- 21.10.2024 - 15:58
In a recent report, Camilla Weder and Julian Kölbel investigate sustainability preferences under MiFID II, finding a remarkable gap. MiFID II requires EU banks to ask their clients about their sustainability preferences as part of the investment advisory process. Surveying five banks with a combined 40’000 clients, they find that, on average, 5% of clients express a preference for sustainability. In contrast, 40% of the same clients hold at least some sustainable investment products. This gap raises interesting questions about what clients really want and whether the regulation is achieving its aims. They data only documents the gap, not the reasons for it. But they suggest three potential, non-exclusive explanations for the gap:
1. Limited interest. Only about 5% of clients have a preference for sustainability, but sustainable investment products are sold to many other clients regardless of their preferences.
2. Strategic underreporting. The regulation is commonly implemented so that indicating a sustainability preference limits the choices to ONLY sustainable investment products. However, when not expressing a preference, ALL products, including sustainable investment products, are available. So, clients may avoid revealing their true preferences to retain access to a broader selection of investment products.
3. Choice design. The choice design may play an important role, for example, whether opt-in or opt-out. A small group may have strong preferences, while many clients are nearly indifferent and happy to go along with the default.