The European Commission Action Plan: An assessment of the reform areas for PRI signatories provides an overview of the main reform areas. Action 4 focuses on incorporating sustainability when providing financial advice. 

Key points

  • Subject to the outcome of its impact assessment, the Commission will by mid-2018 amend the Markets in Financial Instruments Directive (MiFID II) and Insurance Distribution Directive (IDD) delegated acts to ensure that sustainability preferences are taken into account in the suitability assessments undertaken by regulated entities.
  • Based on these delegated acts, the Commission will invite the European Securities Markets Authority (ESMA) to include provisions on sustainability preferences in its guidelines on the suitability assessment, by the end of 2018.


At present, MiFID II and the IDD require investment firms and insurance distributors to offer “suitable” products to meet their clients’ needs when offering advice, but do not contain specific requirements to ask questions regarding clients’ preferences concerning ESG issues. This leads to lower observable demand and reduced supply: investment advisers have fewer incentives to respond to these considerations, and asset managers have little incentive to design suitable products1.

The Commission has recognised the need for clarity in the legislation; while the existing rules could be interpreted to accommodate ESG issues, it has acknowledged that uncertainty could be reduced if a revision of MiFID II’s delegated act explicitly incorporated investor preferences concerning impacts on sustainability into the suitability requirements associated with financial advice.

MiFID II has been designed to support investor protection, conduct-of-business regulation and market transparency. While the emphasis in the action plan is on the retail sector, it is important to note that amendments to MiFID II are expected to apply to the work of investment consultants with their institutional clients.

This is a legislative proposal and, as such, consultants and advisers would be required to understand the sustainability preferences of their clients and use those preferences to find the most appropriate products. As a result, those offering investment products to retail clients would need to explain how sustainability considerations are incorporated in their investment products.

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