Sustainable investment surge in Germany spurred by expectations of tighter EU regulation

Investments in sustainable financial products grew by over 50 percent in Germany in 2021, the latest market report by financial industry association Forum Nachhaltige Geldanlagen (FNG) has found. The total volume was just over half a trillion euros by the end of the year. Overall, the volume of investments classified as “responsible” reached 2.2 trillion euros in 2021, which includes sustainable investments. The rapid growth in sustainably labeled funds meant that their share grew by three percentage points to nearly 9.5 percent, driven largely by surging interest from private investors, the FNG said. Most financial actors surveyed for the market report said they expect sustainable investment activities to also expand rapidly this year, and predicted a growth rate of more than 30 percent for 2022. This is partly because upcoming EU regulation – in particular the MiFID II directive, which is meant to increase transparency for investors – is expected to lead to a spike in requests for sustainable financial products. The integration of sustainable ESG (environmental, social, governance) investment criteria was the leading sustainable investment strategy for the first time, the FNG added. More than 80 percent of investments labeled sustainable were using ESG criteria.

Sustainable investments have grown fast in recent years as more and more investors seek ways to put money in assets that have a minimum negative impact on the environment or society, but also to avoid risks stemming from regulation, such as on carbon emissions. A possible greenwashing scandal at DWS, a subsidiary of Deutsche Bank and one of Germany’s largest asset management firms, that led to the resignation of its CEO recently sent shockwaves through German banks’ sustainability departments. The DWS greenwashing probe is one of the first cases where unbacked claims over the sustainability of investment products could be treated as possible financial fraud.