Final Responses to EU Consultations on Draft ESG-Related Amendments to UCITS/MiFID II

[32584]

July 6, 2020 TO: ICI Global Members
ESG Task Force
EU ESG Disclosure Regulation Working Group
EU Sustainable Finance Strategy Working Group
ICI Global Regulated Funds Committee SUBJECTS: Compliance
Disclosure
Distribution
ESG
International/Global
Investment Advisers
MiFID, EMIR, AIFMD, UCITS V RE: Final Responses to EU Consultations on Draft ESG-Related Amendments to UCITS/MiFID II

 

We submitted the attached final responses to the European Commission’s consultations on draft delegated acts (DAs) that would make several ESG-related amendments to the UCITS Directive and Markets in Financial Instruments (MiFID) II frameworks.[1]

Our final responses make the following points:

• MiFID II DAs – The MiFID II Draft DAs’ revised definition of ‘sustainability preferences’ significantly narrows the range of ESG products that can be distributed as meeting clients’ ‘sustainability preferences,’ effectively eliminating the Disclosure Regulation (SFDR) Article 8 category of sustainable financial products. We urge the Commission to revise the definition of ‘sustainability preferences’ to permit both SFDR Article 8 and Article 9 products to meet investors’ ‘sustainability preferences.’ Allowing both categories of sustainable products to be offered to investors would be consistent with the intent of EU co-legislators in adopting the SFDR and would better meet the EU’s objectives of mainstreaming sustainable finance, facilitating the transition to a low carbon economy, and increasing retail investor engagement in the capital markets.

• UCITS DAs – We express significant concerns about the provision that adds consideration of adverse impact to the UCITS due diligence requirements and urge the Commission to remove this requirement from the draft. We also question the amendments to the UCITS provisions on organisational requirements, senior management responsibilities, conflicts of interest, and risk management, given that those provisions are not relevant for achieving the Commission’s aim of integrating sustainability risk into the investment process.

As you may recall, we responded to an ESMA consultation in 2019 on these draft amendments, and the Commission has been working on the amendments for quite some time. The amendments are intended to go hand-in-hand with the requirements of the SFDR and effectively integrate those disclosure requirements into the substantive provisions of the UCITS Directive, the Alternative Investment Fund Managers Directive (AIFMD), and MiFID II.[2]

Following the end of the consultation period, the Commission can adopt the DAs, kicking off the scrutiny procedure at the end of which the Parliament and the Council can approve or reject each of the texts as a whole.

 

Linda M. French
Assistant Chief Counsel, ICI Global

Anna Driggs
Director and Associate Chief Counsel
ICI Global

 

Attachment No. 1

Attachment No. 2

endnotes

[1] See ICI Global memorandum no. 32563 for a detailed summary of the draft DAs, available at https://www.iciglobal.org/iciglobal/pubs/memos/memo32563.

[2] The Commission also published draft amendments to DAs under the Insurance Distribution Directive (IDD) and the Solvency II Directive.