ESG and new obligations for investment firms
From August 2022, investment firms, securities traders, and other financial service providers covered by MiFID II will be required to introduce more detailed information and questionnaires for investors when providing investment advice and portfolio management, in particular concerning investors' sustainability preferences. This will require financial service providers to obtain detailed information on all the financial instruments they offer and their sustainability.
The new measures are part of the European Green Deal, the European Commission's initiative relating to sustainable development and efforts to transform the European economy into a greener, more resilient, and circular economy.
With effect from 22 August 2022, the Regulation regarding the integration of sustainability factors, risks and preferences into certain organisational requirements and operating conditions for investment firms requires investment firms to ensure that the financial instrument they recommend or are about to conclude as part of their portfolio management services is consistent with the investment objectives of the client concerned, including the client's risk tolerance and sustainability preferences, if any. This obligation must be considered when collecting information about clients or potential clients.
Sustainability preferences shall mean the client's or potential client's choice as to whether and to what extent one or more of the following financial instruments should be included in their investment:
- a financial instrument where the client or potential client determines that a minimum proportion shall be invested in environmentally sustainable investments as specified in Article 2(1) of Regulation (EU) 2020/852 of the European Parliament and of the Council (the Taxonomy Regulation)
- a financial instrument where the client or potential client determines that a minimum proportion shall be invested in sustainable investments as specified in Article 2(17) of Regulation (EU) 2019/2088 of the European Parliament and of the Council
- a financial instrument that considers the main adverse impacts on sustainability factors, i.e., instruments that consider and reduce the significant negative environmental, social and labour impacts caused by these investments.
In addition, investment firms will now be required to describe the types and range of financial instruments, including any sustainability factors that have been considered when selecting financial instruments. This information will enable investors to make informed decisions and reorient their investments towards more sustainable technologies and businesses. Detailed criteria for environmentally sustainable economic activities that must be met for investments to be classified as green and therefore sustainable are contained in Article 3 of the Taxonomy Regulation.
KPMG Legal monitors the development of the European regulation of sustainable activities, which will change in the light of technological advances, and will regularly reexamine the individual criteria. We are ready to assist our clients with the application of the Taxonomy Regulation and related regulations and with the implementation of systems meeting all requirements, including those imposed on them from 2 August 2022.