Rules that would compel investors to integrate sustainability risks into their decision-making have taken another step closer to being imposed.

The European Commission has called for advice on the new measures from the European Securities and Markets Authority (ESMA) and the European Insurance and Occupational Pensions Authority (EIOPA). If the advice returns positive, the new rules are likely to go ahead.

A letter to ESMA and EIOPA asks for views on rules that have the “aim of incorporating sustainability risks, i.e. environment, social and governance risks in the decisions taken and processes applied by financial market participants subject to those rules.”

The letter says that assessment of sustainability risks by investors and investment advisers is “not a common practice” and is further hampered by “existing legal uncertainty as to what is expected from relevant financial market participants and investment and insurance advisers.”

The commission is seeking technical advice from EIOPA and ESMA on “how and where” sustainability risks should be integrated into the business models of investors. Specifically, the letter asks where sustainability should be built in to:

• organisational requirements, including risk management and governance;
• operating conditions, in particular investment strategy and asset allocation; and
• risk management.

Sustainable finance action plan

The new rules are part of EU action to implement a sustainable finance action plan. The measures were adopted in May and includes not only new rules for sustainable investments but also new regulation for disclosure on sustainability risks.

In addition, the EU has as technical expert group investigating sustainable finance.

At the time that the action plan was launched, Frans Timmerman, vice president of the commission, said: “Moving to a greener and more sustainable economy is good for job creation, good for people, and good for the planet.

“Today we are making sure that the financial system works towards this goal. Our proposals will allow investors and individual citizens to make a positive choice so that their money is used more responsibly and supports sustainability.”

In a commentary on the action plan, law firm Clifford Chance said: “The Action Plan represents a significant step in the EU’s effort to embed sustainability considerations into the financial system and contains a wide range of legislative and non-legislative measures.”