The CSSF’s supervisory priorities in the area of sustainable finance

The CSSF has published a communication outlining its supervisory priorities in the area of sustainable finance.
The CSSF is promoting sustainable finance by encouraging the integration of ESG requirements into its supervisory practice. Supervised entities and their board members have the primary responsibility for ensuring compliance with applicable requirements and must prioritize integrating ESG factors into their governance, risk management, and compliance tools. The CSSF aims to foster a comprehensive implementation of the sustainable finance framework across the financial sector and will gradually adopt changes to its supervision in response to regulatory developments and evolving practices. This approach reflects a growing trend in the financial sector, where investors are increasingly interested in the ESG performance of companies.
##### Supervisory priorities for credit institutions
The CSSF will ensure that credit institutions comply with the disclosure obligations of Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector through the long-form report, which now includes a dedicated section on sustainability disclosures. The CSSF will also review prudential disclosures on ESG risks and climate-related quantitative information for large institutions with securities traded on a regulated market. Risk management and governance will also be a priority for the CSSF, with on-site inspections on themes such as governance, business models, and credit risks including aspects related to climate-related and environmental risks. Finally, the CSSF will assess how credit institutions have updated their remuneration policies to integrate sustainability risks and will launch on-site inspections capturing sustainability-related obligations applicable to investment firms under MiFID II.
##### Supervisory priorities for the asset management industry
The CSSF has outlined its supervisory priorities for the asset management industry. The CSSF will monitor IFMs‘ compliance with sustainability-related provisions set forth under SFDR, the SFDR RTS, and Regulation (EU) 2020/852. The CSSF will integrate any additional regulatory developments on the topic into its supervisory approach. The CSSF will focus on five priority areas in accordance with a risk-based approach. Firstly, it will examine the organisational arrangements of IFMs, including the integration of sustainability risks by financial market participants. Secondly, it will verify the compliance of pre-contractual and periodic disclosures. Thirdly, it will verify the consistency of information in fund documentation and marketing material. Fourthly, it will verify the compliance of product website disclosures. Finally, the CSSF will undertake supervisory actions to ensure that portfolio holdings reflect the name, investment objective, strategy, and characteristic displayed in the documentation to investors. The CSSF has launched a dedicated SFDR data collection exercise (please see Event ID20211) and published a dedicated SFDR FAQ as well as CSSF Communiqués on SFDR to provide additional guidance and clarifications to the industry in this regard. The CSSF will continue to provide similar clarifications to the investment fund industry as need may be.
##### Supervisory priorities for investment firms
The CSSF has identified three supervisory priorities for investment firms. Firstly, the CSSF aims to enhance transparency and disclosures obligations under SFDR. This will be achieved by introducing a self-assessment questionnaire for investment firms providing investment advice and portfolio management services. Secondly, the CSSF will focus on risk management and governance, implementing a gradual approach to its supervision of ESG risks for investment firms. This will prioritize the recognition of ESG risks in investment firms’ strategies and governance arrangements. Lastly, the CSSF will ensure that investment firms comply with the MiFID rules related to sustainability. The CSSF will align its supervisory priorities for investment firms with those for credit institutions. The CSSF will update Circular CSSF 20/758 on administration, internal governance and risk management in due course.
##### Supervisory priorities for issuers
ESMA has identified climate-related matters as a priority for both financial and non-financial issuers in the 2022 annual reports. The CSSF conducted focused examinations of 2021 financial and non-financial information, highlighting the relevance of this priority for the upcoming reports. CSSF will tailor its review procedures to address the aspects covered by this priority, and non-financial issuers are required to disclose their alignment with climate change mitigation and adaptation objectives under TR Article 8. Issuers must pay attention to these priorities to demonstrate their commitment to sustainability and contribute to global efforts to mitigate climate change.
##### International cooperation in sustainable finance
The CSSF plays a crucial role in representing Luxembourg in national, European, and international groups focused on sustainable finance. This is significant considering the broad scope and global impact of sustainable finance initiatives. The CSSF supports and collaborates with various entities such as the European Supervision Authorities, Basel Committee on Banking Supervision, European Financial Reporting Advisory Group, International Sustainability Standards Board, and Network for Greening the Financial System to ensure coherence, cohesiveness, and consistency of sustainable finance frameworks. The CSSF aims to clarify fundamental concepts and promote consistency in international disclosures by continuing its cooperation with relevant European and international bodies.
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In accordance with the above communication, the CSSF hereby presents a simplified graphical outlook of the supervision exercises concerning sustainable finance as planned by ESAs, relying on the available information up to this point: