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More ESG from the EU: updates to the UCITS and AIFMD Regimes

  • United Kingdom
  • Europe
  • Financial services and markets regulation - AIFMD
  • Financial services and markets regulation - ESG
  • Financial services and markets regulation - UCITS V
  • Financial services



As part of its Action Plan on sustainable finance announced in March 2018, the European Commission has published a draft of sustainability legislation. We have been discussing this legislation and its impact on firms and fund managers as part of a series of briefings and have so far covered:

We now turn to two further draft regulations which amend the familiar MiFID II, AIFMD and UCITS regimes, in order to integrate ESG considerations into firms’ behind the scenes policies and procedures. The European Commission asked ESMA to consider the draft rules and ESMA’s final reports with their recommendations were published on 30 April 2019:

ESMA’s technical advice has been adapted into a number of draft delegated regulations. Published on 8 June 2020, the changes relevant to the AIFMD and UCITS regimes are addressed in

Both these proposed amendments are addressed in the briefing that follows. Proposed changes to the MIFID II regime are covered in our separate client briefing “More ESG from the EU - ESG updates to the MiFID Regime”.

Following the publication of the Draft Delegated Regulations, it is expected that the final legislation will be introduced at the end of 2020 or early 2021 allowing for the European Parliament and Council objection period.

UCITS and AIFMD changes

General organisational requirements

ESMA’s proposed changes will require the incorporation of sustainability risks within organisational procedures, systems and controls to ensure that they are properly taken into account in investment and risk management processes (eg decision making, internal reporting and third party monitoring).


Member states should ensure that they take into account effective integration of sustainability risks when considering the existing resource requirements. In particular it should be kept in mind when considering the personnel they employ (and their skills and expertise), the necessary resources and expertise required by such personnel in monitoring third parties and that management companies ensure that persons are able to discharge their functions soundly, honestly and professionally. 

Conflicts of interest

ESMA’s proposed new wording will be inserted into the regimes on conflicts of interest. When identifying conflicts of interest that may damage the interest of a fund or its investors, managers should consider conflicts “that may arise in relation to the integration of sustainability risks”. For example greenwashing, mis-selling and misrepresentation of investment strategies could all fall under this heading.  

Due diligence requirements and engagement

In addition to their current due diligence requirements relating to selecting and monitoring investments (and the requirement that these comply with the objectives and policies of their funds), firms must design written policies and procedures requiring fund managers to take into account sustainability risks when complying with the investment due diligence requirements.

Risk management

In addition to market, liquidity and counterparty risk firms will be required to take into account sustainability risks when designing and implementing their risk management policies.

Next steps

If adopted, the changes will require UCITS management companies and AIF managers to make changes to ensure that consideration of ESG factors and risks is part of their processes, and to reconsider their disclosures to ESMA and investors. Those firms which manage or market financial products or services with a “sustainable” target or investment strategy will be impacted most, but ultimately all firms should be aware of these changes.

ESMA notes in its report that the proposed reforms are intended to ensure that Senior Management is made collectively responsible for integrating consideration of sustainability risks. In practice (and particularly for UK managers, who will need to take the SMCR into account) this will mean ensuring that senior management:

  • has a good grasp of the firm's policy in relation to sustainability issues (this might require board and employee training);
  • receives the necessary information regarding steps to comply with its sustainability policy;
  • understands key ESG developments which might affect their business;
  • takes leadership on sustainability issues where necessary; and
  • ensures the business are actively engaging with companies on ESG topics.

Although the legislation is yet to come into force, firms should be reviewing their existing policies now and mapping out what changes will need to be made to their processes.

How can Eversheds Sutherland help?

Our team have been advising on regulatory interpretation and product development for the fund management industry since the 1980s and we were at the forefront of UCITS IV, V, AIFMD and MiFID II implementation. Our in depth understanding of the sector and experience with the practical implementation of ESG (including how screening processes work in practice) mean that we are very well placed to guide you through the implementation process and next steps in order to comply with the new legislation. We can also assist with gap analysis highlighting gaps between your current processes and the new rules.

Find out more on ESG and Sustainable Finance >

The Eversheds Sutherland ESG timeline

Our ESG timeline sets out current and forthcoming initiatives and developments to help you keep abreast of this rapidly evolving area. The timeline includes links to a wealth of materials and our briefings on other aspects of ESG.

View the ESG timeline >

Find out more information on how we can help