ESG UPDATE 2

DECEMBER 2025

Sustainability Provisions in POG and Suitability Assessment: What the AFM Expects from You?

In Short

The AFM conducted research in 2024 and 2025 into compliance with sustainability provisions for two themes. First, for Product Oversight & Governance (POG), and second, for the suitability assessment. We are positive about the steps investment firms have taken. However, we also see that they do not yet comply with all provisions. To further help the market, this second ESG update contains additional clarification and good practices from the market for POG (Chapter 1) and for the suitability assessment (Chapter 2). Finally, we highlight the main points of our research (Chapter 3).

A good match between the investor's preferences and suitable sustainable investment products. That is the core task of the sustainability provisions for POG and the suitability assessment. A detailed positive and negative target group determination prevents customers from inadvertently ending up with unsuitable products. Furthermore, it is important that investors understand the sustainability component of the suitability assessment well. A complicated explanation can lead to incomplete answers. Or to customers dropping out. Moreover, a careful and detailed inquiry is essential to map preferences. The better the preferences are known, the more targeted investment firms can link them to suitable sustainable products – and the better the match.

Investment firms play a key role in making a good match. They know their customers, can translate preferences, and offer guidance in a complex investment landscape. A good match strengthens customer trust and offers commercial opportunities: almost half of investors pay some attention to the sustainability of their investment products.

What does the AFM do?

Sustainability in the financial sector is a strategic priority of the AFM. We therefore expect to continue conducting research around the themes we mention in the ESG updates. The requirements set out in these updates must be met, and we supervise this. In the third ESG update, we will address sustainability claims.

Do you experience bottlenecks or areas for improvement in the market? Then email us at: ESG-update@afm.nl. We will answer your messages where possible and use them to address the main bottlenecks. The AFM will provide clarification as best as possible by further supplementing our information. More information can be found on our page about Sustainability.

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1. Product Oversight & Governance (POG): Additional AFM Clarification on the 3 Expectations Regarding This Theme

This is what the AFM expects from you

You know and control the quality and reliability of the sustainability information of products (also for the purpose of the suitability assessment).

Additional AFM Clarification on this Expectation

• Ensure clear sustainability information from the product developer, check this critically, and monitor regularly if new sustainability information is available. Document in your policy how this is applied consistently. Inform customers if information is missing.
• Check sustainability information for reliability. The distributor remains responsible for determining the target groups and must have access to reliable product information.
• It can help to use data from a data broker. Be critical of the meaning and scope of this information, especially if it is shared with customers.

Good Practice: Transparent Scoring Methods for Sustainability

A market participant assigns its own sustainability score to its investment products. This allows the target group of products to be determined better, so they can be matched with the customer's sustainability preferences. When using own scores, it is important that the method used and the sources used are explained transparently. Also give non-sustainable products a score, so that a fair and consistent comparison is possible.

This is what the AFM expects from you

You have arranged the customer journey (website, app, customer contact) in accordance with the distribution strategy.

Additional AFM Clarification on this Expectation

• Secure in policy and procedures that products only reach the correct (positive) target group. Prevent sales to the negative target group, especially in execution-only services.
• Clearly inform customers about the sustainability characteristics of products. Also indicate when a product has no sustainability characteristics, or when information is missing.
• You may use third-party sustainability labels, provided you critically assess the underlying methodology. The AFM expects you to investigate how the label is derived. And also that you additionally test whether the information corresponds to practice, for example by means of sampling.

Good Practice: Filtering on Sustainability Scores.

A market participant offers customers the possibility to filter products based on sustainability scores. This can contribute to a better-adapted product choice. It is essential that investment firms are transparent about how these scores are derived, including the sources and methodology used.

This is what the AFM expects from you

You monitor the distribution of "grey" products to the negative target group and evaluate the effectiveness of your strategy to prevent this.

Additional AFM Clarification on this Expectation

• Document the (negative) target group determination in detail. It helps to do this via the three legal categories of sustainability preferences (taxonomy investments, sustainable investments within the meaning of the SFDR, and investments that take into account the Principal Adverse Impacts (PAIs)). This facilitates alignment with sustainability preferences.
• Grey products should in principle not be offered to customers with a sustainability preference. This requires a clear and well-documented negative target group determination to prevent a mismatch.
• Determine the target group at product level. Clustering products with the same sustainability characteristics is allowed, provided that the underlying sustainability information is sufficiently transparent and consistent.
• Check whether grey products still end up with the negative target group. Regularly assess the effectiveness of your strategies to prevent this.

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2. Suitability Assessment: Additional AFM Clarification on the 3 Expectations Regarding This Theme

This is what the AFM expects from you

You provide understandable explanation about the sustainability component in the suitability assessment.

