Make a wish and go ESG!

The ABBL has conducted a survey, jointly with Aurexia and with the support of its members, about the practical integration of MiFID sustainability-rules into investment advice and portfolio management services.

The survey highlights the actions implemented by 17 banks across four main dimensions of the suitability assessment regarding clients’ sustainability preferences. While most banks have aligned their processes to the new requirements, many challenges remain, such as the complexity of the various sustainable finance concepts and the ability to serve clients’ expectations with suitable ESG products.

The ABBL will keep supporting its members with the implementation of the new requirements through the work of its Advisory and Investment Services working group and the ongoing update of its MiFID II guidelines.

Implementing MiFID sustainability rules

Since August 2022 with the introduction of MiFID sustainability-related rules, advisory and portfolio management services moved into a new implementation phase where advisors must ask their clients about their sustainability preferences as part of the existing suitability assessment.

In collaboration with Aurexia and thanks to the contribution of its members, the ABBL has decided to examine what such a new requirement means for banks in Luxembourg, to what to extent it has been embedded into the daily work of advisers and how banks have implemented it in practice.

17 institutions have participated to the survey and a report has been prepared which summarizes the key current market practices as well as the main dynamics and challenges regarding financial advisers’ interactions with their clients about their sustainability preferences.

Examining implementation challenges

Among the key outcomes, we observe that most banks (94%) have engaged in dedicated training programs for their staff, in particular client-facing employees to prepare them for the client conversation on sustainability.

While banks have prepared supporting material for their advisors to explain the sustainability preferences and inform their clients about the broader ESG context, it remains challenging to properly capture their preferences according to the three MiFID options (Taxonomy-alignment, SFDR sustainable investments, consideration of Principal Adverse Impacts, i.e. PAIs) as well as to recommend a product that would match the diverse clients’ sustainability profiles (only 30% of the cases reported).

Among the main difficulties faced by advisers, banks reported the complexity of the regulatory definitions and the multiple sustainability concepts on the one hand, and the limited range of products available in comparison to the large spectrum of sustainability preferences that could be expressed by the clients on the other hand.

More surprisingly, we also notice that only one third of the clients have expressed sustainability preferences. There might be several explanations to that: the revised assessment process is quite new for both the advisers and the clients and the difficulty to fully understand what sustainability means and what sustainability components (i.e. Taxonomy, sustainable investments, PAIs) stand for.

Looking ahead

Banks expect a more iterative process on the longer term where clients will become more familiar with the new approach and advisers will have the capacity to access a broader range of ESG products to be recommended to their clients.

Progress still needs to be made to make sustainability preferences assessment business as usual. In the meantime, banks’ processes, procedures and tools are improving so that more ESG products will be available to meet clients’ sustainability expectations.

Any questions?

Should you wish to know more about the results of the survey, feel free to reach out to your contacts at ABBL.

ABBL Contacts:

Marilyn.rinck@abbl.lu

Julien.froumouth@abbl.lu

Thomas.collin@abbl.lu