BaFin Updates its Guidance on SFDR, the RTS and Financial Product Disclosure Annexes

August 22, 2023

Key Takeaways

  • BaFin has updated and expanded its "Questions and Answers" (Q&A) on the Sustainable Finance Disclosure Regulation (SFDR)1 and the Regulatory Technical Standards (RTS).2
  • In addition, BaFin published guidance on how the pre-contractual and periodic disclosure templates set out in Annexes II to V of the RTS should be completed.
  • BaFin also specified SFDR audit objectives in relation to SFDR disclosures.



In July 2021 and May 2022, the German Federal Financial Supervisory Authority (BaFin) published "Questions and Answers"3 on SFDR and the RTS to provide more clarity on how financial market participants (FMPs, as such term is defined in SFDR and which includes AIFMs, UCITS ManCos and Portfolio Managers/Advisors) should deal with certain legal terms that are not clearly defined in SFDR and the related Q&A published by the European Securities and Markets Authority (ESMA). For more information, see our OnPoint "The German Financial Regulator BaFin Clarifies the EU Commission’s Q&As Regarding SFDR", available here.

BaFin updated the Q&A on July 11, 2023 and has also published guidance on the pre-contractual disclosure templates for Article 8 and Article 9 financial products (Annexes), in the form of filling out instructions. These notes and explanations can be seen as a continuation of BaFin's Sustainable Finance Strategy4, where BaFin has set itself the goal, among other things, of constructively supporting the implementation of new regulations and promoting legal certainty in their interpretation. For more information on BaFin's Sustainable Finance Strategy, see our OnPoint "Five Key Focus Areas of BaFin’s Sustainable Finance Strategy", available here. The published explanations and notes reflect BaFin's current legal interpretation, which is the basis for its administrative practice.

The updated and supplemented Q&A on SFDR as well as the Annexes, including BaFin’s accompanying guidance, are available on BaFin's website here.

Questions and Answers on SFDR

BaFin has added a new note to its Q&A on SFDR: Q&A 6 where BaFin explains how to deal with the sections of the Annexes that are not relevant in individual cases.

BaFin's expectations are in line with the ESAs' comments on the RTS dated November 17, 2022 (See ESAs’ Q&A III.15). BaFin notes that FMPs may only remove certain sections, questions, or explanatory boxes in the Annexes in accordance with the instructions for completion contained in the Annexes in red text. Any further adjustment of the Annexes, in particular the order of the sections and questions as well as the position and design of the information boxes and graphics, is not permitted.

BaFin expressly notes that adjusting the color scheme of the Annexes, e.g., by increasing the use of the color green, increases the risk of misleading the investor about the level of sustainability ambition. Any information that proves misleading could potentially be classified as greenwashing and deemed unlawful.

Guidance Papers on the Annexes

The guidance papers on the application of the Annexes under SFDR for Article 8 and Article 9 products are intended to harmonize the understanding of the requirements for FMPs and the expectation of the regulator and its staff.

The guidance papers are drafted in table format and correspond to the model pre-contractual disclosure Annexes. The tables are numbered consecutively and contain explanations in the form of comments. BaFin also provides versions of the model Annexes where sections are also consecutively numbered to mirror the references in the tables.

The instructions, some of which are very detailed, relate generally to the completion of the Annexes and apply not only to investment funds but also to all other financial products (i) issued by German FMPs or (ii) marketed in Germany that are categorised as Article 8 or Article 9 financial products.

BaFin emphasizes that all information in the Annexes must be easily accessible, non-discriminatory, prominent, simple, concise, comprehensible, fair, clear and not misleading.

It also states that the pre-contractual information within the meaning of SFDR takes two forms – (i) information that is disclosed in the main documentation relating to the financial product (for example the offering document) and, (ii) if the financial product either promotes environmental or social characteristics or invests a proportion of its assets into Sustainable Investments (as defined under SFDR) (Article 8 products), or has a sustainable investment objective (Article 9 products), additional information provided in the relevant Annex.

