EY is a global leader in assurance, consulting, strategy and transactions, and tax services. We bring together extraordinary people, like you, to build a better working world. Cybersecurity, strategy, risk, compliance and resilience, Value creation, preservation and recovery, Climate change and sustainability services, Strategy, transaction and transformation consulting, How a collaborative approach helps CGT treatments reach more patients, How blockchain is reducing the fluidity of risk in marine insurance, How the right conversations can empower finance transformation strategies. All this will allow for a better diversified capital allocation and better risk control, aligned with the sustainability challenges. 
It is a powerful accelerator that gives investors power and improves supply transparency in a particularly dense regulatory environment where the fight against greenwashing is ubiquitous. Firms inability to meet end investors sustainable needs: due to the required assessment granularity and the requirement to ask clients for minimum percentages of sustainable investments, firms may not be in a position to match products to clients preferences. 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).
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EY EMEIA Wealth and Asset Management Consulting Senior Manager. It is thus acknowledged that certain SFDR Article 8 products will not align with a client's sustainability preferences, per the extract below: All information these cookies collect is aggregated and therefore anonymous. Data availability: some disclosures related to taxonomy-alignment and principal adverse impacts are not yet available due to the future application dates of: Therefore investment firms may struggle to find the product data they need to ensure the products purchased or advised meet the clients preferences. 0000026475 00000 n
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In the coming years, the implementation of sustainable finance legislation will be a major project for the asset management industry. Will your NFT investments soon be subject to VAT? It concerns environmental, social and governance criteria, product alignment with the European taxonomy and negative investment externalities. Finally, technology is also a tool for teaching people. 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. This content represents the views of the author. For further details, please liaise with your usual Maples Group contact or any of the below. Like any major upheaval, the transition will take place over time and require the help of all stakeholders: Distributors, asset managers, regulators and of course investors. 
Seasoned business advisor with a focus on strategy, customer & operations in the financial services industry. <> 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. For further details, please see our previous Sustainable Finance: New EU Delegated Legislation client update. No personal information is shared with third parties. 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).
So, in theory, one investor could express a preference only for "environmentally sustainable investments and investments that consider sustainability factors" and another could express a preference for only "sustainable investments". Investor responses will have to be translated into a concrete product offering. Australia: +61.2.8048.3999 Review ourcookie policyfor more information. Striving for a positive footprint, professionally and personally. Case 1 - Product does not meet the clients initial sustainability preferences. At BNPP AM, we have been using our proprietary scoring methodology since 2018, covering more than 13 000 issuers, to gather data on various ESG criteria, which we complete with information from other sources. 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. We are confident that MiFID II and the various regulations will ultimately bring more coordination and standardization for the benefit of clients. It is essential that their completion leads to an inspiring exchange of information between client and adviser, rather than being an administrative formality. Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.
Some emerging markets offer less security than the majority of international developed markets.
Please note that articles may contain technical language. Portfolio Monitoring & Claims Verification, ISS ISO-Information Security Whitepaper (June 2021), Governance Analytics (Corporate Issuer Data Verification), Privacy (including cookies), Social Media & Legal. A wide range of new EU sustainable finance measures come into force on 1 August 2022. These changes not only represent a new legal framework, they mark an important step toward reallocating capital towards the ecological transition and social issues. How do I record sustainability preferences in the suitability report? This document does not constitute investment advice. Our team of highly experienced global lawyers work with leading investment managers and institutional investors in Europe, America and Asia to implement ESG policies and frameworks into their operational infrastructure. In effect, only the more materially ESG-focused products will be eligible for recommendation to the clients who express clear sustainability preferences. financial objectives); and (ii) the client's risk tolerances, in order to be able to recommend suitable investments. Because we respect your right to privacy, you can choose not to allow some types of cookies.
We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. 0000035383 00000 n We welcome and will contribute to regulators' efforts to increase the transparency of available information, and actively engage with policymakers and governments to help them shape the markets we invest in and the rules that guide and govern corporate behavior. Technology will also have a prominent role in the offering for clients under MiFID II: Algorithms will make it possible to translate the constraints from the questionnaires into optimal portfolios meeting investor needs. <. We see this as a welcome initiative that should lead to harmonised questionnaires.
0000021144 00000 n 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.
684 0 obj The introduction of MiFID 2 rules should make sustainable funds even more attractive, but we will have to ensure that we maintain a balanced allocation of capital to avoid excessive concentration of investments. 
These will provide a strong framework as to how asset managers communicate on so-called Article 8 and 9 funds under the SFDR regulation. 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. 
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. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk. 0000001175 00000 n
Further information on our Irish Financial Services Regulatory Group, and the services we provide is available on our website and in our brochure.
