Shaping the compass? how sustainability preference elicitation guides investor demand

Abstract This study examines how MiFID II’s mandatory elicitation of retail investors’ sustainability preferences is reflected in advisory recommendations and actual investment behavior. Using a comprehensive real-world dataset covering 18,250 advisory meetings at a German savings bank, we analyze how clients’ stated environmental, social, and governance (ESG) preferences relate to both the advice they receive and the investments they subsequently implement. Across the transition from a voluntary to a mandatory elicitation regime, the share of clients reporting sustainability preferences declined markedly, and stated preferences translated only weakly into observable investment decisions. Our findings reveal a gap between regulatory design and client engagement, highlighting challenges in operationalizing sustainability preferences. We discuss these results alongside ESMA stakeholder feedback and propose practical improvements to strengthen the alignment between preference elicitation, advice, and implementation.