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New MiFID II guidelines – Greater flexibility for financial advisors
In September 2022, the European Securities and Markets Authority (ESMA) published the final report on the MiFID II guidelines regarding some relevant aspects for the proper integration of investors’ sustainability risks and preferences. This report introduces a degree of flexibility for the financial advisors’ approach to collecting clients’ “sustainability preferences”. For example, regarding the request of the customer to establish a minimum percentage of alignment to the green taxonomy or a share of ‘sustainable investments’ in the portfolio. ESMA will allow advisors to set a minimum approximate percentage or different ‘bands’ of sustainable assets in client portfolios rather than an exact percentage.
The new MiFID II guidelines have been translated into each of the languages represented in the EU and will be enforced on March 23rd, 2023.
ESAs working for a better definition of ‘sustainable investment’
If it is true that ESMA and the European Commission are opening up to greater flexibility in order to ease the transition towards ESG investments, it is hard to state the same for what concerns the European Supervisory Authorities (ESAs). In fact, in September, a clarification request regarding the definition of ‘sustainable investment’ was sent to the European Commission. The definition given by the SFDR art. 2(17) regulation states that an investment is considered ‘sustainable’ when it contributes to reaching an environmental goal without causing significant damage and when the company pursues good governance practices. However, this definition has not been considered exhaustive by the ESA. All involved parties were working and hoping to publish an update on this topic by the end of October, but nothing was published. Changes in the definition of ‘sustainable investment’ will not be taken lightly; in fact, SFDR regulation art. 9 requires that such funds are composed of at least 80% of sustainable assets, while MiFID II guidelines require advisors to integrate clients’ sustainability preferences, defining the proportion of sustainable investments in their portfolios.
Need help complying with the upcoming MiFID II or SFDR regulations? Physis offers tools and data to build and report on sustainable portfolios following the exact requirements of upcoming regulations. Book a meeting here to see how we can help you.