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25 February 2019

ESMA publishes responses to its Consultations on Sustainable Finance

ESMA published the responses received to its Consultations on integrating sustainability risks and factors in MiFID II, and in the UCITS Directive/AIFMD.

The Investment Association

As this is a comprehensive and far-reaching Package, it is vital that the scope of each of the individual Proposals as well as any subsequent components, including this consultation paper, is clarified and that these components harmoniously with each other to progress this broad agenda.

The IA asks that European policy makers also consider the global implications of the Package. A lack of coordination, including at a global level, could have unintended consequences which may risk putting a brake on existing economic activities that already contribute to a more sustainable economy, as well as on further innovation and growth.

The IA supports European policy makers’ commitment to make Europe a global leader in sustainable finance and stands ready to work with ESMA and other key stakeholders to progress this agenda and boost the role of finance in achieving both a well-performing economy and one that also delivers on environmental and social goals.

The IA thanks ESMA for this opportunity to provide feedback on the proposed technical advice to the European Commission on the integration of sustainability risks and factors in MiFID II, in relation to:

- Organisational requirements

- Risk management

- Product governance; and

- Suitability

Full IA response





Investors and advisors need to be educated regarding sustainable finance, and some market players are more advanced than others. Principle-based rules facilitate such education and enable less advanced market participants to get on board. Market participants are allowed to move forward from their different starting points while avoiding a burdensome and extensive implementation.

 Principle-based rules are likely to be compatible with future developments such as the establishment of the Taxonomy and extension of the EU Ecolabel. Detailed requirements, if established at this stage, will most probably deviate from future developments. Double implementation would confuse investors and be detrimental to a positive approach towards sustainability. Rather than requiring investors and market participants to implement detailed requirements which would possibly have to be adjusted due to future developments, ESMA’s principle-based approach allows using and refining existing approaches.

 Principle-based rules keep the balance with other MiFID II requirements. A more detailed legislation always gives the impression that this aspect is more important than others.

Full BVI response




As a general comment, the EACB is supportive of the high-level principles-based approach by ESMA in its consultation paper because at this point in time, there does not exist sufficient clarity on current definitions and concepts related to sustainable finance (as well as a lack of historical and standardised data) due to the taxonomy not being completed.

Notwithstanding the above, EACB still wishes to highlight the fact that besides confusion on definitions used even at Level 1 of the sustainable finance legislative package, there also exist scope issues between the taxonomy and disclosures proposal that have direct consequences on the application of amendments to MiFID II, especially in relation to product governance and suitability assessment requirements. For example, in the instance that the taxonomy is finalised sooner than anticipated, it will still only focus on the E in ESG. On the other hand, the proposals being made by ESMA in relation to integrating sustainability within the investment management and advisory process appear to also focus on the social and governance factors.

Therefore, EACB’s opinion is that in some cases (particularly in relation to product governance and suitability, and keeping in mind the impact of the proposals on distributors of the financial products in scope) even the high level amendments being made by ESMA may be too forwardlooking and should be withheld until the taxonomy is in place. That said, EACB still endeavours to provide proposals in our replies in the sections below for ESMA to issue clarifications on some topics.

In terms of definitions, EACB calls for more clarity and consistency in the use of terms between the MiFID II proposed amendments and the changes being suggested in the ESMA Consultation paper on integrating sustainability risks and factors in the UCITS Directive and AIFMD e.g. the MiFID II consultation refers to ESG risks whilst the AIFMD/UCITS Directive paper refers to sustainability risks. Clarification on the difference between ESG preferences, ESG factors and ESG considerations would also be appreciated.

Finally, possible application of transitional provisions in the final report is very much linked to timing and cost issues for our members, especially in the case that the proposed amendments to product governance and suitability requirements are approved and enter into force. Since there are no grandfathering provisions proposed with respect to updating of client profiles for the suitability assessment and product governance amendments (should these be approved), it would be beneficial that ESMA confirms whether there would be a cut-off date to application of client profiles/financial products, and if not, when the applicable provisions would apply in any case e.g. before the next investment advice given to the client. Indication of timing of application is also important and EACB suggests at least 18 months from date of entry into force for all Level 2 measures which are necessary to interlink the rights and obligations of the manufacturers and the distributors, including but not limited to the delegated directive (product governance)to become applicable.

Full EACB response




AMAFI is totally supportive of ESMA proposition of a principle-based approach

It urges ESMA, as well as the Commission, to consider giving a reasonable period of time for the implementation of the any new MiFID 2 requirements since investment firms would need time to:

- adapt consequently their internal processes (product governance set up, suitability questionnaire, suitability reports, staff training, etc.) and client’s communication for integrating their ESG preferences and

- take into account those changes in exchanges between manufacturers and distributors, notably how a financial product could be considered as ESG.

An implementation period of 18 months is a minimum.

 AMAFI would rather insist on the flexibility needed for taking into account ESG considerations.

Investment firms should have flexibility for determining ESG considerations of the client as well as for identifying ESG features of products; at least at this preliminary stage.

 ESG considerations should be identified as a single indicator and be considered as one among (and not superior to) the other factors included in the client’s investment objectives

Full AMAFI response




The effects of the future legislation are unclear. It should be recommendable that the ESG principles shall be included in MIFID legislation after the legislative proposals are finalised, all definitions adopted and fully operative. It is crucial to know the scope and to analyse the consequences of the new information requirement. Inconsistencies and overlaps have to be avoided because they can mislead investors, markets and can imply a non-negligible burden for the entities.

More concretely regarding the taxonomy, EBF would like to remark that it does not aim to be the unique and exclusive reference for manufacturers or distributors of ESG investment products. It aims to cover economic activities, with a positive impact on climate mitigation and adaptation. One dimension that the taxonomy will not cover is the companies’ ESG behaviours that can be unrelated to their performance of taxonomy-aligned sustainable activities or not.

It is very important that regulation assigns clearly responsibilities to each player. The responsibility of the entities as investment advisor should be clarified. The liability should rest with the issuer of the financial products. The definition of the ESG concept depends on the criteria and standards outside the scope of the capital markets and on the knowledge and experience of those who operate in them, and particularly of the entities that provide portfolio management and investment advice services. Therefore, embedding the ESG criteria and factors into capital markets should be done in a progressive and sequential way, so agents can interiorize them and guiding their expectations to take better financial decisions.

Therefore, the EC’s legislative proposal on the establishment of a framework to facilitate sustainable investment should also provide a clear definition for the ESG concept, and this legislative proposal -on the integration of ESG criteria in the suitability assessment (MiFID II)- should be fully aligned with the aforementioned classification.

The obligations for these entities should include products with ESG “label” in their offer and in the portfolios of the interested clients, but in any case, should not include the verification of the ESG criteria in the underlying companies or products. These firms are not in a position to make such verifications and liability should rest in the issuer of the relevant instrument.

Furthermore, new regulation should avoid being inflexible or overly prescriptive on such a forward-looking topic as sustainability in MiFID II, especially while there is no taxonomy in place.

Changes in MiFID II delegated acts should not be implemented in two steps as this would create unnecessary cost and administrative burden for both investment firms and their clients. EBF therefore urges the Commission to coordinate this legislative work, including the implementation dates. All the proposed changes to the MiFID II delegated acts (regulation and directive) should enter into force at the same point in time.

EBF therefore must underline that it is crucial to find the right balance in integrating the ESG consideration in MiFID II – whose legal and regulatory framework is still evolving – as well as disproportion as far as it regards the importance given within the MiFID II relevant provisions to ESG factors related to financial factors (market risk, credit risk, liquidity risk).

Full EBF response


Full consultation document


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