Expert View

Review of SFDR implementation

Date: 10 August 2023

Key observations of the CSSF

On August 3rd, the CSSF issued a Thematic Review on the implementation of the sustainability-related provisions in the investment funds industry.   As well as reminding Investment Fund Managers (“IFMs” i.e. ManCos or AIFMs) of their responsibilities and certain aspects of the regulations, the review also provides advice and best practices to help them meet the CSSF's expectations.

The CSSF review covers different aspects and key points:

1. Governance and responsibilities of the IFM with regards to sustainability-related matters
- Even if portfolio management is delegated, IFMs remain responsible for SFDR's disclosures relating to the product whose management is delegated.
- Due diligence, ongoing monitoring, regular review of KPIs, full documentation are required in case of delegation

2. Integration of sustainability risks by IFMs

- The Risk Management Process incl. sustainability risks must consider all funds (and not only art.8 & 9 SFDR ones)
- Sustainability risk integration and analysis must be done at product level and throughout the entire product life cycle
- Sustainability risk integration is not limited to investment compliance but shall also involve the use of risk indicators, risk limits, reports to the fund governing bodies and possibly stress tests or scenario analysis.

3. Web disclosures at entity level as foreseen by SFDR regulation:
they must be comprehensive, easily accessible and comply with SFDR templates

4. Disclosures at product level
(pre-contractual, periodic and web disclosures):
- Whatever the medium, the disclosures must be clear, concise and not misleading: This also applies to fund names. SFDR templates must be used.
- The methodology used to account for sustainable investments must be disclosed either in the pre-contractual document or on a website
- The fund asset allocation must be consistent with its investment policy
- All actions and methodologies adopted at entity level must also be considered at product level (PAI consideration, actions undertaken to attain the sustainable investment objective incl. those concerning shareholder engagement)

5. Fund documentation and marketing communications
- Consistency between all legal and marketing documents is required
- All regulations and guidance in force pertaining to marketing documents also apply to all sustainability-related publications

6. Portfolio analysis

- The portfolio holdings shall at all times comply with the investment policy of the fund
- Investment policies in place (e.g. exclusions, consideration of controversies) are consistent with the fund sustainable objective.

The CSSF expect IFMs to consider these observations and recommendations in their ongoing assessment of their compliance with the sustainability-related requirements.

efa can help you ensure that you meet the critical points relating to sustainable risk integration and ongoing compliance with investment policies as highlighted by the CSSF.

efa provides comprehensive ESG services to integrate ESG risks in your portfolio, monitor them, access ESG data and produce SFDR reports.

For more information on how efa can help you, please visit the ESG Services page or contact us