Where the main body of the information document contains disclosure pursuant to Article 6(1) SFDR, FMPs are required to include descriptions of the following:

  • The manner in which sustainability risks are integrated into their investment decisions; and
  • The results of the assessment of the likely impacts of sustainability risks on the returns of the financial products they make available.

Where FMPs deem sustainability risks not to be relevant, the descriptions must include a clear and concise explanation of the reasons therefor.

Where an FMP has considered – at the entity level – principal adverse impacts (PAI) on sustainability factors according to Article 4(1)(a) or Article 4(3) or (4) SFDR, Article 7 SFDR requires the following information to be included in the main body of the offering document in respect of the particular financial product:

  • A clear and reasoned explanation of whether, and, if so, how the financial product considers PAI on sustainability factors; and.
  • A statement that information on PAI on sustainability factors is available in the information to be disclosed pursuant to Article 11(2) SFDR.

BaFin notes that if the FMP answers the question as to whether it considers PAI in the affirmative, it is possible either to refer to the Annex for justification or to only provide this information in the Annex. Accordingly, additional explanations in the main body of the offering document are not required.

If the question is answered with "No", the required information must always be provided in the main body of the offering document. It is not permissible to cross refer to the Annex. According to the guidance, considering PAI at product level usually leads to the application of Article 8 SFDR.

Where an FMP does not consider PAI, the main body of the offering document must include a statement confirming the same, as well as an explanation as to why PAI are not considered. According to BaFin, it is not permissible to cross refer to the Annex.

With regard to the prominence of the statement according to Article 14(2) RTS – that information about the environmental or social characteristics is available in the Annex – BaFin specifies that this can be achieved for example by bold print or a representation in a separate box in the main body of the offering document. The information cannot be included by way of a footnote.

The guidance also addresses each individual section of the pre-contractual disclosure templates for Article 8 and Article 9 financial products (namely Annexes II and III).

While a complete presentation of the guidance would go beyond the scope of this OnPoint, some aspects are nevertheless worth noting.

According to BaFin, if an Article 8 financial product is to contain a minimum proportion of Sustainable Investments (as such term is defined in Article 2(17) SFDR), a box must be checked in the first section of the Annex to confirm that it promotes environmental/social characteristics and while it does not have as its objective a sustainable investment, it will have a minimum proportion of Sustainable Investments. In such a case the minimum proportion of Sustainable Investments must be disclosed.

It must also be disclosed which objectives (environmental objectives according to the taxonomy, environmental objectives not conforming to the taxonomy or social objectives) are pursued with the Sustainable Investments. At least one of the boxes must be ticked. It is not possible to leave all fields blank. Interestingly, BaFin does not mandate a more detailed breakdown of the quantitative distribution of Sustainable Investments between environmental and/or social goals for the individual boxes in the graphic.

However, BaFin's view on the interaction between the Annexes and the information in the investment terms and conditions may be considered controversial.

With regard to the information to be provided in the Annex for an Article 8 financial product, in response to the question "What investment strategy does this financial instrument follow?" in the subsection "What are the binding elements of the investment strategy used to select the investments to attain each of the environmental or social characteristics promoted by this financial product?", BaFin clarifies that in principle, there is no obligation to include the binding elements of the investment strategy described in that section of the Annex if they are already included in the financial product’s investment terms and conditions.

However, since the information in the Annex must not contradict the investment terms and conditions of the financial product, BaFin makes the following exceptions: If binding investment limits are specifically or newly defined in the Annex (e.g., through formulations such as: 15 percent of Sustainable Investments, exclusively, predominantly), this specific ESG-related information must be reflected in the investment terms and conditions of the financial product. For example, in the case of UCITS or AIFs eligible for retail investors, the ESG-related binding elements must also be included within the main body of the prospectus as part of the investment terms and conditions. This means that the investment terms and conditions must be adjusted accordingly. For a financial product that is retail funds, this triggers a BaFin approval process for the fund.