Additional AFM Clarification on this Expectation

• Explain why sustainability preferences are inquired, what customers can expect, what choices they must make, and why complete answers are important.
• Provide an explanation of the three legal categories of sustainability preferences (taxonomy investments, sustainable investments within the meaning of the SFDR, and investments that take into account the Principal Adverse Impacts (PAIs)), and the differences between these categories. Ensure that the explanation fits the customer's frame of reference.
• Address the ESG concept and state what E, S, and G in ESG stand for.
• Make the difference clear between investment products with and without sustainability characteristics.
• Provide the explanation before you inquire about customers' sustainability preferences, for example via brochures, leaflets, or a website. This allows customers to prepare well.
• Test whether the customer understands the explanation. Ideally, do this before inquiring about sustainability preferences. This offers room for additional clarification. Testing afterwards is also possible, for example if you inquire about sustainability preferences online.

Good Practice: Explanation with an Example

A market participant explains what the requirements are for a taxonomy investment; that explanation is done with an example of a wind farm. The wind farm contributes to solving climate change, and therefore could be a taxonomy investment. However, the wind farm is located in a protected nature area that suffers damage from the wind farm. Therefore, the wind farm does not meet all requirements of the EU Taxonomy, meaning it is not an ecologically sustainable investment.

Good Practice: Good, Complete, and Timely Explanation

A market participant gives an explanation in a brochure about the sustainability component in the suitability assessment. The customer receives this brochure before the suitability assessment. The brochure explains the link between investing and sustainability. The customer can choose to what extent sustainability can play a role in their investments. The market participant explains in the brochure that they will inquire about sustainability preferences for this reason, and the brochure also states how this inquiry takes place, what choices the customer can make, and what the market participant subsequently does with this information.

This is what the AFM expects from you

You are careful in identifying the actual sustainability preferences and do not steer investors towards a specific product or investment strategy.

Additional AFM Clarification on this Expectation

• Ask new and existing customers about their sustainability preferences.
• Formulate the associated questions and the explanation neutrally and unbiased. Thus, without reference to your own product offering or investment policy, and without pointing out the consequences of their answers to customers. Also offer choice options in multiple-choice questions that fall outside the product offering.
• Identify whether customers have a preference for one or more of the three legal categories of sustainability preferences: taxonomy investments, sustainable investments (SFDR), and investments that take into account the Principal Adverse Impacts (PAIs).
• For a preference for sustainable investments within the meaning of the SFDR and/or taxonomy investments, the desired minimum percentage must also be inquired. This stands for the percentage of a recommended or managed financial instrument that must at least meet the requirements for taxonomy investments or sustainable investments within the meaning of the SFDR. This is not about the share or percentage of the portfolio that must meet the customer's sustainability preferences.
• You may use standardized minimum percentages here, provided customers can choose from sufficient options. If applicable, also include choice options to which you cannot comply.
• Let customers indicate themselves which PAIs the investments must take into account. You can let customers name PAIs themselves. Or let them choose from a standard list, including the list of PAI families from the SFDR. Then also include PAIs to which you cannot comply.
• Customers must be able to indicate via quantitative or qualitative criteria how PAIs should be taken into consideration. For example, ask customers via a ranking how important the mentioned PAIs are to them.
• In wealth management or advice with a portfolio approach, you must ask what part or percentage of the portfolio must meet the sustainability preferences.

Good Practice: Layered Inquiry

A market participant first identifies in an online questionnaire whether a customer has a preference for taxonomy investments, sustainable investments within the meaning of the SFDR, investments that take into account PAIs, or several of these categories. Subsequently, the customer is directed to specific questions about each chosen category. A customer with a preference for taxonomy investments and sustainable investments within the meaning of the SFDR, for example, first receives a follow-up question about their preference for taxonomy investments. Only then does the customer receive a follow-up question about their preference for sustainable investments within the meaning of the SFDR.

Inquiring Sustainability Preferences: How it Works

Does the customer have sustainability preferences?
NO / YES

Does the customer have a preference for ecologically sustainable investments, sustainable investments, or investments that take into account PAIs?

If preference for (ecologically) sustainable investing, ask for the minimum percentage.

For which part/percentage of the investment portfolio (if any) do these sustainability preferences apply?

Which Principal Adverse Impacts must be taken into consideration?

