For the wholesale/retail investors, the distributors subject to IDD or MiFID will ‘ask’ the investors about their preference to invest in a sustainable manner.
The probability to have positive requests being very high, distributors need to decide on two main strategic choices:
what new (sustainable) products to add to the product shelf and
how to include the sustainability objectives into the client risk and investment profile.
In particular the management of a double investment objective, i.e. financial yield and sustainability, will stress the discretionary and investment advisory teams and systems, triggering operational and upskilling challenges.
Practical challenges for distributors (not exhaustive):
- Strategy
- Disclosures
- Processes
- People & Organisation
- IT & Data
Strategy
- Definition of a “Sustainability Strategy” for the product shelf and the firm at large → strategic positioning
Disclosures
- Disclosure of certain elements of the sustainability strategy
Processes
Incorporation of sustainability preferences in the suitability test of the client
Inclusion of ESG criteria in the distributor target market
Mapping of sustainability criteria defined in the manufacturer and in the own target market to the client’s individual ESG preferences
People & Organisation
Upskilling of all affected employees (incl. Management)
Need for SF / ESG specialists
Policy review and update
IT & Data
New information on sustainability indicators (e.g. ESG ratings) must be readily available in the systems of the distributor, i.e. new data must be loaded into the system (additional data fields)
Selection of adequate ESG-data providers
Implementation of control systems to monitor the client’s portfolio composition with regards to ESG-criteria
