On May 3, the European Securities and Markets Association (ESMA) published final reports on technical advice to the European Commission (EC) on integrating sustainability risks and factors in the core EU asset management directives:

  1. the Undertakings for the Collective Investment in Transferable Securities (UCITS) Directive;
  2. the Alternative Investment Fund Managers Directive (AIFMD); and
  3. the revised Markets in Financial Instruments Directive (MiFID II) and the Markets in Financial Instruments Regulation (MiFIR).

ESMA’s reports include a number of general comments arising from the initial consultation it conducted in December 2018 on its technical proposals and its response.

ESMA also explained in a related press release that its initial consultation contained a separate paper on guidelines for disclosure requirements applicable to credit ratings, including the consideration of environmental, social and governance (ESG) factors. It expects to publish the final report of this paper by the end of July.

While it remains to be seen whether the EC will transpose all of ESMA’s recommendations into amendments to the UCITS Directive, AIFMD, MiFID II and MiFIR, it seems highly likely that the outcome of ESMA’s reports is that EU asset managers will be required to take into account sustainability risks and ESG factors as a mandatory element of selecting investments for their clients.

ESMA will now liaise with the EC in order to transform its technical advice into formal delegated legislation.

ESMA’s press release is available here.

ESMA’s final report relating to MiFID II and MiFIR is available here.

ESMA’s final report relating to the UCITS Directive and AIFMD is available here.