The CSSF has updated its FAQ on the SFDR and the
financial services sector to reflect current CSSF supervisory
practice.

Context

On 13 March 2023, the CSSF published an updated version of its
FAQ about Regulation (EU) 2019/2088 on sustainability-related
disclosures in the financial services sector (SFDR). In this
revision, the CSSF (i) updates the list of “Key European and
CSSF publications” in relation to the SFDR and (ii) adds three
new questions reflecting current CSSF practice.

Please refer to Arendt’s previous
newsflash_ for further details on the scope and
content of the CSSF FAQ.

New content (questions 7 to 9)

1. Use of “ESG” and/or sustainability-related
terminology in the names of investment funds

The CSSF reminds financial market participants (FMPs) that, in
accordance with the ESMA Supervisory Briefing on sustainability
risks and disclosures in the area of investment management,
ESG-related terms (such as “ESG”, “green”,
“sustainable” , “social”, “ethical”
or “impact”) should only be used in the names of
investment funds when supported in a material way by the ESG or
sustainability characteristics, themes or objectives described in
the pre-contractual disclosures of the relevant investment
fund.

In other words, the CSSF expects FMPs disclosing under Articles
6, 8 or 9 of the SFDR to use fund names which are not misleading
and aligned with the relevant fund documentation. The CSSF also
recommends that FMPs consider any further developments at European
level in this area. This is probably a reference, in particular, to
the ESMA Guidelines on funds’ names using
ESG or sustainability-related terms_, which are under
preparation.

2. Disclosure of the methodology used to define
“sustainable investments”

The CSSF clarifies that the methodology applied by FMPs to
determine whether an investment qualifies as “sustainable
investment” within the meaning of Article 2(17) of the SFDR
(for example, the threshold used when applying a pass-fail
approach) should be made available to investors. This can be done,
for instance, through the mandatory pre-contractual templates,
prospectus/issuing document and/or Article 10 SFDR website
disclosures.

3. Article 9 SFDR products: use of EPM for hedging
purposes in the “#2 Not Sustainable” portion
of the portfolio

While the CSSF acknowledges that efficient portfolio management
(EPM) techniques may be used by FMPs for many purposes, it
nevertheless considers that only EPM techniques used for
hedging purposes only can fall within the “remaining
portion” (that is, “#2 Not sustainable”) of the
investment portfolio of investment funds subject to Article 9 of
the SFDR.

The CSSF also reminds FMPs that they remain responsible for
assessing the actual purpose of any EPM techniques used and thus
whether they could fall within the “remaining portion” of
the investment portfolio.

These latest questions, although formalising existing
supervisory practice, also evidence once again the fast-moving
nature of SFDR-related disclosure requirements. Please, contact our
experts Antoine Peter and Antoine Portelange to remain up to
date or clarify any questions you may still have.

Access the full CSSF FAQ here_

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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