ESG Update 1: Complying with Sustainability Legislation: What the AFM Expects from You

TOEZICHT ESG UPDATE 1 APRIL 2025 Complying with Sustainability Legislation: What the AFM Expects from You

In Brief This is the first edition of the AFM's ESG update. This update is intended for all parties that must comply with sustainability legislation for consumers, focusing specifically on these four key themes: sustainability claims, SFDR, POG, and suitability.

More and more consumers want to contribute to the transition to a more sustainable economy through their financial choices. Financial enterprises make this possible with appropriate, sustainable products and fair, transparent sustainability information. Enterprises have taken good steps in the past year. Nevertheless, we see that much effort is still needed. This also applies to compliance with regulations that have been in force for some time and on which the AFM has previously issued clear expectations. Therefore, we are publishing our first ESG update. It contains our priorities for 2025 and 2026 on four important themes: sustainability claims, SFDR, POG, and suitability.

What does the AFM concretely expect from you in practice? This first ESG update provides an overview of our priorities for 2025 and 2026 on four important themes: sustainability claims, SFDR, POG, and suitability. In our next ESG updates, we will zoom in on one or more specific sustainability legislation themes for consumers. Where possible, we will align this with recent research data. We expect to publish a new ESG update in the autumn. You will receive it if you are subscribed to the monthly newsletter for the sector.

1. Sustainability Claims: Correct, Clear, Non-misleading, Balanced

Sustainability ambitions and other sustainability claims often appear in (marketing) communications from financial enterprises. Sustainability claims must meet these legal standards: correct, clear, and non-misleading (for pension funds: balanced).

What the AFM Expects from You

• You only make sustainability claims that are correct, clear, and non-misleading, or, for pensions, balanced. The Guidelines on Sustainability Claims contain the 3 fundamental principles for making fair and correct claims that comply with information disclosure standards. If you cannot substantiate your sustainability claim, do not make it.

What is the AFM Doing? In the Guidelines on Sustainability Claims that we published in 2023, financial enterprises and pension administrators can find tools to comply with existing information disclosure standards. The guidelines do this based on three overarching principles:

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1. accurate, representative, and up-to-date;
2. concrete and well-substantiated; and
3. understandable, appropriate, and findable.

The AFM is currently conducting exploratory research into sustainability claims. This allows us to assess how far the market has progressed and what next steps are necessary.

2. SFDR: Clear, Comparable, and Reliable Information

The SFDR requires financial market participants and financial advisors to be transparent about the sustainability aspects of their investment policy and products. The basis for clear information to investors and pension participants is clearly filled-out SFDR templates.

The better the templates are filled out, the better investors, pension participants, and advisors can understand, compare products, or provide appropriate advice. Furthermore, the templates provide them with more insight into the substantiation of sustainability claims.

What the AFM Expects from You

• You have published all required information on your website.
• You publish (only) information that is clearly (findable) for investors.
• You publish reliable SFDR information, including information on the sustainable characteristics of products, sustainability risks, and the negative impact of investments.

What is the AFM Doing? The AFM already sent supervisory letters to parties in 2024 that had not yet published all required information; they did not meet the basic requirements. Furthermore, we expect templates to be understandable and findable, so that investors, pension participants, and advisors can understand, compare products, or provide appropriate advice. In 2024, the AFM stated that there is still much work to be done here.

In 2025, the AFM will conduct research again into SFDR compliance by asset managers and life insurers, with the aim of ensuring they provide consumers with the correct information on how investments contribute to sustainable objectives. We expect market parties to have everything in order now.

3. POG: Sustainability Requirements Embedded

Enterprises must integrate legal sustainability provisions into their Product Oversight & Governance (POG) policy, evaluate their product offering based on this, and prevent the sale of products without sustainability characteristics to investors who wish to invest sustainably.

What the AFM Expects from You

• You know and check the quality and reliability of the sustainability information of products (also for the purpose of the suitability test).
• You have designed the customer journey (website, app, customer contact) in accordance with the distribution strategy.
• You monitor the distribution of "grey" products to the negative target group and evaluate the effectiveness of your strategy to prevent this.

What is the AFM Doing? In the 2024 publication, the AFM already indicated that more parties must integrate legal sustainability provisions into their Product Oversight & Governance (POG) policy and evaluate their product offering based on this. The AFM specifically drew attention to the definition of the negative target group; products without sustainability characteristics must not be sold to investors who wish to invest sustainably. Parties must have policies in place to prevent such a mismatch.

The AFM is currently conducting research at several investment enterprises regarding compliance with sustainability requirements in POG and/or Suitability in their services. This research is part of a Common Supervisory Action (CSA) carried out by various supervisors in Europe, coordinated by ESMA. The AFM expects to see improvement compared to 2024.

4. Suitability Test: Match of (Sustainable) Demand and Supply

Institutions must inquire about the sustainability preferences of their clients or participants and ensure suitable investments given these sustainability preferences.

What the AFM Expects from You

• You provide understandable explanation regarding the sustainability component in the suitability test.
• You are careful when identifying actual sustainability preferences and do not steer investors toward a specific product or investment strategy.
• You provide investors with suitable products as much as possible, appropriate for their actual/initial sustainability preferences. There is no steering aimed at adjusting preferences.

What is the AFM Doing? In the 2024 publication, the AFM already indicated that better explanation of sustainability to investors by investment enterprises is needed. And that careful inquiry into sustainability preferences is important, as this forms the basis for determining the suitability of the investment and preventing a mismatch.

Currently, the AFM is conducting in-depth research at several investment enterprises regarding compliance with sustainability requirements in POG and/or Suitability in their services. This research is part of a Common Supervisory Action (CSA) carried out by various supervisors in Europe, coordinated by ESMA. The AFM expects to see improvement compared to 2024.