DISCLAIMER: This post was last modified on 22 March 2023. Some information in this article may not be updated.

The Commission de Surveillance du Secteur Financier (CSSF) in Luxembourg has updated the SFDR FAQ to provide clarity to the investment fund industry on aspects of Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector (SFDR).

On 13 March 2023, the regulator provided new clarifications on Section I related to questions 7, 8 and 9.

Use of “ESG” and/or sustainability-related terminology in the names of investment funds (Q7)

Following the European Securities and Markets Authority (ESMA) guidelines proposal in the use of sustainability-related terms or ESG principles in fund names, the CSSF expects that when financial market participants (FMPs) use terms such as “ESG”, “green”, “sustainable”, “social”, “ethical”, “impact” or any other ESG-related terms, these should be supported by evidence of sustainability characteristics, themes or objectives. In addition, these must reflect fairly and consistently in the fund’s investment objectives and policy and its strategy as described in the relevant fund documentation.

The ESMA aims to develop Guidelines on funds’ names with ESG or sustainability-related terms with more specific guidance and has opened a public consultation to receive feedback. You can find more information on the guidelines in our recent article and we invite you to stay tuned to our news.

The CSSF recommends FMPs to take due consideration of the further development of these guidelines.

Methodology used to define sustainable investments available to investors (Q8)

The CSSF clarifies that the methodology used for the definition of a sustainable investment within the meaning of Article 2(17) of the SFDR, as well as, where applicable, the thresholds applied (e.g., the threshold used when applying a pass-fail approach), shall be made available to investors by FMPs through the mandatory disclosure templates, prospectuses/issuance documents and/or website disclosures.

Funds disclosing under article 9 SFDR and the use of efficient portfolio management (“EPM”) techniques for hedging purposes in the “remaining portion” of the investment portfolio (Q9)

The CSSF considers that when used for hedging purposes, EPM techniques fall within the “remaining portion” of the investment portfolio of funds disclosing under Article 9 SFDR: the “not sustainable’’ part of the fund.

The CSSF clarifies that FMPs are responsible for assessing the precise purpose of any use of EPM techniques and thus whether those could fall within the “remaining portion” of the investment portfolio when used in the context of funds disclosing under Article 9 SFDR.

This is evidence of the increasing supervisory practice in Europe, as well as how both regulators and market actors implement the SFDR and the evolution of ESG requirements for financial products.

We invite you to follow our publications and contact our experts to stay well informed of the latest developments on ESG regulations.  

Please access the complete FAQ here: CSSF FAQ.

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