Mon, May 20, 2024

The official Financial Regulation Journal of SAIFM

Sustainability risks and factors: ESMA Consulations (MiFID II, AIFMD, UCITS)


Tim Simmonds

On 19 December 2018, ESMA launched three consultations concerning sustainable finance initiatives under the European Commission’s Sustainable Action Plan and sought views on the integration of sustainability risks and factors into the relevant directives. The key areas of focus are: environmental, social and good governance with regards to investment firms and investment funds. Links to each consultation paper can be found here (comments should be submitted by 19 February 2019).

A summary of the government’s advice and proposed changes are set out below:


ESMA has proposed a high-level, principle-based approach to integrate sustainability risks within the MiFID II requirements with suggested amendments to Articles 21 and 23, on general organisation and risk management respectively. Firms will be expected to incorporate ESG considerations into their processes and systems and assessment staff will be required to possess the relevant skills and expertise to identify risks. Firms will need to improve their internal policies and management on sustainability risks and extend this responsibility to their compliance teams and internal audit. A new recital on conflicts of interest is proposed which would require firms to make clear reference to how conflicts are identified and managed in their conflicts policy.

ESMA reminds UK firms providing services to EU27 member states, as well as EU27 firms who have involvement with UK clients, of their obligations to provide information to their clients on the implications of Brexit to new and existing contracts. Firms are encouraged to finalise and implement plans to mitigate Brexit-related risks within a suitable timeframe and to disclose information on these to clients.


Similarly to the MiFID proposals, firms are expected to incorporate sustainability risks within their organisation procedures, systems and controls ensuring they have the necessary resources and expertise for integration. The integration process will be extended to become part of the responsibility held by senior management. Firms will need to consider sustainability risks in light of conflicts of interest, when selecting and monitoring investments, designing written policies and procedures on due diligence and implementing effective arrangements. They will also need to include sustainability risks into their risk management policy.

Osborne Clarke comment

Sustainability will increasingly be a hot topic in the upcoming years but the concept itself is hardly a new thing. Whereas it used to be something we ought to do, it is now fast becoming something we are obliged to do, with considerations being implemented into directives. These proposals represent just the beginning of a one-way shift driven by a largescale European project with sustainability considerations at the core. Investment firms and funds can expect further change and consultations as the European Commission’s wider Sustainability Plan matures.

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