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Less than 250 days to go: from August 2022, financial advisors will have to tailor their product recommendations to the sustainability preferences of their clients. For many, this will be a big change. PAI can help in finding the right fit. Changes to MiFID: are you ready?
In only a few months, amendments to the Markets in Financial Instruments Directive, or MiFID II for short, will come into force. Among other things, they will make it mandatory for financial advisers and distributors to enquire about the sustainability preferences of their clients and include them in the suitability assessment. If a cli- ent has sustainability preferences, the adviser must tailor their product recommendation accordingly. One way to do so is to offer investment strategies that take PAI elements into account. PAI is also a useful tool to identify sustainable investments, another way to achieve MiFID-eligibility. PAI brings a common language to the way managers consider adverse impacts. PAI, or Principal Adverse Impacts, are a way of identifying the negative impact that a company/issuer has on environmental and social aspects. Thus, a strategy that considers PAI elements is looking hard at the impact its investment has on both its surroundings and its stakeholders. Asset managers with a focus on environmental, social and governance (ESG) factors have long considered whether potential investments have a negative ESG impact, but the Sustainable Finance Disclosure Regulation (SFDR) has given a com- mon framework to this by introducing a specific list of PAI indicators that can be considered. Each indicator has at least one metric attached to it. The PAI indicators and metrics are very clearly defined, bringing greater confidence and comparability to analyses that rely on them. Although companies
are not yet obliged to report the data, this will come. Nordea Asset Management (NAM) has been incorporating a number of PAI-type datapoints in its ESG scoring systems for many years, yet the regulation provides further structure. PAI can help advisers identify funds that meet MiFID II sustainability requirements. From August 2, 2022, these changes to MiFID II will be implemented. With only months to go, financial advisers should start building a list of suitable funds they can offer to clients with sustainability preferences. PAI can be useful in this.
Custom fit: from August 2022, financial advisers will have to customise their recommendations to their clients’ sustainability preferences. As the clock is ticking, it is essential to create a list of MiFID-eligible products now.
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