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News 14/05/24

Clearly worded information and an appropriate product range are key to sustainable investments

Increasingly, investors are prioritising investments that support the transition to a more sustainable economy. Financial undertakings facilitate this by offering appropriate, sustainable products and openly disclosing sustainability-related information. It is important, therefore, that firms comply with the Sustainable Finance Disclosure Regulation (SFDR) as well as the sustainability requirements for product oversight & governance (POG) and the suitability assessment.

In short

• Most firms indicate that they meet the basic SFDR requirements; some are still lagging behind. Further work is still needed to enhance the use and completion of templates.
• Firms must actively embed sustainability requirements in their POG policies and enhance the clarity and thoroughness of the suitability assessment with regard to sustainability aspects.
• The AFM expects firms in the sector to study the reports and take action where necessary, using the guidance or examples provided by the AFM.

The SFDR aims to give investors and pension members a clearer idea of how sustainable products are and to enable them to make better product comparisons. Clearly understandable SFDR templates provide the basis for this, making it easier for investors to assess products in terms of their sustainability characteristics.

The new sustainability requirements in POG and the suitability assessment for investment firms and insurers are intended to ensure that investors have better access to products that are aligned with their sustainability objectives.

The AFM used self-assessments, which were distributed amongst the sector last year, to gauge financial undertakings’ compliance with the SFDR and the extent to which they have integrated sustainability requirements into their POG and suitability assessments. The AFM is today publishing two reports on this topic, in which we share our findings and provide guidance for the various firms with a view to continued improvement.

SFDR: clearly understandable templates provide the basis for better understanding and comparability of sustainable products

The SFDR came into force in March 2021. It was drawn up to promote the disclosure of sustainability information to investors and pension members. In this light, it requires financial undertakings to use templates for the disclosure of sustainability information. The more comprehensive the information entered in the templates, the better equipped investors, pension members and advisers are to understand products, make comparisons or offer suitable advice.
Most firms indicate in the self-assessments that they meet the basic requirements (Level 1), although some are still lagging behind. At this stage, the AFM expects all firms to be compliant with the basic SFDR requirements. Firms that do not make sufficient efforts in this regard will be contacted with a view to remedying their non-compliance.

In the realm of subordinate legislation, further work is still needed to enhance the use and completion of templates. The AFM offers guidance to further enhance template completion.

POG and suitability assessment should improve investors’ access to sustainable product range

The existing POG and suitability standards for investment firms and insurers were expanded in 2022. As a result, they are now required to take sustainability into account in the development and distribution of financial products. Investors’ sustainability preferences have also been an important factor in the suitability assessment since that time.

The AFM notes that providers are taking steps to incorporate sustainability into their policies and products. At the same time, firms could do more to provide clearer explanations of sustainability preferences and to elicit more in-depth information from investors. Firms must also incorporate sustainability criteria into their POG policies, evaluate their product range accordingly and prevent mismatches. This is a complex requirement for firms, but it will help ensure that investors can more easily access a product range that is aligned with their sustainability objectives and facilitate them in choosing investments that support the transition to a sustainable economy.

A request to the sector: address improvements

The two reports contain guidance and examples that financial firms can put to use. We call on the sector to evaluate their compliance with the legislation and take action where necessary.

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