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Digital distribution platform, ESG query obligation

ESG preference inquiry obligation: Digital competence increases efficiency

Automated processes and AI enable bespoke investment advice, taking advisory services to the new level.

As a result of the amendment to the Ordinance Amending the Trade Notification Ordinance and the Financial Investment Brokerage Ordinance or (in short the ESG Preference Query), independent brokers of financial investments have also been required to collect the sustainability preferences of their customers when providing investment advice since the end of April. Digitalized, standardized queries accelerate and simplify implementation for all sides and significantly increase the efficiency of advisory services.

ESG preference inquiry: Digital competence increases efficiency

The good news first: the market for ESG funds continues to gain relevance and was able to continue to grow disproportionately in 2022 despite the difficult environment in the markets as a whole: the assets under management of funds with sustainability features grew by 12 percent last year to EUR 739 billion, according to the German Investment and Asset Management Association (BVI).

Around EUR 135 billion of this is accounted for by special funds for institutional investors, but over EUR 600 billion is held in retail funds. This equates to almost 50 percent of the assets of all mutual funds in Germany (1,280 billion euros) invested in funds with sustainability features. Private investors’ interest in sustainable investments has not only sustained but continues to grow. A decisive role in coping with rising demand and generating future growth falls to digitalization in the individual investment advisory – significant scaling requires digitalized and standardized processes.

Digitalized ESG preference query saves time and delivers relevant investor insights

As a result of the amendment to Trade Reporting Ordinance and the Financial Investment Brokerage Ordinance adopted at the end of March 2023 (short “ESG preference query”), independent brokers of financial investments have also been required to survey the sustainability preferences of their customers when providing investment advice since the end of April. Banks, fund companies, and insurance companies are already obligated to do so since August 2022. The ESG preference query comes with considerable additional effort for all of them-on the other hand, the needs and wishes of investors can be actively considered in the process. Digitalized and standardized queries accelerate and simplify the implementation for all sides and significantly increase the efficiency of advisory services. What needs to be queried in detail is listed at the end of this article in the section “Facts ESG Preference Query”.

The numerous advantages of a digital process are obvious: corresponding software solutions pre-filter queries and regulatory requirements, which can then be conveniently answered with simple clicks. Standardized comparability can thus be created, which in turn provides important information for the investor’s further support beyond the ESG preference submission.

Given the wide variety of investment products and the difficulty of comparing sustainability funds, this makes it possible to develop a custom-fit, individualized investment strategy that meets the investor’s needs. Furthermore, product providers such as fund companies and other issuing houses get to know their investors better and can thus structure their investment products in the best possible way in the future.

EU disclosure regulation leaves plenty of room for improvement

“The lack of transparency is mainly related to the speed of implementation of multiple regulations,” explains Martin Weirich, Leader AWM Sustainable Finance at PwC Germany, in the latest analysis on the state of ESG disclosure in Asset & Wealth Management 2022 by PwC Germany together with Morningstar. In this context, the EU’s Sustainable Finance Disclosure Regulation (SFDR), which has been in force since March 2021 and was updated in January of this year, was supposed to provide more transparency for eco and ethical funds. So far, this has not really worked. The classifications in the categories Article 8 and Article 9 funds seem to be rather vague in some cases and are interpreted differently by asset managers. They are currently still in a constant state of flux; for example, “in the second half of 2022, more than 20 percent of the products previously classified as Article 9 funds were reclassified as Article 8 products. At the same time, however, sustainability features were added to one in ten funds previously classified as non-sustainable. As a result, around 6,000 mutual funds or share classes with sustainability features are now available in Germany,” states the BVI.

Increasing efficiency through digitization

This on the other hand is in line with the concept of investor protection, which delivers the basis for the expansion of the ESG preference query in Germany and together aim to increase transparency in investment advice. Thus, in the future, financial advisors and fund companies will have to pay even greater attention to the individual needs of investors and take these into account in their recommendations. They will also have to adapt their processes and, for example, ensure seamless documentation of advisory meetings.

Here, too, digitalization offers an opportunity, as the use of automated processes and artificial intelligence enables efficient and individualized investment advice and raises advice on investing in ESG funds to a new level.

Facts ESG preference query digitalized by portagon:

The guidelines for product providers and advisors are derived from the European ESG Template (EET). The guideline in the portagon software derived from the template for classifying the subcategories of Principle Adverse Impacts (PAIs) simplifies the classification for advisors and investors alike.

Impacts on sustainability factors are considered in the following areas:


Corporate Finance

PAIs for corporate finance are specified in 12 subcategories. At least 5 of these categories are mandatory for the product provider to specify, both the choice and the number of specified categories above are free.


Financing of sovereigns and supranational organizations

PAIs for sovereign and supranational financing are specified in 4 subcategories. The specification of at least 2 categories is obligatory for the product provider.


nvestments in real estate

PAIs for investments in real estate are specified in 7 subcategories. Of these, at least 2 categories are mandatory for the product provider to specify.

Qualitative and quantitative measures per PAI are also collected. The measures are used for transparency and support the informative value of the PAI. Each PAI should have at least two measures of qualitative or quantitative nature.