Sustainable Finance update (asset management) – ESMA assesses disclosures and sustainability risks and CSSF SFDR data collection exercise extended

1) ESMA and national regulators to assess disclosures and sustainability risks in the investment fund sector

On 6 July 2023, the European Securities and Markets Authority ("ESMA"), the EU’s financial markets regulator and supervisor, announced, what many in the industry knew was coming, the launch of a so-called Common Supervisory Action ("CSA") with National Competent Authorities ("NCAs") on sustainability-related disclosures and the integration of sustainability risks.

ESMA’s goal is to assess the compliance of supervised asset managers (i.e. UCITS management companies and AIFMs) with the relevant provisions in the Sustainable Finance Disclosure Regulation ("SFDR"), the Taxonomy Regulation and relevant implementing measures, including the relevant provision in the UCITS and AIFMD implementing acts on the integration of sustainability risks.

Using a common methodology developed by ESMA, NCAs (including the Luxembourg regulator the CSSF) will be required to share knowledge and experiences on how to foster convergence in how they supervise sustainability related disclosures. Among the main objectives of the CSA are:

  • the assessment of whether financial market participants adhere to applicable rules and standards in practice;
  • the gathering of further information on greenwashing risks in the investment management sector (it is expected that this will provide input for ESMA’s Final Report on greenwashing); and
  • the identification of further relevant supervisory and regulatory intervention to address the issue.

ESMA stated that the supervision of risks stemming from incorrect and misleading disclosures is central to the effort to foster transparency and is identified as one of the EU’s Strategic Supervisory Priorities for NCAs.

Next steps

In 2023 and until Q3 2024, NCAs will undertake their supervisory activities and share knowledge and experiences through ESMA to foster convergence in how they supervise sustainability-related disclosures and sustainability risk integration in asset managers.

It is expected that this CSA will lead to an increase in the CSSF’s focus and supervision of Luxembourg UCITS management companies and AIFMs as regards SFDR and Taxonomy-related disclosures at entity and fund-level.

2) CSSF SFDR data collection exercise extended to SFDR periodic reports

On 30 June 2023, the CSSF published a communiqué stating that its SFDR data collection exercise had been extended to SFDR periodic reports which need to be prepared for funds reporting under articles 8 and 9 SFDR. In the same communiqué, the CSSF announced that yet a further data collection exercise in relation to entity-related Principal Adverse Impact ("PAI") statements would be undertaken in the future, with more information on this to be published by the CSSF at a later stage. This follows up on the CSSF communiqué published on 24 March 2023 in relation to the data collection exercise dedicated to SFDR pre-contractual disclosures (deadline for submitting the initial report is 31 October 2023).

This SFDR data collection exercise is applicable to the following financial market participants:

  1. UCITS management companies, based in Luxembourg or in another EU Member State, in relation to all Luxembourg-domiciled UCITS they manage;
  2. Self-managed UCITS based in Luxembourg;
  3. Authorised AIFMs, based in Luxembourg in relation to all Luxembourg-domiciled regulated and unregulated AIFs (including ELTIFs) they manage;
  4. Authorised AIFMs, based in another EU Member State, in relation to all Luxembourg-domiciled regulated AIFs, as well as Luxembourg-domiciled unregulated AIFs (only when they qualify as ELTIFs) they manage;
  5. Registered AIFMs, subject to Article 3 (3) of the AIFM Law, based in Luxembourg or in another EU Member State, in relation to all Luxembourg-domiciled regulated AIFs they manage;
  6. Internally managed AIFs based in Luxembourg;
  7. Institutions for occupational retirement provision ("IORPs"), subject to the Law of 13 July 2005.

It is mandatory for all (sub-)funds of a UCITS/AIF/IORP disclosing under Article 8 or 9 of SFDR.

The information relating to disclosures in periodic reports, included in the annual reports issued as from 1 January 2023 and with a financial year-end on or after 30 September 2022 must be provided to the CSSF according to the following deadlines:

  • For periodic reports issued between 1 January 2023 and 31 December 2023: by 31 January 2024 at the latest.
  • For periodic reports issued as from 1 January 2024: at the latest, one month after the legal deadline to publish the annual report or to make it available to investors.

Accordingly, the aforementioned information must be submitted to the CSSF, at the latest, 5 months after financial year-end for UCITS, respectively 7 months for AIFs and IORPs.