CSSF supervisory expectations and filing procedure - ESMA ESG fund names guidelines

The CSSF has published its long-awaited guidance on the implementation of ESMA’s ESG fund names guidelines. In today’s communiqué the regulator announced the publication of CSSF circular 24/863 which will implement the guidelines into the Luxembourg regulatory framework and which will start applying from 21 November 2024. As a reminder, new funds in scope will need to start applying the guidelines from 21 November 2024 and existing ones will have until 21 May 2025.

The CSSF also mentioned the following supervisory expectations in the terms of compliance with the guidelines:

• Financial market participants (i.e. AIFMs and UCITS management companies), regardless of whether their funds under management are categorised under articles 6, 8 or 9 SFDR, are required to carry out a self-assessment of the application of the guidelines to their financial products.
• Funds’ names should not be misleading, as the disclosure of ESG characteristics should be commensurate with the effective application of those characteristics to the fund.
• The CSSF expects adequate disclosure in the pre-contractual documentation of elements supporting the use of ESG or sustainability-related terms in the funds’ name.
• The list of ESG and sustainability-related terms mentioned in the guidelines is not exhaustive. Accordingly, financial market participants are expected to review the names of all the financial products they manage and assess, on a case-by-case basis, whether the guidelines apply to those products.
• Finally, the CSSF expects financial market participants to closely monitor and take due consideration of any further developments on this topic at European level.

Finally, the CSSF announced a “priority processing procedure” (“PPP”) regarding the prospectus / issuing documents of existing (regulated) funds (UCITS, Part II, SIF, ELTIF, SICAR).

In order to benefit from the PPP, changes must be limited to either the name change of at least one sub-fund or “minor adjustments” (in other words the change must not be material) to the fund’s/sub-funds “ESG engagement” / SFDR pre-contractual disclosure in connection with the guidelines. Material changes and/or changes not directly linked to the guidelines will therefore not be able to benefit from the PPP and filings will be rejected.

The PPP will need to be accompanied by a confirmation letter. It should be noted that:

• Amongst other confirmations, it has to be confirmed that a name change has “no negative impact on the investors’ expectations as regards to return and/or ESG engagement”. This could mean that simply removing an ESG-related term in scope of the guidelines could potentially be considered by the CSSF to have a negative impact on investors’ expectations as regards “ESG engagement” where that term reflects a key element of the fund’s ESG strategy.
• It has to be confirmed that marketing communications as well as any KID/KIID will be in line with and not contradict the prospectus changes. This will need to be carefully factored into any timelines.
• A description of the assessment and rationale used for the determination of “meaningful” sustainable investments has to be provided. No guidance as to what the CSSF’s expectations are in this regard has been provided and we expect this to be a point of heightened CSSF scrutiny should the CSSF perceive the percentage of sustainable investments to be low.
• It has to be confirmed that the signed board resolution and notice to shareholders has been provided to the CSSF. This will need to be taken into account when preparing the file for CSSF submission.