EFAMA statement on ESMA’s consultations on integrating sustainability risks and factors in the UCITS Directive, AIFMD and MiFID II

A high-level-principles-based approach is welcome, but it is essential to maintain a consistent approach among all consultations and legislative process addressing and defining “sustainability risk”

Brussels, 19 February 2019 - EFAMA submitted its responses to ESMA’s consultations on integrating sustainability risks and factors in the UCITS Directive, AIFMD and MiFID II.

In its response, EFAMA welcomes ESMA’s high-level-principles-based approach, which acknowledges the principle of necessary proportionality based on the firms’ investment strategy and underlying assets of each investment product. It is, however, important to ensure consistent application of this high-level approach is respected among all the current consultation processes when it comes to the integration of sustainability risks and factors in the investment decision and distribution processes. This is essential to ensure that all parts of the investment chain pull in the same direction.

Furthermore, a clear understanding of the notion of “sustainability risk” is critical. ”Sustainability risk” should only be considered as a material risk to the financial performance of an investment based on sustainability considerations and not as externality risks that may be posed from investments to environment and society at large.

In this context, duties with regards to organizational, due diligence, conflicts of interest, risk management and suitability requirements foreseen in the UCITS Directive, AIFMD and MiFID II will also apply to sustainability risks, the same way they would apply for other risks. Therefore, we do not see a merit in a further detailed description of those requirements regarding sustainability risks.

It is also essential that sufficient time is allowed to implement these changes. The Commission is suggesting only twelve months which is far too little time considering that changes to the UCITS Directive, AIFMD and MiFID Level 2 must be implemented into Member States’ national laws first.
EFAMA’s Director General Tanguy van de Werve comments: "ESMA’s high-level approach is a positive one as it ensures the level of flexibility required in view of the rapid market and regulatory developments in the area of sustainable finance. We consider that sustainability risks and related opportunities can be material drivers, and therefore important, alongside other factors, in assessing investment risks and opportunities. With this in mind, we call ESMA to ensure that the notion of sustainability risk is to be linked to the financially material impact on an investment and that a consistent application among the different ongoing consultation and legislative process is in place.”

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