MiFID II Goes Sustainable

    Stockholm (NordSIP) – Starting this month, financial advisers in the EU have some new rules to adhere to. On 2 August 2022, the amended Delegated Directive to the second Markets in Financial Instruments Directive (MiFID II) entered into force, requiring advisers to consider their clients’ sustainability preferences when conducting suitability assessments. The updated regulation also means that advisers must provide suitable investment options for those clients who express an interest in making sustainable investments.

    MiFID II is an integral part of the EU’s overall regulatory package and the action plan ‘Financing Sustainable Growth’. Accordingly, financial advisers must apply the definitions provided by other relevant regulations, such as the SFDR and the EU Taxonomy, when sourcing sustainable products. This might, however, prove somewhat challenging, as uncertainty still abides in the space and asset managers tend to take different approaches when calculating the percentage of sustainable investments and the taxonomy alignment of their products.

    To meet the requirements of MiFID II, asset managers should complete the relevant fields in both the European ESG Template (EET) and the European MiFID Template (EMT). Data collected by FE fundinfo, the Fund Data and Technology Company, however, shows that fund managers were still grappling with this challenge a couple of weeks before the 2 August deadline. More than half of the fund groups were yet to submit their data.

    Another report, published by Morningstar on 28 July, paints a similar picture. Analysing the coverage and values of the three key EET fields required for the August deadline, Morningstar concludes that the data is patchy. Less than half of surveyed Article 8 and Article 9 funds have reported PAI consideration and sustainable investment exposure as defined by SFDR. Just over one-fourth disclosed taxonomy alignment.

    The comprehensive EET template is undoubtedly daunting. It comprises almost 600 mandatory, conditional, and optional fields, with additional country-specific requirements and details on the underlying individual share-class level. And, from 1 January 2023, additional fields will become mandatory to meet annual SFDR reporting requirements. The EET is, of course, especially pertinent to funds classified under SFDR Article 8 and Article 9. However, it also applies to traditional Article 6 funds, although those are not likely to satisfy a client’s sustainability preferences.

    Hopefully, asset managers and financial advisers alike have done their homework well and are up to speed now. They would risk non-compliance otherwise.

    Julia Axelsson, CAIA
    Julia Axelsson, CAIA
    Julia has accumulated experience in asset management for more than 20 years in Stockholm and Beijing, in portfolio management, asset allocation, fund selection and risk management. In December 2020, she completed a program in Sustainability Studies at the University of Linköping. Julia speaks Mandarin, Bulgarian, Hindi, Russian, Swedish, Urdu and English. She holds a Master in Indology from Sofia University and has completed studies in Economics at both Stockholm University and Stockholm School of Economics.

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