Future of Germany’s sustainable fund label at stake amid chaos at parent organisation

Implosion of the board at Germany's SIF prevents decisive action being taken to save labelling group as it faces financial shortfall.

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The future of Germany’s sustainable fund label hangs in the balance amid wider disputes and board dysfunction at its parent organisation, the Forum Nachhaltige Geldanlagen (FNG).

The FNG, Germany’s SIF – which is mainly known for the FNG Label, and for an annual state of the market report it produces – has long been plagued by interpersonal disputes, which culminated in the departure of long-serving board chair Volker Weber last year.

A number of other board members also stood down at the time, including representatives from Union Investment and Deka Investment, two of the group’s largest members.

Helge Wulsdorf, head of sustainable investments at German Catholic bank BKC, told Responsible Investor that he ended his 18-year membership of the board in 2022 as “the situation was no longer acceptable for me personally… there were many unsolved conflicts”.

Ingeborg Schumacher, founder of consultancy Responsible Impact Investing, remained on the board. She shared a copy of comments sent to German publication Tagesspiegel Background Sustainable Finance, in which she said that personal differences had impaired substantial discussion on the board, with the problems evident to association members at the last general meeting.

Despite the election of a new chair – managing director of Forest Finance Capital Bernhard Engl – as well as a number of new board members, the problems continued. Engl resigned unexpectedly in mid-October and was followed shortly afterwards by four other board members, including several elected in 2022.

“After a very promising start… it also become clear to the new board members that old problems had not been solved and were making working together more difficult. I can hereby explain the other resignations,” said Schumacher.

Engl did not respond when contacted for interview via LinkedIn.

Relationships among board members now appear to have broken down completely. RI has seen a copy of a report prepared by Stefan Maiß, the board’s governance officer, which heavily criticises Schumacher and the FNG’s representative board member for Switzerland, Patrick Wirth.

Maiß said he had asked the pair to resign, and RI understands that Schumacher’s advisory firm has had its FNG membership revoked. She has asked the FNG to put this to a vote at the AGM.

Wirth told RI that he would like to think that members will ask “very critical questions” about the report’s content and approach. “From my point of view that is [Maiß’s] personal opinion, but many facts are false and I have submitted a counter-statement to the board.”

He said that at present he did not plan to stand for re-election, although he has not ruled it out entirely.

Schumacher did not respond to a request for comment on the report.

Labelling losses

The implosion of the FNG’s board forms the background to a second dispute, this time between the association and its fund label.

The FNG Label (known in German as the FNG Siegel), is awarded to funds which meet a series of detailed criteria, including exclusion standards, and follow a dedicated sustainability strategy. Funds awarded the label can also achieve between one and three stars depending on how they meet other criteria.

In the most recent round of awards, announced in late November, 279 funds were granted the classification, a considerable growth from 2016, when just 35 made the list. Major fund managers including Amundi, Schroders and BNP Paribas Asset Management sought and were granted the label this year.

The label has a complicated corporate structure. Broad responsibility for management of the label rests with FNG subsidiary QNG, which is headed by Roland Kölsch.

Assessments were originally carried out by a team at the University of Hamburg’s sustainable finance research group, but as the label grew in popularity these efforts were spun out into two separate organisations.

Fund assessments are now carried out by analysts at Advanced Impact Research (AIR) in conjunction with prominent German sustainable finance academics, under the aegis of non-profit FIRST.

Payments from investors seeking the label are received in spring, while assessment staff must be paid year round. This sometimes leads to a shortfall, which Kölsch had previously covered with a bridging loan from his personal funds.

Relationships between Kölsch and the board, as well as Kölsch and FNG CEO Sascha Görlitz, had been poor. According to Schumacher, the board “no longer discussed with Roland, but rather about him”.

RI understands that Kölsch offered a loan to cover the shortfall for 2024 but the board did not take up the offer. Subsequently, funding was not provided to cover the shortfall.

As a solution to the issues afflicting the FNG Label, Kölsch’s camp has suggested switching his employment to the non-profit FIRST.

Separating the label more comprehensively from the FNG would increase its independence and perceived impartiality, according to one person involved. The FNG would get licensing money from the label, but the volatility of its financial situation would be removed from its books.

However, the board delayed a decision on these reforms until the annual members’ meeting, which is scheduled for Wednesday after being postponed twice.

RI understands that this delay meant that AIR had to pre-emptively make its analysts redundant to avoid risking financial difficulty. Kölsch has also submitted his resignation.

Does the FNG Label have a future without Kölsch? Those close to the FNG and observers in the wider market are sceptical.

“The FNG Siegel is very important for the market,” said BKC’s Wulsdorf, “and Roland Kölsch is the face of the FNG Siegel. We need him for the seal to have a future going forward… He is the most competent person to do it, he has a good reputation in the sustainable finance market and a lot of experience”.

Speaking on condition of anonymity, others are more blunt. “Without Kölsch, the FNG Label is an empty shell,” said one observer. “It collapses.”

The F stands for Future

Many of the issues with the FNG board and label have been kept quiet, and it was not until the association’s troubles were revealed in detailed reporting by Tagesspiegel Background Sustainable Finance that members became aware of the extent of problems.

Now, concern among members is growing.

When they assemble for the annual meeting, a number of issues will be at stake. Members must decide on the future of the FNG Label and elect new board members. Tagesspiegel Background Sustainable Finance reporters also obtained a copy of a controversial proposal to reform board governance, which members will have to vote on.

RI understands that, as of the start of this week, eight people had put their names forward for the board, and Schumacher said she had sought to encourage some candidates who expressed interest last year to run.

The FNG must also find a new auditor after its long-serving auditor left the role this year for unconnected reasons.

Some believe a fresh start is needed, and many want the FNG’s work to go beyond the label and annual market report.

BKC’s Wulsdorf said he would like to see it cooperate more closely with the German government’s Sustainable Finance Advisory Board and the Green and Sustainable Finance Cluster.

The association should also publish position papers on topics such as biodiversity and engagement, and should be a useful resource for members on sustainable finance issues, he said.

This was echoed by Schumacher. “I think it is very important that the FNG gets more involved in the debate about sustainable finance and actively positions itself,” she said, noting that a greater role in the advisory board, where it holds an observer seat, is key.

One former employee of an FNG member said that change at the top would be needed in order to make a real new start, but finding new board leadership would be very difficult after all the bad press.

“It is very important that decisive and competent board members are appointed to replace the board members who have resigned,” said Schumacher. “The larger members should also be more strongly represented again.”

Another source closely connected to the FNG was more blunt. “First there must be a complete clear out of the board. The label must be saved somehow, and then there must be a new beginning. The trust of the membership must be won back.”

The FNG declined to comment.