Reed Smith Client Alerts

On 8 June 2020, the European Commission published six draft delegated acts for consultation, which will require firms subject to authorisation under MiFID II, the Alternative Investment Fund Managers Directive (AIFMD), the Insurance Distribution Directive (IDD) and the Solvency II Directive (together, the Delegated Acts) to advise clients about the environmental, social and governmental (ESG) risks associated with their investments.

Authors: Claude Brown Andrzej Janiszewski Sophie Davis

The six Delegated Acts

The draft Delegated Acts do not create new requirements; rather they bolster the existing requirements explicitly to include and integrate sustainability risks, preferences and factors into firms’ procedures, policies and processes.

We set out below a brief summary of the key points.


There are two Delegated Acts relevant to MiFID II; one amends Delegated Regulation 2017/565 on organisational requirements and the other amends Delegated Directive 2017/593 on product governance.

Additional information to be provided to clients

The Delegated Acts amending MiFID II will require MiFID investment firms to obtain certain information from clients about their ESG investment preferences. Investment advice provided by investment firms to clients should reflect both the clients’ financial objectives and their ESG preferences.

In addition, investment firms will be required to provide certain information to clients about ESG factors. For example, an investment firm must provide a retail client a report explaining how the firm’s investment advice and recommendations are suitable for the retail client, including how the recommendation meets the client’s sustainability preferences. 

Further, in addition to the existing requirements to provide a description of the factors taken into consideration in the selection process used by the investment firm when recommending financial instruments, any such description must include any sustainability factors considered. This will require investment firms to integrate clients’ sustainability preferences into the firms’ suitability assessments.