Since August 2022, investment firms providing financial advice and portfolio management in Europe must carry out a mandatory assessment of sustainability preferences of their clients or potential clients. Investment firms in Europe must take these sustainability preferences into account in the selection process of financial instruments that are recommended to those clients.
However, 2DII’s 2022 mystery shopping campaign (253 visits across six EU countries) revealed an alarmingly low level of regulatory compliance. Furthermore, the campaign showed that the current integration of sustainable preferences by product distributors is insufficient to accommodate impact-oriented investors and to include an appropriate amount of detail for the market.
Appointments where the advisor raised the subject of sustainability preferences without any prompting
These findings confirm 2DII’s legal analysis which raised the concern that assessing sustainability preferences according to the new MiFID II requirement will not reveal if a client is impact-oriented and cannot result in recommending an impact-oriented financial product. Without intervention, we expect a systemic mis-selling to clients who are interested in achieving impact (representing over 40% of retail investors according to 2DII’s research program on sustainability preferences across 14 EU countries).
Therefore, 2DII has developed a best-practice Questionnaire and a Guidance to assist investment firms in carrying out a comprehensive assessment of a client’s sustainability preferences and wider sustainability motivations to comply with the new regulation and to their client expectations. Those aspects are critical to improving the suitability of the recommended product(s), increasing consumer trust, and ensuring that financial markets work towards societal and environmental goals.
The Questionnaire and Guidance were developed over a period of more than one year by 2DII taking into account (i) relevant regulatory framework (ii) 2DII expertise and research in relation to the assessment of sustainability preferences of retail clients (iii) discussions of a French working group composed of around 20 members (representants of major stakeholders of sustainable finance in France including financial institutions, NGOs and academics) in the context of the Finance ClimAct project and (iv) feedback received on a public consultation on a draft Questionnaire and Guidance opened by 2DII from March 2022 to June 2022.
The full documents are available here:
Annex I: Client explanatory materials
Annex II: Financial product eligibility for recommendation
Annex III: Advising impact-oriented clients
With this publication, 2DII launches a European consultation on the Questionnaire and the Guidance documents until April 2023. Based on this feedback, we plan to publish a second version in May 2023.
Please feel free to use this mini-survey to share your feedback or contact us directly per e-mail: samia@2degrees-investing.org
About our funder: This project has received funding from the European Union’s LIFE program under grant agreement LIFE18IPC/FR/000010 A.F.F.A.P. Disclaimer: The European Commission is not responsible for any use that may be made of the information it contains.
