The European Commission has finalised its proposed ESG-related changes to MiFID II. These are intended to fit together with the Sustainable Finance Disclosure Regulation (SFDR), and are part of a suite of ESG related changes being made via amends to several directives of the Commission. However, the ESG changes to MiFID II apply more broadly than SFDR – with implications for banks and investment firms that manufacture and distribute MiFID products.
Helveteq’s approach can be broken down into three objectives:
- We are guided by the SFDR
- We offer solutions based on industry standards set by leading EU associations
- We are aligned with MiFID II ESG requirements
As of 2 August 2022 with the entry into force of the MiFID suitability assessment process (pursuant to Art. 9 No 9 subpara. 1 MiFID II Delegated Directive (EU) 2017/593), investment firms and advisers must include an additional consideration on whether any existing and new client has sustainability preferences. According to the amended regime (REGULATION (EU) 2021/1253), clients can express their sustainability preferences by choosing one or more criteria below:
- Products with a minimum percentage in sustainable investments aligned to the EU Taxonomy
- Products with a minimum percentage in sustainable investments aligned to the SFDR
- Products that consider principal adverse impacts (“PAI”)
In connection with the issuance of products with sustainability features, Helveteq adopted the industry’s best practice.
The classification is as follows:
Environmental
The Taxonomy Regulation provides a classification system for environmentally sustainable economic activities to help achieving the objectives of the 2015 Paris Agreement on Climate Change. The Paris Climate Agreement aims to limit global warming to well below 2 °C and to strengthen the adaptation of business enterprises to climate change. Accordingly, investors want to make a contribution with their investment so that the transition to a sustainable economic system succeeds and Europe becomes climate-neutral by 2050.
Sustainable
In addition to climate protection, the Disclosure Regulation also pay attention to other environmental and social objectives, e.g. waste recycling/avoidance, the preservation of biodiversity through animal and nature conservation, a more careful use of natural resources, the protection of water and soil, but also to social concerns, such as combating social injustice and discrimination and respect for human rights. The SFDR’s primary goals are to “integrate sustainability considerations into the financial system” and “steer the flow of capital towards sustainable investments” by improving the understanding of the impact of investments in the financial sector.
PAI
Central to the PAI regime is the concept of sustainability factors that firms need to take into account for their investment policies and decisions. The investment in securities is intended to do as little harm as possible in connection with one or more of the following areas of focus: (i) environmental, (ii) social and employee matters, (iii) respect for human rights, (iv) anti‐corruption and (v) anti‐bribery matters.
It is worth mentioning that ultimately it is up to the client to determine the minimum percentage of Taxonomy alignment, the minimum percentage of sustainable investment and the PAIs. If the client expresses sustainability preferences in a way that does not match the available product set, we offer our expertise to securitize bespoke solutions.
The Sustainable Finance Disclosure Regulation ((EU) 2019/2088) (“SFDR”) entered into force on 10 March 2021. The Regulation requires financial market participants in the EU to provide information to investors with regards to the integration of sustainability risks, the consideration of adverse sustainability impacts, the promotion of environmental or social characteristics, and sustainable investment. The goal of this regulation is to enhance transparency with regards to ESG-related risks and objectives. By creating a solid framework for ESG reporting, the risk of greenwashing shall be minimized.
Under SFDR, financial products are classified into three different categories:
| Article 6: | Products that do not integrate ESG considerations into the investment decision-making process or explain where the integration is not relevant, where products do not meet the criteria of Article 8 or 9. |
| Article 8: | Products that promote environmental and/or social characteristics amongst other characteristics and the companies in which the investments are made have good governance practices. This implies that ESG investing is not core to these products. |
| Article 9: | Products that have sustainable investment as their core objective. |
On 25 July 2022, Commission Delegated Regulation ((EU) 2022/1288) (“SFDR RTS”) which supplements the SFDR and the Regulation on the establishment of a framework to facilitate sustainable investment (EU/2020/852) (“Taxonomy”) with regard to regulatory technical standards have finally been published after being subject to continued delay.
| PAI: | The SFDR RTS explicitly state that one way in which financial products can promote environmental or social characteristics is to take into account principal adverse impacts (“PAI”) of investment decisions. Financial products that have sustainable investment as their objective must, as part of the disclosures made with regard to the ‘do no significant harm’ (“DNSH”) principle, also consider sustainability indicators in relation to the adverse impacts referred to in Article 4(6) and (7) of SFDR. |
PAI indicators are essentially a set of mandatory factors and metrics which aim to show financial market participants how certain investments pose sustainability risks. The indicators cover environmental, social and governance issues, including a substantial number of fields where many corporations do not currently disclose meaningful or complete data.
