Like any major upheaval, the transition will take place over time and with the help of all stakeholders distributors, asset managers, regulators, and, of course, investors themselves. Distributors will then have to make investment recommendations based on these preferences relating to sustainability.
endobj 0000013141 00000 n Recognising that many investment funds will not meet investor preferences when they are expressed in the abstract and without regard to the types of investment funds available, ESMA has proposed the option of getting the investor to adapt their preferences. 0000014762 00000 n Asking the better questions that unlock new answers to the working world's most complex issues. investment strategy is defined and ask the client to adapt his/her preferences. MiFID ESG Changes ESMA Guidance For an explanation of how we use cookies on our website, please refer to our. As of 2 August, financial product advisers and distributors will have to ask clients to specify their sustainability preferences. Broader projects may also be required to ensure communication is clear, concise and not technical while ensuring an optimal client experience on all channels (including mobile devices). They are usually only set in response to actions made by you which amount to a request for services, such as setting your privacy preferences, logging in or filling in forms.
0000012682 00000 n
This could also be an important factor for Level 2 of SFDR (in force from 1 January 2023) and play a part in how firms develop detailed disclosures for ESG-focused funds' prospectuses, websites and periodic reports. 0000000936 00000 n
In order to assess investor preferences for sustainability, distributors of financial products must draw up a questionnaire to determine investors' expectations around environmental, social and governance criteria, alignment with the European taxonomy and negative investment externalities, such as those damaging to health.
Heike Schmitz,Partner,Herbert Smith Freehills LLP These cookies allow us to advertise our products to you and allow us to pass this information on to our trusted third parties so that they can advertise our products to you on our behalf. : since ESMA will collect feedback until the end of April 2022, the final Guidelines should be published shortly before, or more probably after, the application date (2 August 2022) of the Delegated Regulation. trailer
Where a firm intends to recommend a product that does not meet the initial sustainability preferences of the client in the context of investment advice, it can only do so once the client has adapted his/her sustainability preferences. It is essential that their completion leads to an inspiring exchange of information between client and adviser, rather than being an administrative formality. This could be a key consideration when assessing the merit of investment funds categorised as Article 8 financial products under SFDR that: (a) do not make a quantitative commitment to investment in sustainable investments and / or; (b) do not consider PAIs on sustainability factors. 0000005166 00000 n
financial objectives); and (ii) the client's risk tolerances, in order to be able to recommend suitable investments. 0000004452 00000 n
All information these cookies collect is aggregated and therefore anonymous. These Guidelines involve some challenges that investment firms are currently facing notably with regards to, inter alia: Short implementation timeline: since ESMA will collect feedback until the end of April 2022, the final Guidelines should be published shortly before, or more probably after, the application date (2 August 2022) of the Delegated Regulation. 685 Third Avenue
0000035383 00000 n <>/Metadata 15 0 R/Pages 14 0 R/StructTreeRoot 17 0 R/Type/Catalog/ViewerPreferences<>>> The sustainable investor for a changing world.
EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. The market opportunity in U.S. residential mortgage-backed securities, Credit Indices Evolve with Enhanced Data Inputs, For institutional investors, ETFs can make meeting liquidity needs easier, Gold: the most effective commodity investment, 2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios, Ten ways retirement plan professionals add value to plan sponsors. The answers to these questions will lead to an advanced level of portfolio customization, as well as allowing the harmonization of the ESG offering. Inquiries about ISS products and services, requests for copies of proxy research reports, and requests to engage with ISS regarding research reports and policies should be directed to the Help Center. For this reason, they may not be suitable for readers without professional investment experience. If the client states that he/she has sustainability preferences, and the firm does not have any products with sustainability related factors available, this should also be documented in the suitability report.
Offering a product with sustainablefeatures to a client who expressed no interest (even when such features are disclosed) could undermine client relationships, in particular in case an ESG product underperforms from a financial perspective. endstream Suite 3200 MIFID II currently provides that when an investment firm offers investment advice or portfolio management services to a client, it is first required to obtain information on (among other things): (i) the client's investment objectives (i.e.
However, matching financial products to what could be highly specific and aspirational preferences could be quite a challenge and it may, therefore, be quite difficult to design a financial product that is fully 'sustainability preferences' eligible in all cases. Finally, technology is also a tool for teaching people.
