EOS PRIIPS – AKA retail sustainable, responsible and ethical investment

wordle18FinalFollowing on from last week’s blog I am delighted to report that I have now finished responding to the European consultation into investments with Environmental and Social Objectives (‘EOS PRIIPS’) – the deadline for which was last week.
Although I am no expert in EU legislation (caveat, caveat…), I responded to this paper in some detail for two main reasons:
1. it appears to be a welcome, constructive paper  – particularly for those (like me) – who believe the profile of such investment options should be higher  (and clearer) within the retail investment market
2. it is due to take effect on 1/01/2018 and is therefore highly likely to be relevant to the UK retail investment market (fund managers, IFAs etc). 

Responses will be formally made public (in due course) under the section “closed consultations” (under the reference of CP-17-002) here:https://eiopa.europa.eu/publications/eiopa-consultations

Meanwhile – if you’d like a quick run through of my top seven ‘thoughts’ here they are:
  1. it appears that all relevant retail investment products may have to explain their ‘environmental and social’ objectives in KIDs and Investment Policy Statements soon.
  2. the paper calls for additional governance structures for ‘EOS’ funds – which in my view makes sense  – as long as they are not allowed to become overly costly.
  3. the paper only requires funds that market themselves as specialising in ‘environmental and social issues’ to state their positions in these areas.  Although understandable (as these funds should of course explain what they do) this is rather unbalanced and should (in my view) instead call on all investment options to explain what they do in this area (or say if this is not what they do).  In particular – funds covered by RI and ESG policies should, in my view, embrace this as a useful potential differentiator…
  4. the consultation paper lacks wider context as there is no reference to the wider implications of investment decision making (ie COP21, SDGs) and the role investors play in shaping the world we live in (issues such as climate change, employment practices etc)
  5. the paper says ‘investment companies need to communicate strategies to individual investors’ … this looks problematic given distribution methods.
  6. Some of the text is rather ‘binary’ or ‘black and white’ – showing something of a lack of experience of the nuances of making investments in real companies.. where things can and do change regularly and are often not clear cut. (This indicates a misselling risk)
  7. some of their wording is a concern – their use of the word ‘objectives‘ (and the strength with which they appear to want all relevant funds to demonstrate outcomes) is a concern – as is the lack of reference to ‘ethical issues/values’ – which I think will confuse many UK retail investors.
(The consultation documents can be found here.  )
July 2017 Update –  this consultation is effectively closed.  The following text from the ESA website explains further.
News Link: https://esas-joint-committee.europa.eu/Pages/News/ESAs-advise-on-Packaged-Retail-and-Insurance-Based-Investment-Products-with-environmental-or-social-objectives-.aspx
Full Report: https://esas-joint-committee.europa.eu/Publications/Technical%20Advice/Joint%20Technical%20Advice%20on%20the%20PRIIPs%20with%20environmental%20or%20social%20objectives.pdf

ESAs advise on Packaged Retail and Insurance-Based Investment Products with environmental or social objectives

The European Supervisory Authorities (ESAs) submitted today their Technical Advice to the European Commission to set minimum requirements, which manufacturers of packaged retail and insurance-based investment products with environmental or social objectives (EOS PRIIPs) should comply with to ensure that they offer products that meet the retail investors’ needs.

The manufacturer of an EOS PRIIP is required to install specific governance measures to ensure that environmental or social objectives of the product are met on an ongoing basis. Furthermore, the product has to demonstrate to retail investors throughout the investment process the relevance of these objectives. In its Advice, the ESAs addressed four areas with regard to PRIIPs with environmental or social objectives and included the following recommendations:

  • The PRIIP manufacturer targeting environmental or social objectives has to clearly specify these objectives, together with an appropriate and proportionate strategy on how to achieve them.
  • The PRIIP manufacturer should disclose to the retail investors the objectives and how these will be achieved.
  • The PRIIP manufacturer has to install and well document governance and monitoring measures, where the latter need to be proportionate to the objectives and strategy how to achieve the objectives.
  • The PRIIP manufacturer should conduct regular reviews on the progress made in achieving the specified and disclosed objectives.

Acknowledging the cross-sectorial dimension and the need for the rigorous assessment to address potential gaps, the ESAs specified, for each of these four areas, the required regulatory outcome and an assessment of existing rules.

The ESAs concluded that at this time the establishment of specific and detailed standalone obligations for PRIIPs targeting specific environmental or social objectives would not be proportionate. Existing sectoral measures offer already, or are already in the process of putting in place, a sufficiently stringent and flexible basis for the sound regulation of PRIIPs targeting environmental and social objectives.

The Technical Advice can be viewed here.

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