We welcome and contribute to regulators efforts to increase the transparency of available information, and actively engage with policymakers and governments to help them shape the markets we invest in and the rules that guide and govern corporate behaviour. 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. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. If we explore this to its logical conclusion, it is reasonable to determine that, in time, a simple Article 8 categorisation will not be considered sufficiently ESG focused (or 'green enough') to meet the sustainability preferences of clients investing through MIFID distribution channels. 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. The asset management industry has a critical role to play in this new paradigm of ensuring a complete offer corresponding to the entire range of investor profiles, not only in terms of ESG preferences, but also in risk taking, portfolio diversification and liquidity. Doubts also remain in relation to potential repercussions of classifying clients with no sustainability preference as sustainable neutral. Further Information endobj The decision of the client should be documented. 0000018125 00000 n Select your location Close country language switcher, EY Luxembourg Consulting Partner, ESG Services Leader. ESMA has provided some useful guidance on this issue in its revised guidelines on MIFID II suitability requirements that are currently under consultation. Joel Yarm,Managing Director,Head of EMEA ESG Sales,ISS ESG, Americas: +1.646.680.6350 Press inquiries should be directed to the ISS Press Office. 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. When you visit any website, it may store or retrieve information on your browser, mostly in the form of cookies. In terms of expressing a client's sustainability preferences, the MiFID ESG Regulation outlines three categories of sustainability for investment products that it considers should be integral to a client's sustainability preferences, as summarised below: Investors will be asked if they want their investment to have one or more of these features and if so, how much of each. This means investment firms should already launch their project on the basis of Guidelines included in the consultation. After the introduction of MiFID II, level 2 regulatory technical standards will apply from 1 January 2023. This information might be about you, your preferences or your device and is mostly used to make the website work as you expect it to. 0000003892 00000 n The MiFID questionnaire used to harvest the investment preferences and determine product suitability will be key. While much progress has already been made, there is further to go, not least to improve the quality and access of companies' ESG data. Subscribe to receive this weeks articles straight to your inbox. Substance: Juggling with tax, TP, regulatory and operational requirements, Lassurance de demain na jamais t aussi prsente. Can Sustainable Labeling of Financial Products Prevent Greenwashing? Where a client does not answer the question whether he has sustainability preferences or answers no, the firm may consider this client as sustainability-neutral and recommend products both with and without sustainability-related features. 0000004566 00000 n endstream 2020 EYGM Limited. We advocate the use of digital paths, for a streamlined, simplified experience connected to the portfolio construction algorithms.
xref 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. In line with investor enthusiasm for sustainable finance, European regulators are intensifying their efforts and involving all stakeholders. Europe (UK): +44.20.3192.5799 Distributors will then have to make investment recommendations based on these preferences relating to sustainability. endobj The sustainable investor for a changing world. 0000004678 00000 n In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. Marina Reason,Partner,Herbert Smith Freehills LLP To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market. This update examines the changes under the MIFID ESG Regulation on suitability assessment obligations and considers how this may impact the distribution of ESG-focused investment funds in the EU. <<6DB97BE198B4B2110A00309DA491FE7F>]/Prev 78207/XRefStm 1175>> Systematically asking investors, at the outset of the sales process, to indicate specifically if they have a preference for ESG products, in the detailed way prescribed, could cause a radical shift in the demand levels for ESG financial products. 0000014762 00000 n Heike Schmitz,Partner,Herbert Smith Freehills LLP Furthermore, the Corporate Sustainability Reporting Directive (CSRD), still under negotiation, will strengthen companies' financial and ESG reporting obligations from 2024. No Alignment with SFDR Categorisations Each distributor must draw up a questionnaire. SFDR Article 8 Financial Products Implications including non-taxonomy aligned.
One specific aspect of the Delegated Acts is: (i) Commission Delegated Regulation (EU) 2021/1253 (the "MIFID ESG Regulation"); and (ii) Commission Delegated Directive (EU) 2021/1269 ("MIFID ESG Directive") to integrate sustainability considerations into the suitability assessment and product governance obligations under MIFID II. 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. In addition to cookies that are strictly necessary to operate this website, we use the following types of cookies to improve your experience and our services:Functional cookiesto enhance your experience (e.g. These cookies are necessary for the website to function and cannot be switched off in our systems. 0000005166 00000 n Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. <>stream endstream This sequence requires us to collect extra-financial data from companies by other means. 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. The Directive 2014/65/EU on Markets in Financial Instruments (MiFID II) determines that investment firms should obtain the necessary information regarding: In August 2021, the European Commission published a delegated regulation2 (the Delegated Regulation) providing that investment firms should also identify the clients sustainability preferences. 0000008824 00000 n Individual portfolio management teams may hold different views and may take different investment decisions for different clients. All information collected is anonymous unless you provide personal information to us. <>/Filter/FlateDecode/Index[17 666]/Length 45/Size 683/Type/XRef/W[1 1 1]>>stream The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. 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. 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.
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