It proposes ranking and grouping products across a spectrum for the three investor sustainability preference categories. 0000006939 00000 n EY is a global leader in assurance, consulting, strategy and transactions, and tax services. We believe this regulation is a powerful accelerator that empowers investors and improves transparency in a particularly dense regulatory environment where the fight against greenwashing is omnipresent. startxref The introduction of MiFID II should make sustainable funds even more attractive, but we will have to ensure that we maintain a balanced allocation of capital, in order to avoid too much concentration of investments. Taxonomy and Sustainable Finance Disclosure Regulation (SFDR) have dominated the public discussion while the upcoming amendments to MiFID II and IDD have attracted significantly less public attention. Review ourcookie policyfor more information.
Australia: +61.2.8048.3999 <. This means investment firms should already launch their project on the basis of Guidelines included in the consultation. including non-taxonomy aligned. Our highly technical team deliver pragmatic and solutions-focused advice to our clients. The information does not usually directly identify you, but it can give you a more personalized web experience. 683 32 New York, NY 10017-4036, Chicago Office These three sustainability preference categories are separate and distinct.
Furthermore, the Corporate Sustainability Reporting Directive (CSRD), still under negotiation, will strengthen companies' financial and ESG reporting obligations from 2024. Seasoned business advisor with a focus on strategy, customer & operations in the financial services industry. endobj
%PDF-1.4 % These changes not only represent a new legal framework, they mark an important step toward reallocating capital towards the ecological transition and social issues. It was submitted and edited under Pensions & Investments guidelines, but is not a product of P&I's editorial team. 0000016265 00000 n Passionate about achieving goals in teams. The third category relates to financial products that consider the PAIs of investments on sustainability factors. EY | Assurance | Consulting | Strategy and Transactions | Tax. Since 2018, we have been using a proprietary methodology to collect data on E, S, and G criteria from more than 13,000 issuers, complemented by data of different types and from other sources. Investor responses will have to be translated into a concrete product offering. In line with the stated objectives, funds will have to either: Currently, BNP Paribas Asset Managements offering includes a product range integrating ESG criteria with more than EUR 330 billion in assets under management (end December 2021) covering a broad set sectors and geographies. Front office staff should also have the necessary knowledge and competence with regards to the criteria of the sustainability preferences and should be able to explain them to clients in non- technical terms. If the firm cannot meet those preferences, it should discuss this with the client when agreeing on the mandate in which theinvestment strategy is defined and ask the client to adapt his/her preferences. 0000004678 00000 n You can set your browser to block or alert you about these cookies, but some parts of the site will not then work. Please check the boxes below to subscribe, Investment strategies and asset allocation, Our latest regular features, outlooks and reports, Article "{postName}" added to your bookmarks, Article "{postName}" removed from your bookmarks, Limit negative impacts such as greenhouse gas emissions or gender wage inequality, Integrate a proportion of assets defined as sustainable. We bring together extraordinary people, like you, to build a better working world. Under the MiFID ESG Regulation, it will also be mandatory to obtain information and assess investment suitability on the basis of a third element, that is, the client's sustainability preferences. <>stream Some emerging markets offer less security than the majority of international developed markets. 0 To add to the complexity, under the MIFID ESG Directive, firms that are in scope of MIFID II product manufacturer obligations will need to consider the sustainability related objectives of clients when identifying a target market for the financial product effectively coming at the issue from the opposite direction of the investor. The MiFID questionnaire used to harvest the investment preferences and determine product suitability will be key. xref The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Then, the firm should assess the clients sustainability preferences by identifying: The Guidelines also address some special cases an investment firm can face, for example, when the client has no sustainability preference or when the product does not fit their preference. They may also be used to personalize your experience on our website by remembering your preferences and settings. 2022 Institutional Shareholder Services Inc. All rights reserved. 0000008824 00000 n 0000021282 00000 n We see this as a welcome initiative that should lead to harmonised questionnaires. EY EMEIA Wealth and Asset Management Consulting Senior Manager. How do you move long-term value creation from ambition to action?
