ESG Update – Recent developments in the area of financial sustainability regulation

This publication provides an overview of the latest developments in the area of financial sustainability regulation, in particular on the German Federal Financial Supervisory Authority’s conference on sustainable finance, its published Q&As and its consultation on the update of the Minimum Requirements for Risk Management, the European Commission’s final Regulatory Technical Standards under the Sustainable Finance Disclosure Regulation, the European Securities and Markets Authority’s implementation timeline and its strategic priorities for the next five years.

The transition to a greener and more sustainable economy has become a priority for the European Union (EU). The three European Supervisory Authorities (European Securities and Markets Authority (ESMA), European Banking Authority (EBA) and European Insurance and Occupational Pensions Authority (EIOPA)) aim to ensure that financial markets support and promote this shift by integrating environmental, social and governance (ESG) characteristics into their core activities. Looking ahead, sustainable finance will continue to play a key role in the global, European and national supervision of financial institutions.

On 13 September 2022, the third conference on sustainable finance organized by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht - BaFin) took place in Berlin, showing how important the topic of sustainable finance currently is and will be in the near future, also for the national supervisory practice. During the event, high-ranking representatives of European and national institutions discussed their political and regulatory objectives. In addition, BaFin experts discussed supervisory practice, particularly with regard to the implementation of ESG criteria in risk management systems and the challenges arising from the Sustainable Finance Disclosure Regulation (SFDR). Publications on this event can be accessed here.

The following summary highlights selected recent legal and regulatory developments in the area of sustainability.

Delegated Regulation (EU) 2022/1288

The European Commission adopted the final Regulatory Technical Standards (RTS) under the SFDR on 6 April 2022. The final act was published in the Official Journal on 25 July 2022 as Commission Delegated Regulation (EU) 2022/1288. The RTS will come into effect on 1 January 2023 and aim to strengthen protection for end-investors and improve the disclosures that they receive from a broad range of financial market participants and financial advisers, as well as regarding financial products. The RTS include specifications on

  • entity level principal adverse impact reporting;
  • product-level pre-contractual disclosures of environmental or social characteristics and sustainable investment objectives;
  • product-level website disclosures and
  • product-level periodic disclosures.

BaFin Q&A on SFDR

BaFin published a Q&A document (only available in German) on 5 September 2022 in which BaFin answers various questions about the SFDR.

Among others, BaFin clarifies that the English term “promotes” used in Article 8(1) SFDR is no longer to be understood in the sense of “Werbung betreiben” (advertising) but as “fördern” which is in line with the European Commission’s interpretation of Article 8 SFDR. According to Article 8 SFDR, certain pre-contractual disclosure obligations must be fulfilled for financial products that promote environmental or social characteristics.

As a consequence, it is not necessary to advertise financial products by marketing messages or television commercials in order to be considered as “promoted”. Even compliance with the mandatory obligation to inform can be interpreted as “fördern” (promoting). However, it is not sufficient to merely provide information on how sustainability risks within the meaning of Article 2 No. 22 SFDR are taken into account in investment decisions (cf. Article 6(1) SFDR).

According to BaFin, “fördern” (promoting) must have a specific purpose and must be communicated externally. It can be based on active or passive investment strategies.

BaFin’s further answers relate to the applicability of the SFDR to financial investment intermediaries licensed pursuant to Section 34f German Industrial Code (GewO), the obligation to assess financial products for compliance with Regulation (EU) 2020/852 (Taxonomy Regulation) and the applicability of the SFDR to existing contracts.

MaRisk Update

BaFin has started the consultation on the seventh update of the Minimum Requirements for Risk Management (MaRisk) on 26 September 2022. The MaRisk specifies BaFin's administrative practice on risk management for financial institutions. The seventh MaRisk amendment includes, among others, requirements for the consideration of sustainability risks in the risk management of financial institutions.

The amendments to MaRisk are in line with BaFin's deferred Guidance Notice on Dealing with Sustainability Risks published on 20 December 2019, which is to be understood as a non-binding good practice guidance despite its deferral. According to BaFin, the guidance defines the concept of sustainability on the basis of ESG criteria and illustrates physical risks and transition risks that may unfold with increasing intensity through existing risk types.

ESMA Sustainable Finance Timeline

On 21 February 2022, ESMA published an implementation timeline in respect of the following pieces of EU sustainable finance legislation:

  • Taxonomy Regulation;

  • Taxonomy Regulation Article 8 Delegated Act;

  • SFDR;


  • Markets in Financial Instruments Directive (MiFID) and Insurance Distribution Directive (IDD) Delegated Acts;

  • Undertakings for Collective Investment in Transferable Securities Directive (UCITS) and Alternative Investment Fund Managers Directive (AIFMD) Delegated Acts;

  • Corporate Sustainability Reporting Directive (CSRD).

The timeline is updated on a regular basis. The last update was made on 26 September 2022.

More information on the main actions that ESMA undertakes can be found in the Sustainable Finance Roadmap 2022-2024.

Next steps

On a national level, BaFin will increasingly include sustainability aspects in its supervision. In this context, BaFin will focus on analyzing and mitigating the resulting financial risks for the supervised financial institutions as well as ensuring compliance with disclosure requirements.

In addition, BaFin intends to improve consumer protection by preventing misleading marketing of financial products (greenwashing).

At EU level, ESMA has announced its strategic priorities for the next five years on 10 October 2022. The main elements of ESMA’s strategy relating to sustainable finance are:

  • effectiveness and integrity of ESG markets;
  • a workable regulatory framework;
  • effective and consistent supervision and
  • role of retail investors.


Authored by Dr. Sarah Wrage, LL.M. and Stefanie Franz.


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