German Regulator Shelves ESG Rules After Russia Energy Fears

(Bloomberg) -- Germany's financial regulator has shelved planned rules for classifying investment funds as sustainable, after Russia's invasion of Ukraine sent shockwaves through global energy markets.

“Against the backdrop of the dynamic situation in regulation, energy and geopolitics, we have decided to put our planned directive for sustainable investment funds on hold,” BaFin President Mark Branson said Tuesday at a press conference in Frankfurt. “The environment isn't stable enough for permanent regulation.”

Bafin's announcement indicates just how much Russia's war and the associated energy crunch has unsettled the investment industry's shift toward green energy. Bafin's move comes as governments seek to remove threats to energy security amid looming restrictions on oil and gas trade with Russia.

But the German regulator's move may be a setback for asset managers who have been clamoring for regulatory clarity on sustainable investing to avoid a backlash if they inadvertently break the as-yet fuzzy rules. The industry was jolted last year when U.S. and German regulators including Bafin launched probes into Deutsche Bank AG's asset manager DWS, over allegations it overstated its sustainability credentials.

Branson sought to reassure the industry and said in his prepared remarks that “fund managers can of course still set up and market sustainable investments.” He said the watchdog will apply “some of the principles in practice that we consulted on,” namely the need for ESG funds to be 75% invested in sustainable assets.

“Through these stricter practices we will protect investors from greenwashing,” Branson said.