Your sustainability preferences: what's changing for your investments

Your sustainability preferences: what’s changing for your investments



From August 2, 2022, your financial advisor will have to take your sustainable investing wishes, known as your “sustainability preferences”, into account when advising. What is it about ?

Financial advisors are required by regulation to consider the objectives and financial situation of their clients before recommending an investment. This is the purpose of the questions they ask you regularly, before offering you a financial investment.
As of August 2, 2022, they will also need to consider your sustainability preferences. This obligation concerns all bank advisors. It will also apply to wealth management advisers with the status of “financial investment adviser” (CIF) from 1er January 2023.

What are “sustainability” preferences?

Taking an interest in the sustainability of a financial investment means paying attention to its environmental and social consequences, respect for human rights and the fight against corruption. These so-called “extra-financial” criteria are also called “ESG” criteria for environmental, social and governance. They can be taken into account in order to select the companies best able to respond to the challenges of sustainable development and to your own questions. For example: “Does my money finance solutions to climate change? or “Can my savings have a negative impact on the environment? “.

From August 2, 2022, your advisor will need to assess your sustainability preferences in order to recommend investments suited to your profile. It will determine your preferences according to 3 axes:

  • The proportion of your investment that you want to see invested in activities considered environmentally sustainable by the European classification called “Taxonomy” (or taxonomy);
  • The proportion of your investment that you wish to see invested in “sustainable investments” within the meaning of the European Regulation on sustainability reporting in the financial services sector (SFDR);
  • How “key negative impacts” (eg greenhouse gas emissions, hazardous waste, human rights violations, etc.) are taken into account by your investment.

Your preferences can be assessed at the level of a financial investment or with regard to your entire portfolio.

What questions will your advisor ask you?

In concrete terms, your adviser could ask you if you wish, for example:

  • support a particular environmental objective such as the preservation of biodiversity,
  • invest all or part of your savings in certain sectors of activity such as renewable energies,
  • completely exclude certain sectors of activity such as fossil fuels, or accept that a certain percentage of your investments finance these activities,
  • ensure that your investment does not have a negative impact on the fight against climate change.

From one financial intermediary to another, the questions aimed at knowing your preferences in terms of sustainability may be different.

If you decide to express sustainability preferences, your advisor should take this into account before offering you a financial investment.

Note: in the event that no investment available to your advisor meets your sustainability preferences, which could happen initially, he will suggest that you adapt your initial preferences, which must be recorded in writing, in order to to be able to recommend an investment.

To respond to your adviser and benefit from advice that meets your sustainability expectations as closely as possible, it is therefore essential to fully understand what these 3 areas cover.

What is the European “Taxonomy”?

In order to limit the greenwashing or “greening of facades” of financial products, the European Union has drawn up a precise list of environmentally sustainable economic activities. In order to determine whether a given economic activity can be considered sustainable, the Taxonomy is based on 6 environmental objectives:

Objectives of the European taxonomy: mitigation of climate change, adaptation to climate change, sustainable use and protection of aquatic and marine resources, transition towards a circular economy, prevention and reduction of pollution, protection and restoration of biodiversity and ecosystems

An economic activity is considered “eligible” for the Taxonomy if it appears on the list of activities selected at this stage by the European Commission as being likely to make a substantial contribution to each environmental objective.
An economic activity is considered “aligned” with one of the 6 environmental objectives of the Taxonomy if it contributes significantly to one of the objectives, without harming the 5 others, while respecting minimum guarantees of respect for human rights. the man.

This classification system makes it possible to identify “green” activities and to measure the “green” part of a company’s activities. Let’s take two examples:

1. Electricity production using solar panels

  • Solar panels make it possible to produce electricity without emitting CO2which is very positive in the fight against climate change.
  • However, to demonstrate that its activity is green, the company must also ensure that it meets other criteria. For example: solar panels are made with the most recyclable components possible, their installation must not have a negative impact on biodiversity.

2. The construction of a building

  • To be “green”, a building must consume as little energy as possible to limit CO emissions.2 related to its use (heating, air conditioning, etc.).
  • In addition, the building must meet other requirements related to, for example, its water consumption, its location or the materials used for its construction.

Today, the Taxonomy takes into account 90 economic activities. These represent 80% of direct CO emissions2 in the European Union. As time goes by, more and more activities will be covered by the Taxonomy (therefore “eligible”), for example agriculture. However, some activities are not intended to be included in the Taxonomy:

  • Those that do not have a significant impact on the climate and the environment, for good or bad. These are mainly services (for example: accountants, media, hairdressers);
  • Those which are considered in principle to be too harmful for the climate and the environment (for example: the production of electricity from coal).

You must therefore define the proportion of your investments that you wish to be “aligned” with this Taxonomy.

For example: Elsa wants 15% of her investment to be aligned with the Taxonomy and to take into consideration the main negative impacts, without specifying which impacts or in what proportion. In order for her adviser to take this objective into account, she will have to indicate to him that 15% of her investment will have to be aligned with the Taxonomy, and that the main negative impacts are important for her.

Illustration of Elsa's profile

Please note: the criteria for alignment with the Taxonomy are very precise and demanding. As companies are only just beginning to provide information on this subject, it is to be expected that the percentage of alignment will be, especially initially, very low.

What are “sustainable investments” within the meaning of the “SFDR” Regulation?

The European Union has created rules to oblige finance professionals to be more transparent about the ESG issues they take into account or not in the design of the investments in which you can invest (funds in particular). These are rules on disclosure of sustainability information (“ Sustainable Finance Disclosure Regulation or SFDR in English).

A “sustainable investment” is defined as an investment in an economic activity that contributes to an environmental or social objective, without causing significant harm to other environmental or social objectives, while ensuring that the business in which the investment is made investment applies good governance practices (sound management structures, staff relations, compliance with tax obligations, etc.).

An investment can consist of 0% to 100% sustainable investments.

Please note: a “sustainable investment” is not necessarily an investment that meets the criteria of the Taxonomy. There are no economic activities concerned or not by the SFDR Regulation, nor specific criteria to assess the environmental or social impacts of a sustainable investment.

You must therefore define the part that “sustainable investments” would represent within your investment.

For example: Mark wants half of his investment to be in sustainable investments. In order for his adviser to take this objective into account, he must indicate it precisely.

Profile illustration of Marc

What are the “main negative impacts”?

The main negative impacts (“ main opposing impact or PAI) are the most significant negative impacts of investments on the environment, on the social level and on the treatment of employees, in terms of respect for human rights and the fight against corruption. They must be taken into account at two levels:

  • At the level of the asset management company: it must publish information on the integration or not of the main negative impacts in its investment decisions, and specify what is implemented to mitigate them.
  • At the investment level: the management company must specify whether the investment takes into account the main negative effects and, if so, how.

Namely: professionals are free to determine the way in which they take into account these main negative effects for the investments they market. These impacts may relate in particular to greenhouse gas emissions, water management, forced labour, etc.

You must therefore indicate whether you would like your investment to take into account its main negative impacts, possibly specifying the type of negative impact and/or a degree of consideration.

For example: Agathe wants her investment to take into account the main negative impacts, particularly with regard to greenhouse gas emissions generated by the companies she holds in her portfolio. In order for her adviser to take this objective into account, she must indicate to him that her investment must take into account the main negative effects, and specify the greenhouse gases.

Illustration of Agatha's profile

You now know more about the new sustainability questions your advisor will ask you before recommending an investment. Do you want to invest in investments in line with your values? Prepare yourselves !

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