Markets in Financial Instruments Directive II

ESG
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March 1, 2024

MiFID II stands for the "Markets in Financial Instruments Directive II." It's a law in the European Union (EU) that regulates companies providing services linked to financial instruments (like stocks, bonds, units in collective investment schemes, and derivatives) and the places where those instruments are traded (like stock exchanges). Think of it as a set of rules to make financial markets more transparent, safe, and fair for everyone, especially for individual investors. Here are some key points:

  • Transparency: MiFID II makes sure that trading, including prices and costs, is more transparent. This means investors can see more clearly what they are buying, how much it costs, and the market conditions.
  • Protection for Investors: It puts a lot of emphasis on protecting investors. Companies need to ensure that they are acting in the best interests of their clients, providing them with clear information, and warning them about risks.
  • Testing Financial Products: Before a company can sell a financial product to a client, they must check if it's suitable or appropriate for that client, based on their financial situation and investment goals.
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Green Washing

Greenwashing is the practice of making false or misleading claims about the environmental benefits or sustainability of a product, service, or company. This can include exaggerating or fabricating a product's eco-friendliness, hiding its negative environmental impacts, or making unsubstantiated claims about its sustainability.
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Measuring Double Materiality: Focus on Water Impact

Hypothetical beverage company called "FreshDrink Co." Financial materiality (impact on the company): Climate change is causing water scarcity in regions where FreshDrink Co. sources its water. This scarcity could lead to increased water costs and potential supply disruptions, directly affecting the company's financial performance and long-term viability. Environmental and social materiality (impact of the company): FreshDrink Co.'s water usage in water-stressed areas may deplete local water resources, affecting the surrounding ecosystems and communities' access to clean water.
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Measuring Double Materiality: Focus on Social Impact

Social impact in the context of double materiality refers to how a company’s operations affect people and communities. This includes direct and indirect consequences of business activities on employees, consumers, local communities, and society at large.
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Measuring Double Materiality: Focus on Governance Impact

Governance impact in the context of double materiality focuses on how a company’s governance structures influence both its financial performance and its broader societal impact. This approach requires organizations to evaluate both how governance practices affect their bottom line and how they impact stakeholders such as employees, shareholders, and the community.
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Double Materiality

Double materiality suggests that companies should assess the impact of external environmental and social factors on their operations (external materiality) and evaluate the impact of their activities on the external environment and society (internal materiality).
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2020 UK Stewardship Code

The responsible allocation, management, and oversight of capital to create long-term value for clients and beneficiaries, leading to sustainable benefits for the economy, the environment, and society