zero revenues from the cultivation, exploration and service activities with regards to oil sands and oil shale.
Green bonds count as sustainable assets, BaFin said, but the asset management company offering such products should clarify in its terms of investments the standards to issue green bonds.
Funds investing in real estate or other tangible assets are required to prove that assets contribute to achieving social and environmental goals.
An investment fund using a sustainable index within the framework of a passive investment strategy should detail the characteristic of the index it uses in its investment terms and conditions.
BaFin would apply the new guidelines for sustainable investments of Publikumsfonds to protect investors from greenwashing, said executive director Thorsten Pötzsch.
The guidelines would apply independently and in addition to compliance with the Sustainable Finance Disclosure Regulation (SFDR) and the Taxonomy, it said.
The consultation is open until 6 September.