MiFID questionnaire and sustainability preferences

Before investing our savings, we need to get to know ourselves and to be known by the person advising us, also to understand if and how much we want our investments to adhere to sustainability criteria.

Let us explain this more clearly and step by step.

When we decide to make a financial investment, the intermediary or advisor must 'assess' how experienced we are with investments, whether we understand the associated risks, and what our needs and objectives are. To do this, we must answer questions in a questionnaire called the 'MiFID questionnaire', named after the European regulation that governs the provision of investment services ('Markets in Financial Instruments Directive'), including advice, with the aim of improving transparency of financial products and services and protecting investors.

The questionnaire is essentially an interview designed to protect us: it helps us become more aware and avoid being offered investments we do not fully understand. It also helps the intermediary/advisor, as they create our 'financial profile' based on our answers and can recommend suitable financial products. This process is defined by the regulation as the 'client suitability assessment', which intermediaries and advisors carry out based on the information collected.

As of August 2022, the questionnaire also includes specific questions about our 'sustainability preferences', aimed at understanding whether - and to what extent - we wish to pursue environmental or social objectives (for example, reducing carbon emissions, or promoting social inclusion and equal opportunities) alongside profit, or at least take them into account to avoid risks of loss.

We will therefore be asked whether, when choosing a financial instrument, we also want to consider its sustainability characteristics, in addition to its financial features (return, duration, risk). The intermediary or advisor must help us understand what environmental sustainability factors are (e.g., combating climate change), social factors (e.g., compliance with child labour regulations), and governance factors (e.g., transparency, protection of minority shareholders), and explain the difference between sustainable financial products and those without sustainability features.

Put simply, we can decide whether or not to integrate our sustainability preferences into our investment choices by selecting among:

1. 'environmentally sustainable' financial instruments, which contribute to achieving environmental goals, such as the production of energy from renewable sources (the EU has listed these activities in the EU Green Taxonomy);
2. 'sustainable' financial instruments financial instruments, which contribute to achieving social and, to a lesser extent than the above, environmental objectives;
3. financial instruments not focused on sustainability. These instruments cannot use the terms 'ESG' or 'sustainability', nor can they be promoted as sustainable. For this category of products, the regulation requires an explanation as to why sustainable options are not included among the investment choices, and, if sustainability risk is considered immaterial, the reasons for this assessment.

In conclusion, sustainability preferences make our investment decisions somewhat more demanding, as we must add considerations related to sustainability aspects alongside the financial evaluation of return, duration, and risk.