What is the suitability assessment — and how do sustainability preferences fit in?

For investment advice and portfolio management the firm must, under **Art. 25(2) MiFID II (Directive 2014/65/EU)**, obtain the necessary information about the client so as to recommend only **suitable** financial instruments: **knowledge and experience** in the relevant investment field, the **financial situation** (including ability to bear losses) and the **investment objectives** (including risk tolerance). If a recommendation does not match this profile, it may not be made ^[1].

Since **2 August 2022** the suitability assessment is extended by the client's **sustainability preferences**: the firm must actively ask whether and to what extent sustainable investments (taxonomy-aligned, SFDR-sustainable, or considering principal adverse impacts) are desired — and align the recommended product accordingly. This was introduced by **Delegated Regulation (EU) 2021/1253**, which amends the MiFID II implementing regulation (EU) 2017/565 ^[2].

For **insurance distribution** the counterpart applies: **Delegated Regulation (EU) 2021/1257** integrates sustainability preferences into suitability and into product oversight and governance (POG) for insurance-based investment products (IBIPs) — also applicable since 2 August 2022. The same duty thus runs through MiFID II and the IDD in parallel ^[3].

ESMA has updated its **guidelines on MiFID II suitability** to incorporate sustainability preferences (applicable since 3 October 2023); EIOPA published parallel guidance on integration into IDD advice. In practice the hurdle is not the legal text but the **advice process**: capturing preferences cleanly, documenting them and matching them to the product offering — and keeping up whenever the SFDR, the Taxonomy or the guidelines change.