EUROPEAN UNION: ESMA Publishes Final Report on Integrating Sustainability Risks and Factors in MIFID II

Friday May 3 2019

On 3rd May 2019, the European Securities and Markets Authority (ESMA) published a Final Report in relation to ‘ESMA’s technical advice to the European Commission on integrating sustainability risks and factors in MiFID II.’

Purpose

This Technical Advice suggests changes to MiFID II implementation acts to accomplish the mandate received by the Commission on July 2018 aiming at integrating sustainability risks (i.e. environmental, social and governance risks) in the investment decision or advisory processes as part of duties towards investors and/or clients. In particular, it was observed that there is the need to sufficiently address explicit ESG preferences that certain investors might have in order to consider the personal values of such investors in the advisory process and to reflect them in the investment product selection.

Conclusion

ESMA believes that the approach used to indicate changes to the Commission is able to strike a good balance between the need for harmonisation and for flexibility, while achieving the policy objectives of the Commission’s mandate and providing clarity on ESG factors’ integration and investor protection. ESMA believes that the suggested changes are proportionate in terms of costs for relevant entities, as they appear to require limited investment in ESG expertise, data and tools. The changes will achieve the intended objective of fulfilling the Commission’s mandate without imposing unnecessary burden on the relevant entities.

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