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New ESG changes to MiFID II - What investment firms and banks need to know

The European Commission has finalised its proposed ESG-related changes to MiFID II.

These are intended to fit together with SFDR, and are part of a suite of ESG related changes being made via amends to AIFMD, the UCITS directive etc. However, the ESG changes to MiFID II apply more broadly than SFDR – with impacts for MiFID investment firms and banks that manufacture and distribute MiFID products.

In part, these changes are intended to “mainstream” the consideration of ESG risks by relevant EEA firms and banks, contributing to a push to put “sustainability considerations” at the heart of the financial system.

Equally importantly, they are intended to “turbo charge” the European Commission’s efforts to redirect private capital into efforts to “green” the EU, plus avoid greenwashing.

The changes clarify the requirement that firms must incorporate ESG considerations into organisational requirements (including suitability assessments), risk management, conflicts and product governance arrangements. This briefing gives further detail on the new requirements and when they will come into effect.