Financial regulatory body, BaFin, is not devoted to environmental affairs.
The financial sector is facing increased scrutiny as the effects of the climate crisis become more apparent, with calls for stricter supervision growing louder. The Federal Financial Supervisory Authority of Germany (BaFin) plays a key role in regulating and supervising climate-related risks and combating greenwashing within the financial sector.
BaFin's responsibilities and strategic objectives for 2026-2029 explicitly focus on integrating climate considerations, enforcing truthful sustainability disclosures, and actively preventing greenwashing to protect investors and ensure the integrity of the financial markets in the context of climate action.
One of BaFin's core tasks is the supervisory integration of sustainability risks, treating transition risks and physical risks as core elements of its supervisory activities. Supervised entities are required to embed these risks within their risk management systems and analyze their effects on business models.
In addition, BaFin actively monitors compliance with transparency and distribution obligations related to sustainability. It takes action against greenwashing, the misleading presentation of financial products as environmentally friendly, involving market screening, cooperation with national and European authorities, and enforcement to ensure truthful sustainability disclosures.
BaFin also ensures market transparency and integrity in sustainability reporting, enforcing transparency requirements, particularly sustainability reporting obligations, to uphold market integrity. This entails analyzing a broad range of trading and financial reporting data to detect unfair practices and ensure that sustainability claims are substantiated.
Despite these efforts, BaFin is under criticism for its slow implementation of European regulations related to the climate crisis and for being too slow in dealing with climate risks and greenwashing. Demands for BaFin include the appointment of a climate risk examiner, the establishment of a powerful ESG division, and stricter supervision and sanctions for violations.
The citizens' movement Finanzwende accuses BaFin of not fulfilling its role in the age of the climate crisis, pointing out that banks finance both climate action and climate-damaging business models. The financial sector's role in financing both is a key issue, with the climate crisis continuing to have a significant impact on banks and insurers, putting pressure on them to take action.
Greenwashing in funds remains a concern, with suspicions of misleading sustainability claims persisting. As the climate crisis intensifies, the need for stricter supervision and more effective action against greenwashing becomes more urgent. BaFin's role in ensuring the integrity of the financial markets and protecting investors is crucial in this context.
[1] Source: BaFin's Strategic Objectives 2026-2029 (available at: https://www.bafin.de/SharedDocs/Veroeffentlichungen/DE/Themen/StrategischeAufgaben2026-2029.html)
- BaFin's strategic objectives for 2026-2029 include integrating climate considerations, enforcing truthful sustainability disclosures, and actively preventing greenwashing in environmental-science, as a means to protect investors and ensure the integrity of the financial markets within the context of climate action.
- As the climate crisis intensifies, business leaders must be cognizant of the need for science to inform strategies that address climate-change risk, as supervised entities are required by BaFin to embed these risks within their risk management systems and analyze their effects on business models.
- With demands for stricter supervision and more effective action against greenwashing growing louder, finance professionals must work closely with BaFin to uphold market transparency and integrity, particularly in sustainability reporting, to detect unfair practices and ensure that sustainability claims are substantiated.
