The CSSF (Commission de Surveillance du Secteur Financier) has released on 13 March 2023 an updated FAQ on the Sustainable Finance Disclosure Regulation (SFDR) which offers guidance on adhering to the SFDR requirements. In this article, we will delve into the latest revisions made to questions 7, 8, and 9 in the FAQ.

Q7: Use of ESG and/or Sustainability related terminology in fund names

Question 7 focuses on the use of ESG and sustainability-related terminology in fund names. The CSSF emphasizes that fund names should not be misleading and must align with the fund’s investment objective and policy as well as the applicable guidance on fund names. The CSSF expects Financial Market Participants (FMPs) to utilize terminology like “ESG,” “sustainable,” or “ethical” only when substantiated by evidence of sustainability characteristics that are reflected in the fund’s investment objectives, policies, and strategy as described in the relevant documentation. FMPs must also take note of any updates on this topic at the European level.

Q8: Methodology used to define sustainable investments

Question 8 pertains to the methodology used to define sustainable investments. FMPs must provide investors with the necessary information to make informed judgments about the proposed investment, and they must publish and maintain information on the methodologies used to assess, measure, and monitor the impact of sustainable investments chosen for the financial product. Although further clarification is awaited at the European level, FMPs must provide investors with the methodology used to define sustainable investment and the applied thresholds through mandatory disclosure templates, prospectus, or website disclosures.

Q9: Efficient portfolio management (“EPM”) techniques

Question 9 discusses Efficient Portfolio Management (EPM) techniques. A fund disclosing under Article 9 SFDR may include investments or techniques used for hedging purposes or relating to cash as ancillary liquidity, provided that they align with the sustainable investment objective of the fund. The CSSF expects FMPs to assess the precise purpose of any use of EPM techniques and determine whether they could fall within the “remaining portion” of the investment portfolio when used in the context of funds disclosing under Article 9 SFDR.

In conclusion, the updated FAQ provides more detailed guidance on how FMPs can comply with SFDR requirements, particularly regarding questions 7, 8, and 9. It is critical for FMPs to comply with SFDR requirements and ensure that their fund names are not misleading. Furthermore, FMPs must provide investors with information on the methodology used to define sustainable investments and assess, measure, and monitor their impact.

If you have any questions regarding the information above, our investment management team is here to help. Please don’t hesitate to contact us for expert guidance.