ESG-update
Sustainable products have to live up to their promise and consumers need to know where they stand. This will allow (retail) investors to opt for investment products suitable with their sustainability objectives, and pension participants to be well informed on the sustainability of their pension schemes. It is important, therefore, that market participants – where appropriate – comply with the regulations on sustainability (ESG).
On these ESG-update page we publish updates on our most important expectations on market participants – where appropriate – have to comply with the Sustainable Finance Disclosure Regulation (SFDR), the sustainability requirements for Product Oversight & Governance (POG) and the suitability assessment. And sustainability claims have to be fair. Undertakings have made good strides over the past year. However, we also see that extra efforts are needed, including when it comes to compliance with regulation that have been in place for some time and about which the AFM has previously provided clear expectations.
What does the AFM expect on these four themes?
1. Sustainability claims: correct, clear, non-misleading, balanced
Marketing by financial undertakings often includes ambitions and claims on sustainability. By law, sustainability claims must be correct, clear and non-misleading, and in the case of pensions: balanced. The AFM expects from undertakings that they only make sustainability-related claims that are correct, clear and non-misleading, or, in the case of pensions, balanced.
The Guidelines on Sustainability Claims contain the three principles for making fair and correct claims that meet information disclosure standards. Refrain from making a sustainability claim if you cannot substantiate it.
2. SFDR: clearly worded, comparable and reliable information
The SFDR requires financial market participants and financial advisers to provide transparency on the sustainability aspects of their investment policies and products. Clearly understandable SFDR templates provide the basis for better understanding and comparability of sustainable products.
The better the quality of the information entered in the templates, the better equipped investors, pension participants and advisers are to understand products, make comparisons or offer suitable advice. Moreover, such templates offer them greater insight into the substantiation of sustainability claims. What does the AFM expect?
• Undertakings have published all required information on your website.
• Undertakings only publish information that is clear and easy to find for investors.
• Undertakings publish reliable SFDR information, including information on sustainable characteristics of products, sustainability risks and any negative impact of investments.
3. POG: sustainability requirements embedded
Undertakings must incorporate the sustainability criteria in their Product Oversight & Governance (POG) policies. They must evaluate the product range accordingly and avoid selling products without sustainability characteristics to investors who want to invest sustainably. What does the AFM expect?
• Undertakings know and check the quality and reliability of products’ sustainability-related information, also for the purpose of the suitability assessment.
• Undertakings have set up the customer journey (website, app, customer contact) according to the distribution strategy.
• Undertakings monitor the distribution of grey market products to negative target markets and assess the effectiveness of your strategy to prevent this.
4. Suitability assessment: match of sustainable demand and supply
Undertakings must collect information about their customers’ or participants’ sustainability preferences and ensure suitable investments that match these sustainability preferences. What does the AFM expect?
• Undertakings provide an understandable explanation of the element of sustainability in the suitability assessment.
• Undertakings are thorough in the collection of information about the actual sustainability preferences and do not steer investors towards a particular product or investment strategy.
• Undertakings provide investors with suitable products, matching their actual/initial sustainability preferences to the extent possible. You will not steer towards adjusting these preferences.
ESG-update
In our ESG updates we will focus on one or more specific themes related to sustainability legislation for consumers. Where possible, we do so in line with recent research data. Our Agenda for 2025 sets out all upcoming surveys. We expect to publish a new ESG update in the fall. You will receive it if you are registered for the monthly sector news email.