Updated on 13.03.2023 CSSF FAQ – CSSF FAQ Sustainable Finance Disclosure Regulation (SFDR)

The CSSF updated its CSSF FAQ Sustainable Finance Disclosure Regulation (SFDR), aiming to clarify certain aspects of EU Regulation 2019/2088 on sustainability-related disclosures in the financial sector (SFDR).
The initial version of the FAQ was published on 2 December 2022 (see eventid=18481). As foreseen, Section II of this document was updated as necessary, with three new Questions 7, 8 and 9 inserted after Question 6 under III. Pre-contractual disclosures (thereby shifting former Question 7 to position number 10). We would like to present the three new questions together with a short summary of their corresponding answers:
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Q7. Use of ESG and/or sustainability related terminology in fund names: Are there any ESG and/or sustainability related considerations that FMPs need to take into account in relation to fund names?
The CSSF reminds Fund Management Companies (FMPs) that the requirement for providing easily accessible, fair, and clear information under Article 2 of the SFDR RTS also applies to fund names. Fund names should not be misleading, and the disclosure of sustainability characteristics should reflect their effective application to the fund. The ESMA Supervisory Briefing on sustainability risks and disclosures provides guidance on using terms such as ESG, green, sustainable, social, ethical, and impact only when supported by evidence of sustainability characteristics reflected consistently in the fund’s investment objectives and policy. The CSSF expects FMPs to align fund names with investment objectives, policies, and principles-based guidance on fund names in the Supervisory Briefing and remain updated on any further developments on this topic at the European level.
Q8. Methodology used to define sustainable investments: Shall the methodology used to define sustainable investments be made available to investors?
The CSSF recognizes that the ESAs have submitted a question to the European Commission regarding whether an investment in a company with one environmental or social objective, among several other economic activities, can be considered a sustainable investment. FMPs are required to provide information in an easily accessible, clear, and non-misleading manner, and fund prospectuses must include information necessary for investors to make informed judgments. FMPs must also publish and maintain information on their methodologies for assessing, measuring, and monitoring the impact of sustainable investments, including data sources, screening criteria, and sustainability indicators. While awaiting further clarification, the CSSF expects FMPs to make their sustainable investment methodology and applicable thresholds available to investors through disclosure templates, prospectuses, and website disclosures.
Q9. Efficient portfolio management (“EPM”) techniques: Can EPM techniques used for hedging purposes fall within the “remaining portion” of the investment portfolio of funds disclosing under Article 9 SFDR?
The CSSF has clarified that funds disclosing under Article 9 SFDR can include investments or techniques used for hedging purposes or relating to cash as ancillary liquidity in the „remaining portion“ of the investment portfolio, as long as they are in line with the sustainable investment objective of the fund. The CSSF considers that EPM techniques fall within the „remaining portion“ of the investment portfolio when used for hedging purposes. However, FMPs are responsible for assessing the precise purpose of any use of EPM techniques and determining whether they could fall within the „remaining portion“ of the investment portfolio in the context of funds disclosing under Article 9 SFDR.