German investors are hesitant to define their investment products as sustainable in view of the short amount of time given to design and define the characteristics of products under the upcoming EU taxonomy regulation.
Kai Schulze, the head of the Berlin Büro at German fund industry association BVI, addressing the FNG Dialogue 2020 conference this week, said that “for some members in sales that they would not refer to the products as sustainable, and it is a shame for the trend [in sustainable finance] if sustainable products will not be distributed for a certain amount of time”.
The SFDR regulation will apply from 10 March 2021 for financial market participants, including among others pension funds, investment firms and financial advisers, that will have to integrate relevant sustainability risks in their investment decision making processes.
The new rules aim to improve transparency with regard to the integration of sustainability risks and adverse sustainability impacts of the investment processes and financial products.
BVI has reiterated the need to postpone the implementation of the sustainable finance disclosure regulation (SFDR) to the beginning of 2022.
“We as an association, and I think I also speak for the German financial world, demand to postpone the SFDR until January 2022,” Schulze said, adding that it would give the companies margin to implement the requirements.
The technical standards on the methodology for disclosure will first be available at the end of January 2021 and the first company reports and investor disclosures using the EU taxonomy are expected at the beginning of 2022, according to the European Commission.
Schulze said “this is a huge problem for us,” as this timeline leaves just five weeks for institutions to define what a sustainable product is until the SFDR is implemented.
BVI has entertained talks in Brussels and Berlin, recognizing how difficult it is to postpone the SFDR, but “we are open to other solutions. We need a signal that there is another solution, possibly quickly,” he added.
Assets invested in sustainable funds in the German market have surpassed €100bn. In the first half of 2020, sustainable funds recorded net inflows of €7.2 bn, according to recent BVI figures.
“If we can keep the growth rate in sustainable new businesses, then we have the opportunity at least to catch up with the top of the league very quickly in Europe,” Schulze said.
As BVI supports the taxonomy regulation, it highlighted three main points as important to continue a positive trend in sustainable investments: a uniform definition of sustainable investments, data collection and the SFDR.