The European Commission’s work on integrating sustainability considerations is an “essential milestone” that will further encourage the availability of environmental, social and governance (ESG) products to European investors, according to the European Fund and Asset Management Association (EFAMA).
The comments were made in response to the EC’s consultations on delegated acts that seek to integrate sustainability risks and sustainability factors into UCITS, Alternative Investment Fund Managers Directive (AIFMD) and the Markets in Financial Instruments Directive (MiFID).
In its response, EFAMA said it has always firmly supported the creation of a robust framework for sustainable investing which facilitates the transition to a more sustainable European economy.
EFAMA highlighted that MiFID II, UCITS and AIFMD Delegated Acts should ensure that sustainable investing becomes mainstream but the commission’s proposals in their current state will not achieve this goal.
Consequently, EFAMA has insisted that the commission follows several essential adjustments. One of these adjustments would mean that MiFID must be fully aligned with the Sustainable Finance Disclosures Regulation (SFDR).
This must be with a clear distinction between Article 8 products (products promoting environmental and social characteristics) and Article 9 products (products pursuing sustainability investments), the association outlined.
Only the latter should be required to invest in sustainable investments, the association noted.
EFAMA added: “One must avoid a situation in which a client who expresses sustainability preferences cannot be offered an Article 8 product while the very same product can be marketed as promoting environmental or social characteristics under SFDR.”
Further to this, it was stipulated that MiFID must not go beyond the existing SFDR requirements regarding principal adverse impact (PAI).
According to EFAMA, the proposed delegated acts are significantly extending the scope of PAI at product-level that was previously agreed by European co-legislators.
Meanwhile, the association also expressed its support for the integration of sustainability risks as part of the risk management policy at fund level in UCITS and AIFMD, however, highlight that it sees no reason to introduce this specific risk in the context of provisions related to general organisational due diligence or conflict of interest requirements, which by nature are not risks-related.
Additionally, EFAMA explained the specific requirements for sustainability risk management underscore the need for such risk management to be based on reliable information.
EFAMA said it hopes that changes to the Non-Financial Reporting Directive (NFRD) will improve the availability and reliability of ESG data, the directive will not be in place in time for these UCITS and AIFMD amended rules to take effect.
Until at least 2023 to 2024, disclosures by issuers will be completed on a non-standardised ‘comply and explain’ basis.
As well as this, until the revised NFRD is in place, EFAMA insisted that asset managers should be allowed to assess sustainability risks also on a qualitative basis when firms set up their risk management frameworks.
Tanguy van de Werve, EFAMA director general, commented: “The question European policy makers are now faced with, is whether to create a standardised tick-the-box system -putting sustainability in a niche- or to opt for a flexible approach promoting dynamic developments in sustainable investing. We would definitely advise for the latter as a flexible approach will foster a sustainable European economy.”