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July 30, 2012
Eurosif Supports Sustainability Disclosures for Retail Investors
    by Robert Kropp

The European Commission proposes legislation that would require investment funds and other packaged retail investment products to disclose in key information documents whether they target sustainable outcomes.

Earlier this month, the European Commission (EC) proposed legislation to improve consumer protection in financial services. "The financial crisis has become a crisis of consumer confidence," the EC stated. "Lack of transparency, low awareness of risks, and poor handling of conflicts of interest have meant that consumers across the EU have been repeatedly sold investment and insurance products that were not right for them."

One of the Commission's proposals addresses packaged retail investment products (PRIPS), and seeks to improve the quality of information provided to consumers when they consider investments. The means by which the Commission proposes to accomplish this is a key information document (KID), which is to be provided to purchasers of PRIPS. The Commission includes investment funds, insurance-based investments, retail structured products, and some private pensions in its definition of PRIPS.

Each KID will follow a common standard, the Commission stated, and "will provide information on the product's main features, as well as the risks and costs associated with the investment in that product." With a retail investment market of more than $12 trillion in the European Union (EU), "buying wrong or unsuitable products can quickly become a major problem," the Commission stated.

One of the noteworthy requirements of the proposed legislation is that the KID should include "an indication of whether the investment product manufacturer targets specific environmental, social or governance outcomes, either in respect of his conduct of business or in respect of the investment product, and if so, an indication of the outcomes being sought and how these are to be achieved."

"Information about non-financial aspects of investments can be important for those seeking to make sustainable, long-term investments," the Commission's proposal states.

The European Sustainable Investment Forum (Eurosif) quickly spoke out in favor of "a Regulation making it mandatory for retail investors to be informed about how environmental, social and governance (ESG) concerns are taken into account in their investment…Eurosif believes that this Proposal represents a major milestone in terms of developing sustainability through European financial markets."

François Passant, Executive Director of Eurosif, stated, "Encouragingly, the Proposal requires that all packaged retail investment products, including those not portraying themselves explicitly as 'ESG or SRI products', disclose whether the investment product manufacturer targets specific ESG outcomes."


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