ESG funds at Union Investment: What companies should know about the selection criteria

Since March 10, 2021, the Sustainable Finance Disclosures Regulation (SFDR, Regulation (EU) 2019/2088) has required financial market participants to disclose their sustainability characteristics. Union Investment, one of the largest asset managers in Germany with around EUR 470 billion in assets under management, classifies a significant portion of its funds as Article 8 or Article 9 products according to SFDR. For companies that invest treasury funds, pension assets or foundation funds, this classification is more than a sales label. It has a direct impact on your own ESG reporting, on supplier due diligence and on the question of whether investment decisions are consistent with your own sustainability strategy.

This article shows which selection criteria Union Investment uses, how SFDR Articles 8 and 9 differ, what role the EU taxonomy plays according to Regulation (EU) 2020/852 and how you as the person responsible for ESG can manage fund reporting in your own Process sustainability report. In addition, we integrate the findings into the operational work of an ESG officer because investment decisions without clean ESG governance can quickly lead to accusations of greenwashing. Others run compliance like a filing cabinet. We run it like software.

In addition, the second stage of the SFDR Level 2 Regulatory Technical Standards has been in effect since January 2023, which requires detailed pre-contract information for funds according to Articles 8 and 9. If you don't understand what the individual appendices show, you are leaving a gap in the internal control and audit system, which can be expensive in a meeting with an auditor or in a CSRD audit.

The search for 'ESG fund Union Investment' does not lead to a single product, but to a portfolio of several dozen funds that Union Investment labels as sustainable. These include equity funds such as UniGlobal Vorsorge, UniNachhaltig Aktien Global or UniInstitutional Global Value Sustainable, bond funds, mixed funds and theme funds on climate protection, social infrastructure or water management. The classification is based on SFDR Article 6 (no specific sustainability focus), Article 8 (application of ecological or social characteristics) or Article 9 (sustainable investment goals).

The regulatory framework is spanned by several EU texts. The SFDR Regulation (EU) 2019/2088 regulates disclosure. The Taxonomy Regulation (EU) 2020/852 defines which economic activities are considered environmentally sustainable based on six environmental objectives and the do-no-significant-harm principle. MiFID II in the version of Delegated Regulation (EU) 2021/1253 has required since August 2022 that investment advisors take their clients' sustainability preferences into account in the suitability assessment. At the national level, the Capital Investment Code (KAGB) and the BaFin interpretation letters supplement the framework.

It is important for companies to understand: The SFDR categorization is a disclosure label, not a seal of quality. An Article 8 fund 'promotes' ESG features, an Article 9 fund explicitly pursues a 'sustainable investment objective'. The role of the ESG officer is to read the fund documents, check the pre-contract information according to SFDR Annex II/III and compare the statements with your own sustainability strategy. The Federal Central Tax Office and the ECB are also increasingly looking at ESG aspects systematically. The German Supply Chain Due Diligence Act, the Money Laundering Act and the Whistleblower Protection Act also indirectly affect the assessment because they require reporting lines and duties of care on the part of the company. If you do not actively manage the interaction, you risk contradicting statements between the treasury report, supply chain report and sustainability report. The obligation to ensure clean interlocking applies regardless of the size of the company.

The difference between Article 8 and Article 9 SFDR is often unclearly communicated in sales practice. Article 8 requires that the fund 'promote' environmental or social characteristics and that the companies invested follow good governance practices. A specific quota of sustainable investments is not mandatory, but must be disclosed if the fund claims such a quota. Article 9 calls for a 'sustainable investment goal' within the meaning of Article 2 No. 17 SFDR, with clear impact indicators, methodology and a do-no-significant-harm test.

Union Investment classifies its funds accordingly. UniGlobal Vorsorge or UniInstitutional Global Value Sustainable are typically Article 8 products with best-in-class selection and exclusion criteria. Thematic funds on climate or water more often fall under Article 9 because they pursue an explicit impact goal. Since the SFDR Level 2 RTS application from January 2023, funds in Annex II (Article 8) or Annex III (Article 9) must disclose detailed pre-contract information, including minimum share of sustainable investments and taxonomy compliance.