0000004566 00000 n Asset managers must ensure that the funds offered meet the expectations of clients and distributors according to a range of criteria. What could potentially emerge is a split between 'Article 8 Lite' and 'Article 8+ categories of funds with only the latter (in addition to Article 9 funds) having the necessary level of 'sustainability-related materiality' in order to be able to meet one or more of the three criteria to be eligible for recommendation to clients that have expressed sustainability preferences to their distributors / sales advisers. Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Tech savvy. Discover how EY insights and services are helping to reframe the future of your industry. What do sustainability preferences mean for product governance and the product manufacturers target market concepts?
This la carte model presents a major challenge: Aligning the preferences with fund characteristics. 3 MiFID II Delegated Regulation - Article 2 (7): sustainability preferences means a clients or potential clients choice as to whether and, if so, to what extent, one or more of the following financial instruments shall be integrated into his or her investment: (a) A financial instrument for which the client or potential client determines that a minimum proportion shall be invested in environmentally sustainable investments as defined in Article 2, point (1), of Regulation (EU) 2020/852 of the European Parliament and of the Council (*), (b) A financial instrument for which the client or potential client determines that a minimum proportion shall be invested in sustainable investments as defined in Article 2, point (17), of Regulation (EU) 2019/2088 of the European Parliament and of the Council (**), (c) A financial instrument that considers principal adverse impacts on sustainability factors where qualitative or quantitative elements demonstrating that consideration are determined by the client or potential client, Guidelines on certain aspects of the MiFID II suitabilityrequirements, Commission Delegated Regulation (EU) 2021/1253 of 21April 2021 amending Delegated Regulation (EU) 2017/565as regards the integration of sustainability factors, risks andpreferences into certain organizational requirements andoperating conditions for investment firms, Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments. %%EOF All information collected is anonymous unless you provide personal information to us. Press inquiries should be directed to the ISS Press Office. Regulators will nonetheless be vigilant when it comes to interpreting the legislation: The European Securities and Markets Authority (ESMA) has recently clarified this point by providing the first elements of a prescriptive framework.
They integrate sustainability issues and considerations into the following EU legislative regimes: The Delegated Acts complement the obligations in Regulation (EU) 2019/2088("SFDR") and Regulation (EU) 2020/852("Taxonomy Regulation") and form part of the European Commission's 'ambitious and comprehensive' package of measures to help improve the flow of money towards sustainable activities across the EU. 0000000016 00000 n 0000019755 00000 n Case 3 - The client has no sustainability preference. Will your NFT investments soon be subject to VAT? SFDR Article 8 Financial Products Implications Japan: +81.3.5217.7888 130 E. Randolph St. Insurance Distribution Directive /2016/97/EU. The decision of the client should be documented. This is a positive initiative that should lead to a general harmonization of questionnaires. We use cookies to give you the best user experience on our website. Let us not forget that this represents much more than a new legal framework, it is an important step towards reallocating capital towards the ecological transition and social issues. While we welcome the progress resulting from this regulatory framework, the order of the regulations could have been better: If first companies disclose their ESG data in a transparent and harmonised way, asset managers can use them in the construction of their fund offerings, and finally distributors can assess investor preferences for sustainable investments. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Striving for a positive footprint, professionally and personally.
Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. These will provide a strong framework for asset management companies' communication around Article 8 and 9 funds as defined by last year's Sustainable Finance Disclosure Regulation (SFDR). These cookies allow us to know which pages are the most and least popular and see how visitors move around the site. Each distributor must draw up a questionnaire. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. Please refer to your advisors for specific advice. This will not simply be a case of asking an investor whether they would like to invest in product is categorised as Article 6, Article 8 or Article 9 under SFDR. Can Sustainable Labeling of Financial Products Prevent Greenwashing?
hb```c``b`e` @1V &00 IIr%l=cugllllRdAEeJ;sPnZeL:3r|vWNZ%n b o L Non-ESG Financial Products 0000011892 00000 n Our Financial Services Regulatory group in Ireland comprises of leading lawyers and experienced industry professionals with a wealth of experience in advising clients on regulatory requirements and how to manage regulatory risk within their business. 1 Commission Delegated Regulation (EU) 2021/1253 of 21 April 2021 amending Delegated Regulation (EU) 2017/565 as regards the integration of sustainability factors, risks and preferences into certain organizational requirements and operating conditions for investment firms. hbbbg`b``3 1x4>Fc8` $
On 27 January 2022, the European Securities and MarketsAuthorities (ESMA) published a consultation paper on theGuidelines on Certain Aspects of MiFID II Suitability Requirementsin order to add the sustainability risks and preferencerequirements included by the last MiFID II Delegated Regulation1(the Guidelines). Next, the Corporate Sustainability Reporting Directive (CSRD) directive, still under discussion, aims to strengthen companies financial and ESG reporting obligations from 2024. Market participants are confronted with numerous questions on the implementation of the amendments: How can I integrate and explain sustainability preferences in my client conversations and which products are eligible?
