2DII’s return after the summer will see us ramping up research activities across our retail investing programme. In addition to the launch of our growing MyFairMoney retail platform in Switzerland, Greece and Czech Republic we will continue to provide analysis and develop evidence to inform two key areas of the Commission’s sustainable finance agenda – fighting greenwashing and improving the suitability assessment to take account of client sustainability preferences.
Just prior to the summer break, the Commission issued a call for input to the ESAs regarding greenwashing risks and supervision of sustainable finance policies. The Commission is seeking the ESAs’ input on several aspects including: the occurrence of greenwashing, supervisory practices, experience and capacities and proposals for improvements of the regulatory framework.
As part of this call for input, the ESAs are invited to provide early insights on whether current legal definitions aimed at addressing greenwashing are understood consistently by supervisors and market participants. Our research shows that this is a key area where effort should be focussed to improve market practice. Our recent paper: Fighting greenwashing … what do we really need? reveals that while general financial sector regulation is applicable to environmental impact claims in the finance sector, these rules are too general and high-level to provide effective governance of environmental impact claims. And more concerningly, the sustainable finance rules do not provide further assistance since they are not adapted to regulate environmental impact claims.
We are now recruiting members to a broad stakeholder working group tasked with identifying solutions to address this regulatory gap. The working group will look to define principles or guidance for legitimate environmental impact claims in the finance sector and assess clarifications and improvements needed to adapt the legal framework in the context of financial products. Chief among these clarifications and improvements will be integrating a genuine notion of investor environmental impact in the regulatory framework. We hope that this working group can provide a significant contribution to each ESA’s thinking in developing its final report in response to the call for input.
Improving the suitability assessment
During the summer break, the MiFID and IDD delegated acts came into force which now require a mandatory assessment of client sustainability preferences during the suitability assessment. Our research in the run up to implementation of these delegated acts shows that only 25% of advisors ask about environmental or social objectives as part of the client profile assessment. Therefore these regulatory changes should bring about a substantial change in market practice during the financial advice process.
Over the next two years, 2DII will be carrying out mystery shopping visits in 14 Member States to assess compliance with the new regulatory requirements on sustainability preferences. We will also publish our final Questionnaire and Guidance in the next few weeks which sets out a best practice approach to assessing client sustainability preferences and wider sustainability motivations during the suitability assessment.
So lots to look forward to – please do not hesitate to get in touch if you want to find out more!