The EU Commission wants to steer more money into "green" investments. From August 2nd, things will get serious for banks and asset managers: From then on, when providing investment advice, they will have to ask about the advantages of their customers when it comes to sustainability.
Why is?
Regardless of whether it is an investment fund, share or annuity product - from August 2nd, bank advisors and insurance brokers are obliged to ask customers whether they want to invest "green" and what their preferences are. This must then be taken into account when selecting the product. The regulation is part of a whole series of new EU regulations that are gradually coming into force under the abbreviation "Mifid II". In the future, investment advice will no longer only be about return opportunities and risk, but also about the environment, social issues and good corporate governance: the abbreviation ESG (Environmental Social Governance) is finding its way into advice to a certain extent.
Are there uniform rules for "green" investments?
With the taxonomy, the EU Commission in Brussels has launched a kind of catalog for climate-friendly investments. Criticism is that from January 2023 onwards it is also considered climate-friendly to invest money in certain gas and nuclear power plants. Environmentalists, among others, find this wrong. Investors must therefore continue to find out very well what is behind financial products that are marketed as "sustainable".
"The implementation of the Mifid II requirements is crazy for consultants," says Christian Klein, who researches the topic of sustainable finance as a professor at the University of Kassel. "One problem is: How can you explain to a customer in a short time what, for example, taxonomy and disclosure regulations are? The main problem then is the so-called mapping: How does a consultant find the right products that the customer then buys?"
When asked, the BVI fund association explained: “The fact that there is still no uniform understanding of what is sustainable, despite countless technical details and regulations, is actually a problem.” According to the BVI, only European or international minimum standards can create more clarity: "This applies equally to ESG data, corporate reporting and requirements for sustainable products. That is why we are committed to such international minimum standards."
What does the new rule mean in practice?
Suppose a customer wants to invest 60 percent of 10,000 euros in ecologically sustainable investments within the meaning of the EU taxonomy regulation. In this case, an investment advisor could recommend a sustainable financial product for 6000 euros and a product that has nothing to do with ESG for the remaining 4000 euros.
Are "green" financial products really "green"?
According to Bank President Christian Sewing, the financial sector takes the challenges of climate change very seriously. "The financial industry is now using a lot of resources to ensure that what we call green is really green," said the Deutsche Bank boss recently in his capacity as President of the Association of German Banks (BdB). in an interview with the dpa news agency. "All market participants are aware of how dangerous allegations of greenwashing are."
What is the purpose of the new requirements?
Politicians want to direct more money to where it benefits the climate and the environment instead of harming it: climate protection, adaptation to climate change, sustainable use of water resources, change to a circular economy, avoidance of pollution and protection of ecosystems and biodiversity, etc. etc. The European Union has set itself the goal of being climate-neutral by 2050, and Germany wants to achieve this by 2045. That means: from then on, gases that are harmful to the climate such as carbon dioxide (CO2) should be avoided or stored. According to experts, the conversion of the economy from "brown" to "green" will only succeed if, in addition to public billions, private individuals also support it with their investments.
How popular have sustainable investments been so far?
The trend is rising. The Forum Nachhaltige Geldanlagen (FNG) put the total amount of sustainable investments in Germany as of December 31, 2021 at 501.4 billion euros. That was almost 50 percent more than a year earlier. The share of sustainable funds in the overall German market rose significantly within a year from 6.4 percent to 16.7 percent.
Will the new rules provide another boost?
"In surveys, most Germans have been saying for years that they find the topic of sustainability in investing really exciting. But they don't implement it," says Professor Klein from Kassel. "I am convinced that if this is now actively offered to customers, we will get huge demand. It may be bumpy at first because the matter is complex. But I think that in the end many investors will not buy the 0815 fund, but something green."
However, the BVI fund association is skeptical that the demand can be met in every respect from now on: "In the beginning there will probably not be enough products to serve all conceivable customer preferences."
EU directive on markets for financial instruments 2014 EU regulation on sustainability requirements Bafin financial supervisory authority on Mifid II Bafin financial supervisory authority on the subject of sustainable investments Federal Association of German Banks (BdB) on sustainable financial advice EU on the Paris climate agreement 2015 proposal by the EU Commission on taxonomy EU on taxonomy consumer advice center on Topic Sustainable Investments Market report Forum Nachhaltige Geldanlagen (FNG) June 2022
