

The European Commission may require financial institutions to include environmental, social and governance (ESG) criteria in the key information documents (KIDs) for the European Union’s vast €10trn ‘packaged retail and insurance-based investment products’ (PRIIPs) market, pending a further consultation of the European Union’s supervisory authorities.
KIDs are short, plainly-worded documents – no more than three pages long – that it’s hoped will provide investors with answers to the key questions they have about the features, risks, and costs of investment products. The Commission will task a joint committee of European Supervisory Authorities (ESAs) to define a framework that will allow for ESG criteria to be included in the documents.
The Joint Committee was set up in 2011 to strengthen cooperation between the European Banking Authority (EBA), European Securities and Markets Authority (ESMA) and European Insurance and Occupational Pensions Authority (EIOPA).
The group has already proposed a range of regulatory technical standards for KIDs. At present, they include a mandatory template for KIDs which includes non-optional text, requirements for how product costs are presented and the publication of one of seven simple risk indicators.
Vanessa Mock, a spokesperson for the European Commission, says that the joint committee will “soon” be asked for more input into what ESG measures should be included in the disclosures.
“The joint committee will be asked to consider whether PRIIPs manufacturers have appropriate governance systems in place to ensure the disclosed environmental or social objectives are met,” she continues.Manufacturers in this sense means fund managers, insurance undertakings, credit institutions or investment firms.
A regulation on PRIIPs was introduced in November 2014 and has to be implemented by the end of this year.
The text notes how information on social or environmental outcomes sought by the PRIIP manufacturer can be “difficult to compare or may be absent” and that there are no established criteria or formal procedure to verify such social or environmental criteria objectively.
The commission has said PRIIPs are “at the core of the retail investment market”. Broadly speaking they are categorized into four groups: investment funds, insurance-based investment products, retail structured securities and structured term deposits.
Another feature in the regulation is its stipulation for a review to be carried out four years after its entry into force. “The review should also assess the feasibility, costs and possible benefits of introducing a label for social and environmental investments.”
The joint committee will work alongside stakeholders in defining what ESG content should be included. Flavia Micilotta, executive director of the European Sustainable Investment Forum (EuroSIF), says that she and her colleagues “hope to be able to play a role in the shaping of the considerations” that the Commission will eventually include.
“We are looking forward to what we believe to be an important step in favour of retail investors and the promotion of ESG criteria in investments,” she adds.