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EFAMA responds to ESMA's consultations
20 February 2019 Brussels
Reporter: Maddie Saghir

Image: Shutterstock
In response to European Securities Markets Association’s (ESMA) consultations, the European Fund Asset Management Association (EFAMA) welcomed ESMA’s high-level-principles-based approach.

The consultations included integrating sustainability risks and factors in the UCITS Directive, Alternative Investment Fund Managers Directive (AIFMD), and the second Markets in Financial Instruments Directive (MiFID II).

ESMA’s approach acknowledges the principle of necessary proportionality based on the firms’ investment strategy and underlying assets of each investment product.

According to EFAMA, it is important to ensure consistent application of this approach is respected among all of the current consultation processes.

In particular, it is important to ensure this when it comes to the integration of sustainability risks and factors in the investment decision and distribution processes.

EFAMA stated a clear understanding of the notion of ‘sustainability risk’ is critical, and it should only be considered as a material risk to the financial performance of an investment based on sustainability considerations.

Duties with regard to organisational, due diligence, conflicts of interest, risk management and suitability requirements foreseen in the UCITS Directive, AIFMD and MiFID II will also apply to sustainability risks.

It was revealed that that EFAMA does not see merit in a further detailed description of those requirements regarding sustainability risks.

Additionally, it is essential that sufficient time is allowed to implement this changes, EFAMA advised.

The European Commission suggests 12 months, but EFAMA has said that this far too little time considering that changes to the UCITS Directive, AIFMD and MiFID II must be implemented into Member States’ national laws first.

Tanguy van de Werve, EFAMA’s director general, cited: "ESMA’s high-level approach is a positive one as it ensures the level of flexibility required in view of the rapid market and regulatory developments in the area of sustainable finance.”

“We consider that sustainability risks and related opportunities can be material drivers, and therefore important, alongside other factors, in assessing investment risks and opportunities.”

“With this in mind, we call ESMA to ensure that the notion of sustainability risk is to be linked to the financially material impact on an investment and that a consistent application among the different ongoing consultation and legislative process is in place.”
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