Bafin warns: ESG investors protected from greenwashing and unclear rules!

Bafin warns: ESG investors protected from greenwashing and unclear rules!

The German financial regulator Bafin has sharply criticized the current transparency rules for sustainable investments. Bafin is calling on the EU to create better protection mechanisms for private investors. Rupert Schaefer, Bafin's Executive Director for Sustainability, expressed dissatisfaction with the effectiveness of the existing transparency regulations and warned of the dangers of greenwashing. The EU Disclosure Regulation (SFDR) was originally intended to increase transparency and prevent greenwashing, but current developments show that there is still a need for action here.

Critics complain that the EU requirements often lead to confusion. Investments from oil and gas companies can also be found, particularly in Article 9 funds, which are considered particularly sustainable. Schaefer emphasizes that the SFDR is not a quality assurance for sustainability and calls for further development of this regulation in order to better protect the interests of investors.

Greenwashing in focus

The term “greenwashing” is omnipresent in the discussion about sustainable investments. According to Bafin, these are practices in which companies present their sustainability profiles unclearly. This can lead to investors being misled, particularly if investments do not have the desired ESG impact. Schaefer warned that greenwashing could threaten trust in the sustainable investment market.

Bafin takes this problem seriously and has taken measures to combat greenwashing. This includes monitoring compliance with disclosure requirements and reviewing products before they are brought to market. The authority also checks whether marketing communications correspond to the information disclosed. Combating greenwashing is an important issue at the European level, and a final report from three supervisory authorities is due to be published in summer 2024, which will contain recommendations for improving the traceability of sustainability claims.

Developments in the EU and challenges

The EU Commission aims to channel private money into sustainable investments, an approach that, however, presents some challenges. The prerequisite for this is that both private investors and institutional investors are able to assess whether investment products meet their sustainability expectations. Bafin criticizes the diversity of ESG product ratings, which have different weightings on governance and environmental aspects.

In addition, the use of nuclear power and gas as sustainable investments is met with resistance, while in the USA, under President Trump's administration, ESG criteria are largely ignored. These developments are creating increasing headwinds for the sustainable investing industry. Schaefer explains that German ESG funds can continue to invest in US companies as long as the definition of “sustainable” is clear, while pointing out that defense investments in ESG financial products are permitted as long as they are disclosed.

Bafin is not only committed to taking greenwashing seriously, but also to actively work towards legal regulations that promote a clear and transparent information policy. The aim is to finally restore investor confidence in sustainable investments.