The Sustainable Finance Disclosure Regulation ((EU) 2019/2088) (“SFDR”) entered into force on 10 March 2021. The Regulation requires financial market participants in the EU to provide information to investors with regards to the integration of sustainability risks, the consideration of adverse sustainability impacts, the promotion of environmental or social characteristics, and sustainable investment. The goal of this regulation is to enhance transparency with regards to ESG-related risks and objectives. By creating a solid framework for ESG reporting, the risk of greenwashing shall be minimized.
Under SFDR, financial products are classified into three different categories:
| Art. 6: | Products that do not integrate ESG considerations into the investment decision-making process or explain where the integration is not relevant, where products do not meet the criteria of Article 8 or 9. |
| Art. 8: | Products that promote environmental and/or social characteristics amongst other characteristics and the companies in which the investments are made have good governance practices. This implies that ESG investing is not core to these products. |
| Art. 9: | Products that have sustainable investment as their core objective. |
On 25 July 2022, Commission Delegated Regulation ((EU) 2022/1288) (“SFDR RTS”) which supplements the SFDR and the Regulation on the establishment of a framework to facilitate sustainable investment (EU/2020/852) (“Taxonomy”) with regard to regulatory technical standards have finally been published after being subject to continued delay.
| PAI: | The SFDR RTS explicitly state that one way in which financial products can promote environmental or social characteristics is to take into account principal adverse impacts (“PAI”) of investment decisions. Financial products that have sustainable investment as their objective must, as part of the disclosures made with regard to the ‘do no significant harm’ principle, also consider sustainability indicators in relation to the adverse impacts referred to in Article 4(6) and (7) of SFDR. |
PAI indicators are essentially a set of mandatory factors and metrics which aim to show financial market participants how certain investments pose sustainability risks. The indicators cover environmental, social and governance issues, including a substantial number of fields where many corporations do not currently disclose meaningful or complete data.
The transparency requirements under the SFDR apply only to part of the financial instruments legally enumerated in Section C of the MiFID II Directive. Although structured products (hereinafter “Products”) have become an established constituent of the investment universe in the global asset management and retail financial industry, these securities are not directly covered by the EC’s Sustainable Finance package.
The incomplete ruleset effects in particular the ESG products distribution and ultimately the end-clients by limiting the solutions available to ESG-focused investors in the EU and putting them at a competitive disadvantage compared to their peers in other highly developed capital markets.
The components of our Products are evaluated on their ESG quality and the result, assessing the ESG qualification of the Product as such, is disclosed in line with the SFDR (RTS) requirements (“SFDR Equivalence”). The classification of our Products with sustainability features follows therefore the target market model jointly developed by the German Banking Industry Committee (Deutsche Kreditwirtschaft – DK) (formerly Zentraler Kreditausschuss or ZKA), the German Investment and Asset Management Association (Bundesverband Investment und Asset Management – BVI) and the German Derivatives Association (Deutscher Derivate Verband – DDV).
Our Products can contribute towards sustainability either through the issuer’s business operations or by allocating the issue proceeds to projects or investments with certain sustainability characteristics, which constitute the Sustainable Asset Pool.
As part of the structuring process, Helveteq forms segregated Sustainable Asset Pools that will hold the assets generating ecology- or sustainability-related impacts or that avoid adverse environmental and social impacts (PAI) – at the very least in the amount of the outstanding volume and over the term of the relevant Product. In this way, the investors’ funds will be linked with financing for business operations that generate ecology- or sustainability-related impacts or PAI.
The underlying assets comprising the Sustainable Asset Pool will be reported separately from Helveteq’s other assets on the balance sheet and the pool will be regularly reviewed.
Please find below the sustainability-related disclosures for Helveteq and all of our products. You can furthermore access the product pages directly to find more information.
| Product | Pre-contractual disclosure | Learn More |
|---|---|---|
 AUCO2 |
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Learn More |