Please let us know if you accept our use of cookies. All this will allow for a better diversified capital allocation and better risk control, aligned with the sustainability challenges. Starting in August, advisers and distributors of financial products will have to ask clients to specify their sustainable development investment preferences as part of the European agenda to direct capital to companies most active in the transition to a low carbon and inclusive economy. Investments that consider sustainability factors - Financial instruments that consider principal adverse impacts ("PAIs") on sustainability factors, where elements demonstrating that consideration are determined by the client or potential client. In this context, appropriate training should be provided to exposed staff. Chicago, IL 60601, New challenges for the asset management industry, The challenge of data, the first essential step, Commentary: Long/short equities an unconventional inflation hedge, Commentary: TSP's new mutual fund window including ESG options is long overdue, The Institutional Investors Guide to ESG Investing, Climate Change: The Inescapable Opportunity, 2022 Defined Contribution East Conference, Deutsche Bank, DWS raided over allegations of greenwashing, U.K. proposes rollback of MiFID II research rules for bonds, small companies, Asset managers including more assets in net-zero targets report, Vanguard: On course to net-zero investment portfolio goal, SEC wants more disclosure on funds using ESG factors, HSBC's suspended banker taken to task by key architect of ESG. In effect, only the more materially ESG-focused products will be eligible for recommendation to the clients who express clear sustainability preferences. Other financial products can still be offered to clients, but they will not be eligible for recommendation to clients that have expressed specific sustainability preferences.
The answers given by clients will have to be translated into a specific offer, although this la carte model presents a major challenge, with the aim being to align clients' selection criteria with the characteristics of the funds offered. This sequence requires us to collect extra-financial data from companies by other means. Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice.
endobj 0000013141 00000 n Recognising that many investment funds will not meet investor preferences when they are expressed in the abstract and without regard to the types of investment funds available, ESMA has proposed the option of getting the investor to adapt their preferences. 0000014762 00000 n Asking the better questions that unlock new answers to the working world's most complex issues. investment strategy is defined and ask the client to adapt his/her preferences. MiFID ESG Changes ESMA Guidance For an explanation of how we use cookies on our website, please refer to our. As of 2 August, financial product advisers and distributors will have to ask clients to specify their sustainability preferences. Broader projects may also be required to ensure communication is clear, concise and not technical while ensuring an optimal client experience on all channels (including mobile devices). They are usually only set in response to actions made by you which amount to a request for services, such as setting your privacy preferences, logging in or filling in forms.
0000012682 00000 n
This could also be an important factor for Level 2 of SFDR (in force from 1 January 2023) and play a part in how firms develop detailed disclosures for ESG-focused funds' prospectuses, websites and periodic reports. 0000000936 00000 n
In order to assess investor preferences for sustainability, distributors of financial products must draw up a questionnaire to determine investors' expectations around environmental, social and governance criteria, alignment with the European taxonomy and negative investment externalities, such as those damaging to health. Heike Schmitz,Partner,Herbert Smith Freehills LLP These cookies allow us to advertise our products to you and allow us to pass this information on to our trusted third parties so that they can advertise our products to you on our behalf. : since ESMA will collect feedback until the end of April 2022, the final Guidelines should be published shortly before, or more probably after, the application date (2 August 2022) of the Delegated Regulation. trailer
Where a firm intends to recommend a product that does not meet the initial sustainability preferences of the client in the context of investment advice, it can only do so once the client has adapted his/her sustainability preferences. It is essential that their completion leads to an inspiring exchange of information between client and adviser, rather than being an administrative formality. This could be a key consideration when assessing the merit of investment funds categorised as Article 8 financial products under SFDR that: (a) do not make a quantitative commitment to investment in sustainable investments and / or; (b) do not consider PAIs on sustainability factors. 0000005166 00000 n
financial objectives); and (ii) the client's risk tolerances, in order to be able to recommend suitable investments. 0000004452 00000 n
All information these cookies collect is aggregated and therefore anonymous. These Guidelines involve some challenges that investment firms are currently facing notably with regards to, inter alia: Short implementation timeline: since ESMA will collect feedback until the end of April 2022, the final Guidelines should be published shortly before, or more probably after, the application date (2 August 2022) of the Delegated Regulation. 685 Third Avenue 0000035383 00000 n <>/Metadata 15 0 R/Pages 14 0 R/StructTreeRoot 17 0 R/Type/Catalog/ViewerPreferences<>>> The sustainable investor for a changing world.
EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. The market opportunity in U.S. residential mortgage-backed securities, Credit Indices Evolve with Enhanced Data Inputs, For institutional investors, ETFs can make meeting liquidity needs easier, Gold: the most effective commodity investment, 2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios, Ten ways retirement plan professionals add value to plan sponsors. The answers to these questions will lead to an advanced level of portfolio customization, as well as allowing the harmonization of the ESG offering. Inquiries about ISS products and services, requests for copies of proxy research reports, and requests to engage with ISS regarding research reports and policies should be directed to the Help Center. For this reason, they may not be suitable for readers without professional investment experience. If the client states that he/she has sustainability preferences, and the firm does not have any products with sustainability related factors available, this should also be documented in the suitability report.
Offering a product with sustainablefeatures to a client who expressed no interest (even when such features are disclosed) could undermine client relationships, in particular in case an ESG product underperforms from a financial perspective. endstream Suite 3200 MIFID II currently provides that when an investment firm offers investment advice or portfolio management services to a client, it is first required to obtain information on (among other things): (i) the client's investment objectives (i.e.
However, matching financial products to what could be highly specific and aspirational preferences could be quite a challenge and it may, therefore, be quite difficult to design a financial product that is fully 'sustainability preferences' eligible in all cases. Finally, technology is also a tool for teaching people. It proposes ranking and grouping products across a spectrum for the three investor sustainability preference categories. 0000006939 00000 n EY is a global leader in assurance, consulting, strategy and transactions, and tax services. We believe this regulation is a powerful accelerator that empowers investors and improves transparency in a particularly dense regulatory environment where the fight against greenwashing is omnipresent. startxref The introduction of MiFID II should make sustainable funds even more attractive, but we will have to ensure that we maintain a balanced allocation of capital, in order to avoid too much concentration of investments. Taxonomy and Sustainable Finance Disclosure Regulation (SFDR) have dominated the public discussion while the upcoming amendments to MiFID II and IDD have attracted significantly less public attention. Review ourcookie policyfor more information.
Australia: +61.2.8048.3999 <. This means investment firms should already launch their project on the basis of Guidelines included in the consultation. including non-taxonomy aligned. Our highly technical team deliver pragmatic and solutions-focused advice to our clients. The information does not usually directly identify you, but it can give you a more personalized web experience. 683 32 New York, NY 10017-4036, Chicago Office These three sustainability preference categories are separate and distinct.
