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The German Federal Financial Supervisory Authority (BaFin) recently released a Q&A regarding Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector.

Authors: Daja Apetz-Dreier Bruno Geyken

According to the BaFin, financial investment intermediaries, as defined in Section 34f (1) of the German Trade Regulation Act, are not financial services institutions and are therefore not subject to Regulation 2019/2088. Pursuant to Article 2 (5) of Regulation 2019/2088, investment firms are covered by the Regulation if they meet the definition in Article 4 (1) No. 1 of MiFID II. For these, however, the exemption under Article 17 (1) of Regulation 2019/2088 applies.

Moreover, BaFin interprets the term “promote” in Article 8 of Regulation 2019/2088 to encompass not only regular marketing activities for financial products but also the fulfilment of legally prescribed disclosure obligations. With that in mind, it is not sufficient if information is provided solely on how sustainability risks, within the meaning of Article 2 No. 22 of Regulation 2019/2088, are taken into account in investment decisions. “Promotion”, which can be based on an active or passive investment strategy, must be targeted and communicated to the outside world. However, the term does not encompass a mere investment in, for example, environmentally sustainable economic activities.

Beyond that, BaFin states that there is no obligation to check every investment underlying a financial product for “taxonomy conformity” or to collect corresponding data. For a financial product that falls under Article 8 of the Disclosure Regulation and promotes environmental features, the disclosure requirements under Articles 5 and 6 of the Taxonomy Regulation must always be fulfilled, and so the taxonomy ratio must also be disclosed. This obligation also exists irrespective of whether the product has an obligation to make a minimum proportion of sustainable investments within the meaning of Article 2 No. 17 of Regulation 2019/2088. In the view of BaFin, the disclosed taxonomy ratio will regularly have a value of zero.