For ESG managers in companies, this means: Anyone who invests treasury funds in Article 9 funds can report these investments more substantially in their own sustainability report according to CSRD. Anyone who chooses Article 8 funds should document the specific ESG characteristics and not speak in general terms about 'sustainable investments'. Turning reading into an order applies here in its purest form: the pre-contract information must be read before the investment and recorded for the internal ESG register. Otherwise, a credibility problem arises in the CSRD audit that even the auditor cannot overcome. The dividing line between marketing and pre-contractual documents is also relevant: What is stated in the sales sheet must be documented in appendix II or III, otherwise sales and the fund company will come into conflict with BaFin supervision.

The EU taxonomy according to Regulation (EU) 2020/852 is the assessment framework that defines whether an economic activity is ecologically sustainable. It recognises six environmental goals: climate protection, climate adaptation, sustainable use of water, transition to a circular economy, prevention of environmental pollution and protection of biodiversity. An activity is only taxonomy-compliant if it makes a significant contribution to at least one goal (Substantial Contribution), does not significantly harm any other goal (Do-No-Significant-Harm, DNSH) and meets minimum social and governance protection standards.

In practice, funds publish a taxonomy quota: the proportion of their portfolio that is invested in taxonomy-compliant activities. For most equity funds, this ratio is now in the low single-digit range because many companies have only recently started reporting accordingly and the methodology is still being developed. Union Investment funds also have quotas of between one and around ten percent, depending on the focus of the topic. A high taxonomy share is not automatically better because industries such as software or pharmaceuticals have so far hardly been represented in the taxonomy and therefore remain underrepresented.

For the company's supplier and customer communication, this means: the taxonomy quota of a fund is a data point, not a judgment. ESG officers should read them in combination with the 'Principal Adverse Impacts' (PAI), i.e. the 18 mandatory indicators according to SFDR Annex I, which reflect greenhouse gases, water consumption, gender diversity and similar. The auditor calls, the evidence is ready. The priority of the DNSH test also leads to results that often do not meet intuitive expectations: a wind farm can be taxonomy-compliant, but an electric car manufacturer can only qualify to a limited extent due to supply chain risks. ESG officers should be aware of these mechanics. The industry mix also has an impact: utilities, rail transport and renewable energy companies are currently achieving higher quotas, while consumer-related sectors often remain close to zero.

Union Investment, like most large asset managers, works with a combination of exclusion criteria, best-in-class selection and active engagement. Exclusion criteria are the simplest level: companies that are active in banned weapons, coal above certain sales thresholds, tobacco production or serious human rights violations are not included in the portfolio. These lists are usually documented for each fund and can be found in the sales prospectus and in the pre-contract information.

Best-in-class selection means that the companies with the best ESG profile are selected within an industry. This does not rule out oil or mining companies being in the portfolio, provided they perform above average compared to the industry. Engagement and stewardship are the more demanding level: asset managers actively exercise their voting rights, engage in dialogue with boards of directors and push for improvements in strategy, compensation and climate reporting. Union Investment publishes annual engagement and voting reports that serve as a source for ESG officers.

This differentiation is crucial for corporate communication. Anyone who invests as a medium-sized company or foundation in a fund that is Article 8 but hardly has any exclusions should not advertise it as a 'sustainable investment'. Otherwise, he risks being accused of greenwashing, which has become increasingly punishable since the UWG reform in 2022 and with the upcoming Green Claims Directive. The appointment certificate, signed, filed, verifiable also applies here: every ESG claim needs a source, date and comprehensible methodology. The separation between ESG data providers such as MSCI, Sustainalytics or ISS ESG is also important because funds can receive different ratings depending on the data provider. A fund selection should therefore be familiar with the database and ideally include several sources. Those who create transparency here avoid that their own communication to investors and customers contradicts the methodology of the fund company.