Furthermore, the Corporate Sustainability Reporting Directive (CSRD), still under negotiation, will strengthen companies' financial and ESG reporting obligations from 2024. Seasoned business advisor with a focus on strategy, customer & operations in the financial services industry. endobj
%PDF-1.4 % These changes not only represent a new legal framework, they mark an important step toward reallocating capital towards the ecological transition and social issues. It was submitted and edited under Pensions & Investments guidelines, but is not a product of P&I's editorial team. 0000016265 00000 n Passionate about achieving goals in teams. The third category relates to financial products that consider the PAIs of investments on sustainability factors. EY | Assurance | Consulting | Strategy and Transactions | Tax. Since 2018, we have been using a proprietary methodology to collect data on E, S, and G criteria from more than 13,000 issuers, complemented by data of different types and from other sources. Investor responses will have to be translated into a concrete product offering. In line with the stated objectives, funds will have to either: Currently, BNP Paribas Asset Managements offering includes a product range integrating ESG criteria with more than EUR 330 billion in assets under management (end December 2021) covering a broad set sectors and geographies. Front office staff should also have the necessary knowledge and competence with regards to the criteria of the sustainability preferences and should be able to explain them to clients in non- technical terms. If the firm cannot meet those preferences, it should discuss this with the client when agreeing on the mandate in which theinvestment strategy is defined and ask the client to adapt his/her preferences. 0000004678 00000 n You can set your browser to block or alert you about these cookies, but some parts of the site will not then work. Please check the boxes below to subscribe, Investment strategies and asset allocation, Our latest regular features, outlooks and reports, Article "{postName}" added to your bookmarks, Article "{postName}" removed from your bookmarks, Limit negative impacts such as greenhouse gas emissions or gender wage inequality, Integrate a proportion of assets defined as sustainable. We bring together extraordinary people, like you, to build a better working world. Under the MiFID ESG Regulation, it will also be mandatory to obtain information and assess investment suitability on the basis of a third element, that is, the client's sustainability preferences. <>stream Some emerging markets offer less security than the majority of international developed markets. 0 To add to the complexity, under the MIFID ESG Directive, firms that are in scope of MIFID II product manufacturer obligations will need to consider the sustainability related objectives of clients when identifying a target market for the financial product effectively coming at the issue from the opposite direction of the investor. The MiFID questionnaire used to harvest the investment preferences and determine product suitability will be key. xref The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Then, the firm should assess the clients sustainability preferences by identifying: The Guidelines also address some special cases an investment firm can face, for example, when the client has no sustainability preference or when the product does not fit their preference. They may also be used to personalize your experience on our website by remembering your preferences and settings. 2022 Institutional Shareholder Services Inc. All rights reserved. 0000008824 00000 n 0000021282 00000 n We see this as a welcome initiative that should lead to harmonised questionnaires. EY EMEIA Wealth and Asset Management Consulting Senior Manager. How do you move long-term value creation from ambition to action?
0000004566 00000 n Asset managers must ensure that the funds offered meet the expectations of clients and distributors according to a range of criteria. What could potentially emerge is a split between 'Article 8 Lite' and 'Article 8+ categories of funds with only the latter (in addition to Article 9 funds) having the necessary level of 'sustainability-related materiality' in order to be able to meet one or more of the three criteria to be eligible for recommendation to clients that have expressed sustainability preferences to their distributors / sales advisers. Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Tech savvy. Discover how EY insights and services are helping to reframe the future of your industry. What do sustainability preferences mean for product governance and the product manufacturers target market concepts?
This la carte model presents a major challenge: Aligning the preferences with fund characteristics. 3 MiFID II Delegated Regulation - Article 2 (7): sustainability preferences means a clients or potential clients choice as to whether and, if so, to what extent, one or more of the following financial instruments shall be integrated into his or her investment: (a) A financial instrument for which the client or potential client determines that a minimum proportion shall be invested in environmentally sustainable investments as defined in Article 2, point (1), of Regulation (EU) 2020/852 of the European Parliament and of the Council (*), (b) A financial instrument for which the client or potential client determines that a minimum proportion shall be invested in sustainable investments as defined in Article 2, point (17), of Regulation (EU) 2019/2088 of the European Parliament and of the Council (**), (c) A financial instrument that considers principal adverse impacts on sustainability factors where qualitative or quantitative elements demonstrating that consideration are determined by the client or potential client, Guidelines on certain aspects of the MiFID II suitabilityrequirements, Commission Delegated Regulation (EU) 2021/1253 of 21April 2021 amending Delegated Regulation (EU) 2017/565as regards the integration of sustainability factors, risks andpreferences into certain organizational requirements andoperating conditions for investment firms, Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments. %%EOF All information collected is anonymous unless you provide personal information to us. Press inquiries should be directed to the ISS Press Office. Regulators will nonetheless be vigilant when it comes to interpreting the legislation: The European Securities and Markets Authority (ESMA) has recently clarified this point by providing the first elements of a prescriptive framework.