A B

C Examples of suitability assessment for investment portfolios

Apply preferences to the level of the entire portfolio Apply preferences to the level of the part/percentage that the customer wants to invest in products with sustainability characteristics

% %

Minimum percentage of ecologically sustainable investments Minimum percentage of sustainable investments

0% 100% 0% 100%

1 2

TAXONOMY INVESTMENTS SUSTAINABLE INVESTMENTS (SFDR)

% %%

Percentage that financial instruments (in portfolio) must at least invest in ecologically sustainable investments Percentage that financial instruments (in portfolio) must at least invest in sustainable investments within the meaning of SFDR

% %

NO YES

December 2025 © AFM

%

IN CASE OF PREFERENCE FOR PAIs:

This is what the AFM expects from you

You provide investors with suitable products as much as possible, fitting their actual/initial sustainability preferences. No steering is done to adjust preferences.

Additional AFM Clarification on this Expectation

• Ensure that your advice or method of wealth management aligns with the customer's sustainability preferences. Customers may decide to adjust their sustainability preferences in case of a mismatch, so that the mismatch is resolved.
• Build safeguards and controls into your policy and execution, so that customers only receive (recommended) investment products that fit their actual sustainability preferences.
• Include all necessary information about sustainability preferences that you must inquire when assessing the suitability of investment products for the customer. Ensure in your policy and processes that answers lead to a consistent match with investment products with sustainability characteristics.
• Does your product offering not match the customer's sustainability preferences? Then you can point out the possibility of adjustment, but without steering or providing information about the sustainability content of your product offering.
• Does the customer not want to adjust their preferences? Then stop the service. Does the customer adjust their preferences? Then document both the decision and the reason, for example in your customer system, and offer suitable products later if they become available.

Good Practice: Taxonomy Profile in the Suitability Assessment

A market participant assigns a taxonomy profile to customers who indicate a preference for taxonomy investments. This is to indicate that these customers want taxonomy investments in their investment portfolio. The market participant currently has no taxonomy products in its product offering. Therefore, the market participant asks if these customers are willing to adjust their sustainability preferences. If customers are willing to do so, they receive a different sustainability profile for which the market participant does have suitable products.

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3. Main Points from Our Research and Attention Points for the Market

Investment firms are well on their way in setting up the customer journey and explaining sustainability

The AFM sees that all six investment firms under investigation are making efforts for better compliance with the sustainability provisions for POG and the suitability assessment. That is positive.

For POG, we see the following:

• The investment firms under investigation communicate sustainability characteristics clearly in the execution-only channel, for example via a filter function.
• The customer journey is arranged such that it is made easy for customers to buy products that fit their sustainability preferences.
• In the positive target group determination, the majority takes sustainability preferences into account, although the level of detail varies greatly.

For the suitability assessment, we see the following:

• All investment firms under investigation provide explanation about sustainability before and during the suitability assessment.
• The majority also gives clear explanation about the different legal categories of sustainability preferences.
• All investment firms under investigation collect information about customers' sustainability preferences.

Especially extra steps needed in target group determination and inventory of sustainability preferences

The AFM also sees a number of attention points regarding the investment firms under investigation. For both the sustainability provisions in POG and suitability, we see that certain procedures and processes are not always documented in policy. We emphasize that this must be the case. Additionally, the following points stand out:

Attention Points POG

• Detailed target group determination regarding sustainability AND a negative target group determination for investment products without sustainability characteristics:
  • Make both the positive and negative target group determination more specific.
  • Seek alignment with the sustainability preferences from the suitability assessment.
• Critically assess received information from the product developer:
  • Check the received information and assess it critically.
  • Supplement if necessary with data from data brokers.

Attention Points Suitability Assessment

• Clear explanation about the sustainability component:
  • Explain the ESG concept (environmental, social, governance).
  • Make the difference clear between investment products with and without sustainability characteristics.
  • Check if the customer has understood the explanation about sustainability.
• Careful inventory of sustainability preferences:
  • Collect information about minimum percentages for preferences for taxonomy investments or sustainable investments within the meaning of the SFDR.
  • Collect information about the specific Principal Adverse Impacts (PAIs) that must be taken into consideration for a preference for PAIs.
  • Avoid emphasizing possible limitations or consequences of certain sustainability preferences.
  • Do not limit the choice options only to the existing product offering.

Continuous effort needed to obtain detailed information

We also asked the investment firms under investigation about the problems they encounter in execution:

• Most customers find sustainability important, but have no specific preferences. Specific questions about sustainability preferences can then be perceived as bothersome.
• Sometimes there is insufficient information about the sustainability characteristics of products, and the offering of taxonomy investments is limited. This complicates making a good match.

The AFM has understanding for these circumstances. This does not mean that investment firms should not continue to make efforts to obtain sufficiently detailed information about customers' sustainability preferences and about the sustainability characteristics of investment products.