If you, as an ESG or sustainability officer, are checking a fund selection at Union Investment or another provider, a structured checklist will help. Firstly, what SFDR category does the fund have (Articles 6, 8 or 9) and is the current pre-contractual document (Annex II or III) available? Secondly: Which ESG characteristics are specifically advertised, with which indicators and in what proportion. Third: Which exclusion criteria apply, from which sales threshold and with which exceptions.

Fourth: How high is the taxonomy quota and to which environmental goals does it relate. Fifth: What are the key PAI indicators, in particular greenhouse gas emissions, energy intensity, gender diversity on the board and violations of UN Global Compact principles. Sixth: What engagement policy does the asset manager pursue, what voting statistics are available and were there any prominent stewardship cases. Seventh: How does the historical performance compare to conventional counterparts, because ESG investments do not have to mean a sacrifice of returns, but also do not offer a guarantee of outperformance.

Eighth, and particularly important: How does the fund investment integrate into the company's own sustainability report according to CSRD and ESRS. The European Sustainability Reporting Standards require detailed information on climate risks, social responsibility and governance for large companies from fiscal year 2024. Treasury investments are part of this reporting chain. CIVAC accompanies this integration as a compliance platform and officer-as-a-service, with 490 ready-to-use audit templates and a reporting line that connects ESG data, supplier information and investment decisions in a searchable structure. A written investment guideline that explicitly names ESG criteria and sets evaluation standards is the basis for every consistent selection decision. Without it, individual decisions are difficult to defend against accusations of arbitrariness. An annual review of the investment policy and the funds invested should also be included in the compliance calendar because SFDR classifications, taxonomy compliance and engagement policies are constantly evolving.

BaFin has systematically integrated ESG issues into its supervisory practice since 2021. With the leaflet on dealing with sustainability risks from December 2019 and the draft ESG guidelines for investment funds from August 2021, it made it clear that funds that advertise themselves as sustainable must meet substantial requirements. The well-known raid on DWS took place in May 2022, which involved allegations of greenwashing. The lesson for the market: Even large companies are not protected from investigations if marketing and methodology diverge.

For asset managers like Union Investment, this means continually adapting methodology and disclosure. For companies that use their funds, this means: trust is good, documentation is better. Anyone who refers to sustainable investments in their own report or to suppliers and customers must be able to provide evidence of the underlying fund characteristics. A PDF of the sales prospectus, the pre-contract information, the fund's annual sustainability report and the voting report should be archived.

The upcoming EU regulation on ESG ratings, the Supply Chain Directive (CSDDD) and the Green Claims Directive will also further tighten the requirements. Anyone who sets up a clean chain of documentation and evidence today will be prepared tomorrow. The clock starts on awareness. The trend towards stricter Article 9 interpretations, which forced many fund companies to downgrade from Article 9 to Article 8 products in 2022 and 2023, also shows that the classifications are not static and can impact existing investments. Anyone making ESG statements today should also consider the risks from the supply chain, because climate, social and governance data are increasingly being examined in conjunction with one another.

The Corporate Sustainability Reporting Directive (CSRD, Directive (EU) 2022/2464) has been in effect for large companies subject to reporting requirements since the 2024 financial year, for other capital market-oriented companies from 2025 and for listed SMEs from 2026. The European Sustainability Reporting Standards (ESRS) specify the content: ESRS E1 for climate change, ESRS S1 for your own workforce, ESRS G1 for business behaviour and so on. Treasury investments fall under ESRS E1 if they address climate risks, and under ESRS G1 if they touch on compliance or anti-corruption aspects.

In parallel, the Supply Chain Due Diligence Act (LkSG) has required large companies to analyse and address human rights and environmental risks in their supply chain since 2023. The upcoming Corporate Sustainability Due Diligence Directive (CSDDD) will harmonise and expand these obligations across Europe. Investment decisions also come into play here: If a fund invests in companies that are themselves LkSG-relevant, indirect points of contact arise that must be taken into account in one's own risk management.