They integrate sustainability issues and considerations into the following EU legislative regimes: The Delegated Acts complement the obligations in Regulation (EU) 2019/2088("SFDR") and Regulation (EU) 2020/852("Taxonomy Regulation") and form part of the European Commission's 'ambitious and comprehensive' package of measures to help improve the flow of money towards sustainable activities across the EU. 0000000016 00000 n 0000019755 00000 n Case 3 - The client has no sustainability preference. Will your NFT investments soon be subject to VAT? SFDR Article 8 Financial Products Implications Japan: +81.3.5217.7888 130 E. Randolph St. Insurance Distribution Directive /2016/97/EU. The decision of the client should be documented. This is a positive initiative that should lead to a general harmonization of questionnaires. We use cookies to give you the best user experience on our website. Let us not forget that this represents much more than a new legal framework, it is an important step towards reallocating capital towards the ecological transition and social issues. While we welcome the progress resulting from this regulatory framework, the order of the regulations could have been better: If first companies disclose their ESG data in a transparent and harmonised way, asset managers can use them in the construction of their fund offerings, and finally distributors can assess investor preferences for sustainable investments. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Striving for a positive footprint, professionally and personally.
Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. These will provide a strong framework for asset management companies' communication around Article 8 and 9 funds as defined by last year's Sustainable Finance Disclosure Regulation (SFDR). These cookies allow us to know which pages are the most and least popular and see how visitors move around the site. Each distributor must draw up a questionnaire. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. Please refer to your advisors for specific advice. This will not simply be a case of asking an investor whether they would like to invest in product is categorised as Article 6, Article 8 or Article 9 under SFDR. Can Sustainable Labeling of Financial Products Prevent Greenwashing?
hb```c``b`e` @1V &00 IIr%l=cugllllRdAEeJ;sPnZeL:3r|vWNZ%n b o L Non-ESG Financial Products 0000011892 00000 n Our Financial Services Regulatory group in Ireland comprises of leading lawyers and experienced industry professionals with a wealth of experience in advising clients on regulatory requirements and how to manage regulatory risk within their business. 1 Commission Delegated Regulation (EU) 2021/1253 of 21 April 2021 amending Delegated Regulation (EU) 2017/565 as regards the integration of sustainability factors, risks and preferences into certain organizational requirements and operating conditions for investment firms. hbbbg`b``3 1x4>Fc8` $
On 27 January 2022, the European Securities and MarketsAuthorities (ESMA) published a consultation paper on theGuidelines on Certain Aspects of MiFID II Suitability Requirementsin order to add the sustainability risks and preferencerequirements included by the last MiFID II Delegated Regulation1(the Guidelines). Next, the Corporate Sustainability Reporting Directive (CSRD) directive, still under discussion, aims to strengthen companies financial and ESG reporting obligations from 2024. Market participants are confronted with numerous questions on the implementation of the amendments: How can I integrate and explain sustainability preferences in my client conversations and which products are eligible?
Please let us know if you accept our use of cookies. All this will allow for a better diversified capital allocation and better risk control, aligned with the sustainability challenges. Starting in August, advisers and distributors of financial products will have to ask clients to specify their sustainable development investment preferences as part of the European agenda to direct capital to companies most active in the transition to a low carbon and inclusive economy. Investments that consider sustainability factors - Financial instruments that consider principal adverse impacts ("PAIs") on sustainability factors, where elements demonstrating that consideration are determined by the client or potential client. In this context, appropriate training should be provided to exposed staff. Chicago, IL 60601, New challenges for the asset management industry, The challenge of data, the first essential step, Commentary: Long/short equities an unconventional inflation hedge, Commentary: TSP's new mutual fund window including ESG options is long overdue, The Institutional Investors Guide to ESG Investing, Climate Change: The Inescapable Opportunity, 2022 Defined Contribution East Conference, Deutsche Bank, DWS raided over allegations of greenwashing, U.K. proposes rollback of MiFID II research rules for bonds, small companies, Asset managers including more assets in net-zero targets report, Vanguard: On course to net-zero investment portfolio goal, SEC wants more disclosure on funds using ESG factors, HSBC's suspended banker taken to task by key architect of ESG. In effect, only the more materially ESG-focused products will be eligible for recommendation to the clients who express clear sustainability preferences. Other financial products can still be offered to clients, but they will not be eligible for recommendation to clients that have expressed specific sustainability preferences.
The answers given by clients will have to be translated into a specific offer, although this la carte model presents a major challenge, with the aim being to align clients' selection criteria with the characteristics of the funds offered. This sequence requires us to collect extra-financial data from companies by other means. Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice.