German investors held sustainability-focused funds worth € 866 billion at the end of Q3 2023, predominantly driven by retail funds, according to the German Investment Funds Association (BVI).
While spezialfonds with sustainability features were notably smaller at €192 billion, they experienced substantial growth, with a 6% increase in the third quarter alone and 40 % increase since the beginning of 2023. By comparison, retail funds only grew by 8%. According to BVI, the main reason for the increase was the “reclassification of existing products”.
Despite the positive trend, the Q3 arter saw a net outflow of approximately €0.3 billion from spezialfonds with sustainability features, contrasting with a more substantial withdrawal of nearly €4 billion from retail funds, primarily from equity and balanced funds.
According to BVI: “It is already becoming evident that taxonomy-aligned investments only make up a small proportion of portfolios in all asset classes. The main reason is that the EU taxonomy is still incomplete.”
About one-third of German blue chip stock market index DAX non-financial companies reported a taxonomy ratio below 1% for FY 2022.
BVI highlighted that service companies, given their nature, struggle to contribute significantly to objectives like “climate change mitigation” and “climate change adaptation.”
While additional guidance and screening criteria covering environmental goals were published this year, a social taxonomy is still in the early stages, it added. A recent study by the European Securities and Markets Authority showed that 30 to 40 % of reports were incomplete or not submitted as required.
Bond funds exhibited particularly low reported taxonomy alignment at 1.7%, attributed to the limited availability of green bonds.
Despite challenges, BVI estimated that the newly approved EU regulation for European green bonds could potentially boost the segment. It establishes a voluntary standard for green bonds issued by corporations and sovereigns when presented in the market as European green bonds, raising quality, transparency and expectations of increased issuance of taxonomy-aligned bonds.
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