Sustainable Finance update (asset management) – CSSF publishes its updated supervisory priorities in the area of sustainable finance

The CSSF recently published a press release outlining its updated supervisory priorities in the area of sustainable finance, including the asset management industry.

The CSSF indicates that it will continue to monitor the compliance level of Investment Fund Managers (which includes UCITS management companies and AIFMs, together “IFMs”) with the Sustainable Finance Disclosure Regulation (Regulation (EU) 2019/2088 – “SFDR”), the SFDR regulatory technical standards (Regulation (EU) 2022/1288 – “SFDR RTS”), and the Taxonomy Regulation (Regulation (EU) 2020/852).

The CSSF specifies that it will have due consideration of the ESMA guidance regarding sustainability risks and disclosures in the area of investment management (ESMA Supervisory Briefing on Sustainability risks and disclosures in the area of investment management) and the ESMA Guidelines on funds’ names using ESG or sustainability-related terms.

The CSSF emphasises the following key areas, applying a risk-based approach that includes both on-site and off-site supervision, to ensure alignment with the aforementioned regulatory framework:

• integration of sustainability risks into the organisational arrangements of IFMs, with particular emphasis on human resources and governance, investment decisions, remuneration, risk management processes, and the management of conflicts of interest;
• compliance with pre-contractual and periodic disclosure requirements as set out in the SFDR, SFDR RTS and the Taxonomy Regulation;
• consistency of sustainability-related disclosures across fund documentation and marketing materials;
• compliance of IFMs’ website disclosures regarding SFDR-related information;
• ensuring that portfolio holdings reflect the name, investment objective, strategy, and characteristics as set out in the documentation provided to investors.

According to the CSSF, its approach is intended to mitigate greenwashing and enhance transparency for investors.

The CSSF further mentions that it will continue using data submitted through its SFDR data collection exercise (IFM, pre-contractual and periodic data) to enhance its supervisory work. IFMs should therefore ensure that submitted information is continuously updated. The CSSF also states that it will continue to provide clarifications to the industry, through updates to its SFDR FAQ and communications on SFDR.

This update of the CSSF’s supervisory priorities for sustainable finance is a clear reminder to the Luxembourg asset management industry that, notwithstanding the EU Commission’s proposal for a SFDR 2.0 (published last November), the CSSF will continue enforcing compliance with the existing SFDR rules.