European regulators to integrate ESG criteria into KYC requirement?
At the very least, that is the order of business coveted by the European Securities and Markets Authority (ESMA), which in early February launched a consultation on proposed revisions to the suitability requirements for environmental, social and governance (ESG) investment criteria under its authority and regulation, known as the Markets in Financial Instruments Directive (MiFID II).
Responsible Investment (RI) refers to investment strategies that consider environmental, social, and corporate governance (ESG) criteria as part of the investment decision-making process.
Per ESMA’s proposal, financial institutions in Europe could soon collect information from the investing public on their ESG preferences, as proposed by European securities regulators.
Specifically, ESMA is surveying whether brokerage firms should have to collect information from consumers about preferences for financial products that include a responsible investment component, and about their interest in investing in these types of products.
After selecting diverse types of ESG investment products from their range of investment products, firms would then be expected to recommend (with advisors) products that meet clients’ sustainable investment preferences and criteria.
Responsible investing: gaining ground globally
Interest in responsible investing has grown significantly over the past decade, and even more so during the last two years of the pandemic, worldwide and across all contiguous fields: institutional investors, fund managers and individual investors.
Global responsible investment assets under management are currently approaching US$30 trillion, a figure that has grown 34% since 2016.
There have been calls for similar initiatives in Canada.
Last year, for example, the Responsible Investing Association (RIA, formerly SIO) petitioned the Investment Industry Regulatory Organization of Canada (IIROC) to include responsible criteria in its new Know Your Client (KYC) and suitability guidelines.
In response, IIROC amended its guidance to require that dealers “provide their clients with the opportunity to express their investment needs and objectives in terms that are meaningful to them,” including ESG preferences.