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ESAs’ Joint Technical Advice on PRIIPs with environmental or social objectives (EOS PRIIPs)

By Mikkel Bates Regulations

Updated on Wednesday, 9 August, 2017

In February this year, the European Supervisory Authorities (ESAs) issued draft technical advice on EOS PRIIPs, along with a consultation paper (CP) on their proposals. On the back of responses to that CP, they have now submitted their Joint Technical Advice to the European Commission.

In spite of the Commission confirming that the “PRIIPs Regulation does not contemplate any form of labelling for products that target specific objectives”, the ESAs refer to “EOS PRIIPs” throughout. Responses to the CP said the market already has enough acronyms, favouring “ESG” for a “coherent narrative”.

The Technical Advice is broken down into four sections:

  1. Specific environmental or social objectives,
  2. Disclosure of the specific investment policy,
  3. Governance procedures and controls, and
  4. Review of the process.

Each section sets out the regulatory outcome sought, how it may be covered by existing rules and the ESAs’ conclusions, from which the final advice is derived.

As EOS objectives cover a wide range of issues and investment policies, which are constantly developing, the paper avoids dictating what is in scope. Attention is focused instead on having a clear investment policy, setting out the objectives and strategy to achieve them, identifying the target market and disclosing this in the PRIIPs KID. In most cases, the outcomes sought are covered by existing regulatory and oversight frameworks and the advice is that “no new obligations have been identified”, apart from the disclosure.

While not setting out all of the details, the KID should say whether the objectives are achieved through direct or indirect exposure to the underlying assets and describe the target market that shares those objectives. The “Other relevant information” section should point to where investors can find further information about the objectives and investment strategy.

There has been some push-back in response to the CP, notably on attempts to apply MiFID II or IDD product governance rules to funds that aren’t caught by those directives and on the description of PRIIPs needing to use the money invested “for the achievement of the stated EOS objectives”. It was felt this sounded too much like “impact investing”, which is only one narrow area of responsible investing.

The Technical Advice clarifies what needs to be shown on the KID (which is what the Commission’s mandate required) and confirms that no new oversight and governance frameworks are needed to accommodate what are still being called EOS PRIIPs.

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