The report provides guidance for investment firms to assess client sustainability preferences and motivations using a three-step process for selecting appropriate financial products, ensuring client satisfaction with the advice provided. The regulatory concept for sustainability preferences covers financial products falling under Category A, B, or C, with a focus on achieving greenness and sustainability goals, with particular emphasis on impact, value alignment, or ESG integration.

Investment firms should explain the different keyword categories of sustainability preferences to enable clients to make informed decisions about their preferences and wider sustainability motivations. The investment firms then leverage this information to make financial product recommendations that satisfy the client’s preferences and motivations.

Record keeping

Investment firms are required to provide a report outlining financial recommendations suitable for the client’s investment objectives, personal circumstances, knowledge and experience, attitude to risk, capacity to sustain loss, and sustainability preferences. The report should clearly state why the recommendation provided is appropriate to the client’s unique needs. Investment firms are also required to keep an accurate record of the client’s expressed sustainability preferences and wider motivations.

Annex 1: Client explanatory materials

Investment firms should develop client explanatory materials to provide an effective explanation of sustainability preferences, prioritisation, and wider sustainability motivations. The minimum degree of explanation should allow the client to decide if they are interested in sustainability issues as they relate to their investment. The client explanatory materials should be provided in simple language and understandable to retail clients.

Sources of sustainable financial products

Investment options for ESG aspects differ considerably, from those that calculate and disclose negative externalities of investments on the environment or society, to those that aim to make a real contribution to environmental or societal improvement. Financial products can take into account several environmental, social, and governance considerations or focus on one or two of these aspects. Investment firms should consult other publicly available sustainable financial products available in the market if their range of investment products does not meet the client’s expectations.

Recommendations

Investment firms should implement the three-step process recommended in the report when assessing client sustainability preferences and motivations. Investment firms should explain the different keyword categories of sustainability preferences, the concept of prioritisation, and the wider sustainability motivations to their clients in simple language that clients can understand. Finally, investment firms should consolidate all the information gathered in a report to the client that clearly outlines the suitability of the financial recommendation.