ESG & Sustainable Finance Risk & Compliance

MiFID/IDD survey results: Assist investors in finding sustainable investment opportunities

Are you one of the 114 investment firms or 9 life insurers that have completed the self-assessment on compliance with the sustainability provisions of the Product Oversight & Governance Policy (POG Policy)? Or are you one of the 97 investment firms that have completed a self-assessment on compliance with the sustainability provisions in the suitability assessment? You are probably interested in the results. The AFM published its research report “Assist investors in finding sustainable investment opportunities” on 14 May. Haven’t got around to it yet? Below is an overview of the findings for investment firms.

Spoiler alert:

  • Does your POG policy not contain a negative target market for products that do not consider sustainability factors? Then you should get to work.
  • Few customers with sustainability preferences? Does not match image of AFM, check if your explanations are understandable.
  • Do you have a sustainability preference questionnaire without specific questions? Again, it is time to get to work.
Date:May 27, 2024

Product Oversight & Governance policy (POG policy)

Most investment firms and life insurers have taken steps to integrate sustainability into their POG policies. However, there are still companies that need to review  their product offerings and, as a result, might have to adjust them. Also, defining the negative target group, the group to which products should not be sold, is not sufficiently set. According to the AFM, products without sustainability features may not be sold to investors who wish to invest sustainably.

  • About 33% of companies have not reviewed their product range for sustainability characteristics. 
  • 47% of investment firms have no policy to include sustainability objectives in the negative target group for products without sustainability features. 
  • About 41% of investment firms do not have a policy for identifying the sustainability objectives of the target market. 
  • In the execution only channel, 27% of the investment firms have not defined in their policy how the distribution strategy  ensures that investors will only get  products that fit their sustainability preferences.
  • About 25% of companies indicate that they do not receive any information from the manufacturer on the sustainable characteristics of the product and the sustainability objectives of the target market.

The AFM expects companies that have not yet adjusted their POG policies, to take appropriate actions to embed sustainability requirements in their POG policies.

Suitability assessment – understandable language  the explanation of sustainability preferences

Most investment firms have updated their policies and processes on sustainability preferences but indicate that few clients have sustainability preferences. This is a major difference compared to the AFM Consumer Monitor, in which half of investors reported that they prioritize sustainability. A possible cause could be that the explanation of sustainability in the suitability assessment is too complicated and therefore investors choose to indicate that they do not have any sustainability preferences.

The AFM expects investment firms to improve their explanation of sustainability preferences in this regard. This can be done, for instance, by sending an explanation in advance and by checking whether that information is clear and understandable. 

Suitability assessment – accuracy of sustainability preferences questionnaire 

According to the AFM the collection of information needs to improve. Firms should collect the information carefully and thoroughly about the details of the specific sustainability preferences, such as the minimum percentage to be invested sustainably or the most important adverse impacts to take into consideration.  

  • 15% of investment firms do not collect information on sustainability preferences at all.
  • 55% of investment firms do not collect information on minimum percentages of sustainable investments aligned with the EU Taxonomy or SFDR.
  • 53% of investment firms do not collect information on which principal adverse impacts (PAIs) need to be taken into account.
  • In addition, the self-assessment reveals that some investment firms let clients choose between a very limited number of minimum rates. 

As a result, investment firms might have insufficient insight into the sustainability preferences of investors. 

Need help in drafting a questionnaire for assessing the sustainability preferences of a customer in a clear and comprehensible manner? This roadmap will help. 

Substantiation of sustainability characteristics of the product 

Almost 90% of investment firms indicate that they can determine the sustainability characteristics of at least some of the products they offer. However, 11% of the investment firms indicated that they could not retrieve the sustainability characteristics for any of the products they offer. 

Adjust sustainability preferences/ stop the provision of services 

A large group of investment firms informs clients in the event of unsuitability of the option to adjust their sustainability preferences and/or to end the investment service. But there are also investment firms that say that they still continue to provide the service (12%), despite the mismatch on sustainability preferences. Investments firms cannot recommend a financial instrument that does not meet a client’s sustainability preferences.

Need help?

We are happy to help you comply with the SFDR and meet the AFM’s expectations. Read more about our services around ESG & Sustainable Finance, or contact us.