Summary
Details
- European Union
The sustainability requirements under MiFID II apply to investment firms that provide investment advice and/or portfolio management services. This includes banks, investment advisers, wealth managers, brokers, and asset managers when they provide these services under the MiFID II framework.
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Background
MiFID II entered into force in 2018 to strengthen investor protection, improve transparency, and increase the resilience of EU financial markets. Originally, the directive did not contain explicit sustainability requirements. As part of the European Green Deal and the Sustainable Finance Action Plan, the European Commission amended the MiFID II delegated rules to integrate sustainability factors, sustainability risks, and clients' sustainability preferences into investment advice and portfolio management.
Rather than creating a separate sustainability reporting regime, the amendments ensure that investors' environmental, social, and governance (ESG) objectives are considered alongside traditional factors such as investment objectives, financial situation, risk tolerance, and investment experience during the suitability assessment. The framework complements the Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy Regulation.
Sustainability Requirements
Investment firms providing investment advice or portfolio management must incorporate sustainability into their existing suitability assessment processes. Key requirements include:
Ask clients whether they have sustainability preferences.
Explain sustainable investment products in a clear and balanced manner.
Consider sustainability preferences alongside financial objectives and risk tolerance.
Recommend products that match the client's stated sustainability preferences where suitable.
Train staff on sustainability topics and maintain records of clients' sustainability preferences.
Integrate sustainability risks and preferences into relevant organisational policies and procedures.
The amendments define sustainability preferences by reference to three types of investments: investments aligned with the EU Taxonomy, sustainable investments as defined by the SFDR, and investments that consider principal adverse impacts (PAIs) on sustainability factors.
Current Status
The sustainability amendments to MiFID II have applied since 2022 and are now an established part of the EU sustainable finance framework. ESMA continues to support implementation through supervisory guidance and updated suitability guidelines. In 2026, ESMA published the results of a Common Supervisory Action reviewing how firms have integrated sustainability into suitability assessments and product governance, identifying both good practices and areas requiring further improvement.
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