The role of the LkSG representative and that of the ESG representative overlap in many ways. A common reporting line and a common document register prevent duplication of work. CIVAC orchestrates 25 officer roles in a compliance platform and officer-as-a-service. Licence the workspace for your internal representatives or have our representatives order it. Audit-proof, documented, § ...-proof wherever a specific standard is relevant. The CSRD reporting requirement will start in stages and will also affect large medium-sized companies in the medium term. Anyone who makes investment decisions today without an ESG lens is accumulating a need for explanations for the next reporting period. The ESRS-2 criteria on materiality analysis and dual materiality (impact materiality and financial materiality) also require that treasury decisions be aligned with climate risk profiles, supply chain impacts and stakeholder expectations. Anyone who treats ESG investments only as a financial question is only covering one of the two materiality dimensions.

ESG funds are not donation accounts. Like conventional funds, they pursue a return-risk strategy, supplemented by sustainable criteria. The performance discussion is ideologically charged: sometimes it is said that ESG costs returns, sometimes it is said that ESG is better risk management. Both statements are simplifications. The empirical evidence shows: Over long periods of time, ESG funds are on average close to their conventional counterparts, with fluctuations depending on the market phase and thematic focus.

The cost structure is an important factor. ESG funds tend to have higher ongoing costs (Total Expense Ratio, TER) because additional research and data providers have to be integrated. For Union Investment equity funds, the TER often ranges between 1.0 and 1.8 percent per year, and correspondingly lower for institutional tranches. There are also issuing surcharges, which can often be reduced for direct investments by platforms or banks.

For corporate decisions, this means: an investment decision is not just an ESG decision. It is a treasury or foundation decision with an ESG component, embedded in the company's investment guidelines, the board of directors' rules of procedure and the reporting line to the supervisory board or advisory board. Anyone who documents this properly will protect themselves from later accusations that the ESG selection was arbitrary or made without any methodology. Others run compliance like a filing cabinet. We run it like software., with a comprehensible decision history and versioned investment guidelines. Regulatory treatment in pillars such as Solvency II for insurers or CRR for banks can also favor ESG components, for example through lower risk premiums for green bonds or taxonomy-compliant activities. Communication with employees, customers and business partners also benefits from sober expectations: ESG is part of mature risk management, not a moral seal of approval. This tone applies in the audit as well as in the external presentation.

ESG funds from Union Investment or other providers are a component of a sustainability strategy, not a replacement. The strategy only becomes reliable when the selection is documented, the reporting line is defined and the integration with CSRD, LkSG and EU taxonomy is established. Without this architecture, every fund decision remains an isolated event that requires explanation in the audit.

CIVAC is a compliance platform and officer-as-a-service. We orchestrate the ESG role with an appointment certificate, reporting line, audit templates and a workspace that connects investments, supplier risks and CSRD reporting in a searchable structure. Licence the workspace for your internal representatives or have our representatives order it. EU data residency and 93 controls according to ISO/IEC 27001:2022 secure the data level.

Turn reading into a mandate. If you would like to check your current ESG governance against the requirements of SFDR, EU taxonomy, CSRD and LkSG, write to info@civac.de or use the contact form on civac.de. CIVAC-SLA: two working days instead of the classic two to six weeks. You will receive an initial assessment of your ESG architecture, a gap analysis and a concrete path to audit readiness that includes treasury decisions as well as supplier audits and sustainability reports. The auditor calls, the evidence is ready. If you are looking to get started at short notice, you can book a 30-minute exploratory meeting in which we clarify the initial situation, the open gaps and the first measures. Reading becomes an actionable roadmap. We also clarify typical structural questions, such as how the ESG officer, compliance officer and treasury officer work together and which reporting lines should be set up, in this initial meeting. This way you can quickly see whether CIVAC fits your structure. If you wish, you will also receive a compact overview of the most important appointment certificates, reporting lines and audit templates in a second step as soon as the initial assessment is available.