With regard to the Annex for an Article 9 financial product, there is also no obligation to include the binding elements of the investment strategy described in the Annex as well in the investment terms and conditions. However, the minimum investment threshold for Sustainable Investments that must be disclosed pursuant to Article 9 SFDR must not contradict the investment terms and conditions of the financial product. For example, in the case of UCITS or AIFs eligible for retail investors, the ESG-related binding elements must also be included within the main body of the prospectus as part of the investment terms and conditions.

BaFin specifies SFDR audit objectives

Since March 2021, BaFin has been responsible for monitoring compliance with SFDR in conjunction with the Taxonomy Regulation in the financial services sector. With the Fund Domicile Act6 of June 2021, the legislature has entrusted auditors with the task of assessing whether in-scope parties comply with the requirements of SFDR. In doing so, the legislature has expressed that it generally considers an annual audit to be necessary. In addition, BaFin will conduct its own spot checks.

The auditors are not only required to check whether the party has made the requisite disclosures, the auditors also need to satisfy themselves that the disclosures are accurate and complete. This applies to the product-related information with ESG relevance that end investors receive for their specific investment decision, some of which is also made available to them in periodic reports. The same applies to information on whether and, if so, how the FMP has addressed the PAI that its investment decisions or investment advice might have, for example on environmental, social and governance issues. At a minimum, the auditor should verify the plausibility of the information.

In 2021 and 2022, BaFin specified audit objectives for compliance with the requirements of SFDR, which are based on the risk of greenwashing. In a recent letter to the Institut der Wirtschaftsprüfer in Deutschland e.V. (Institute of Public Auditors in Germany, Incorporated Association – IDW) BaFin made it clear that these objectives are also to be applied to the coming audit year 2023 and also expanded the scope of the required audit. In addition to the requirements of Articles 4, 7 to 9 and 11 SFDR, BaFin sees the greatest risk for greenwashing in the requirements of Article 10 SFDR, the website disclosure for a financial product. BaFin expects auditors to look at the content of the information provided pursuant to Article 10, in particular in relation to its completeness and accuracy.

Regarding the requirements regarding the consistency of marketing communications stemming from Article 13 SFDR, BaFin no longer considers it to be sufficient for the auditor to simply confirm that the information is complete and plausible. Auditors are expected, at a minimum, to undertake system checks with functional tests, and samples should be taken in accordance with the auditor's professional judgement.

BaFin’s supervisory action is in line with the Common Supervisory Action (CSA) that ESMA launched on 6 July 2023 with National Competent Authorities (NCAs) on sustainability-related disclosures and the integration of sustainability risks. The goal of the CSA is to assess the compliance of supervised asset managers with the relevant provisions in SFDR, the Taxonomy Regulation and relevant implementing measures, including the relevant provision in the UCITS and AIFMD implementing acts on the integration of sustainability risks.


1) Regulation (EU) 2019/2088 as amended by the Taxonomy Regulation (Regulation (EU) 2020/852).

2) Commission Delegated Regulation (EU) 2022/1288, setting out the regulatory technical standards under the SFDR.

3) Questions and Answers on SFDR and the RTS available here.

4) BaFin's Sustainable Finance Strategy available here.

5) Questions and answers (Q&A) on SFDR Delegated Regulation (Commission Delegated Regulation (EU) 2022/1288), JC 2022 62, 17 November 2022.

6) Gesetz zur Stärkung des Fondsstandorts Deutschland und zur Umsetzung der Richtlinie (EU) 2019/1160 zur Änderung der Richtlinien 2009/65/EG und 2011/61/EU im Hinblick auf den grenzüberschreitenden Vertrieb von Organismen für gemeinsame Anlagen (Fondsstandortgesetz – FoStoG).See also our OnPoint here.

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