CSSF Circular 24/863: Integration of ESMA Guidelines on ESG Fund Naming Practices
On 21 October 2024, the Commission de Surveillance du Secteur Financier (CSSF) issued Circular 24/863, (the “Circular”) which addresses the use of Environmental, Social, and Governance (ESG) and sustainability-related terms in fund names. This follows the European Securities and Market Authority’s (ESMA) guidelines (Ref. ESMA34-1592494965-657) and applies to all UCITS, Alternative Investment Funds (AIFs), and other regulated funds such as EuVECA, EuSEF, ELTIF, and money market funds (MMF) (the “Guidelines”).
The Circular emphasizes the need for clarity, fairness, and accuracy in the naming of investment funds using ESG or sustainability-related terms, which comes into force on 21 November 2024. For existing funds, a six-month transition period applies, with a final compliance deadline of 21 May 2025.
Purpose of the Guidelines
The primary goal of the Guidelines is to ensure that fund names using ESG or sustainability-related terms are clear, fair, and non-misleading. This is critical as a fund’s name is a fundamental marketing tool and often the first point of interaction for potential investors.
Scope of application
The Circular applies to a broad range of market participants, including:
- UCITS management companies and self-managed UCITS;
- Alternative Investment Fund Managers (AIFMs), including internally managed AIFs; and
- Managers of EuVECA, EuSEF, ELTIF, and money market funds.
The Guidelines require compliance with UCITS and AIFMD rules on fair, clear, and non-misleading marketing communications. This applies to all fund documentation aimed at investors.
Threshold requirements for ESG or sustainability terms
The Guidelines implemented by the Circular introduce strict quantitative thresholds for the use of ESG or sustainability-related terms in fund names. Funds must ensure that at least 80% of investments align with the environmental, social, or sustainability objectives mentioned in their investment strategies and these investments should be disclosed as binding elements in pre-contractual and periodic reports, as required by Commission Delegated Regulation (EU) 2022/1288.
Moreover, specific exclusions are applicable, particularly concerning companies operating in controversial sectors. This includes, for example, companies engaged in activities related to controversial weapons, the cultivation and production of tobacco, among others, as outlined in Article 12 of Commission Delegated Regulation (EU) 2020/1818.
Guidance for different types of terms
The Circular provides detailed guidance on the types of terms that may be used in fund names:
- Environmental: Terms like “green,” “climate,” and “environmental” must meet the 80% investment threshold.
- Social: Terms like “equality” or “social” must similarly align with the investment criteria.
- Governance: Terms linked to governance should accurately reflect a significant portion of the fund’s investment focus.
- Sustainability: Use of this term requires meaningful commitments to sustainable investments, as defined under Article 2(17) of the SFDR.
Supervisory expectations
Competent authorities, including the CSSF, will actively supervise compliance throughout the fund’s lifecycle. Any deviation from these requirements must be promptly corrected in the investors’ best interest. Misleading fund names or those that fail to meet the required thresholds may trigger further investigation and regulatory actions.
Implementation timeline
- New funds: Full compliance with the Guidelines is mandatory as of 21 November 2024.
- Existing funds: A six-month transition period applies, with a final compliance deadline by 21 May 2025.
With the introduction of CSSF Circular 24/863, Luxembourg-based fund managers must carefully review their existing and future fund names to ensure alignment with the ESMA Guidelines. The CSSF’s adoption of these guidelines underscores the increasing regulatory focus on transparency and accuracy in ESG disclosures, reflecting broader European trends in sustainable finance regulation.
Fund managers should take immediate action to assess compliance and adapt their marketing materials and fund documentation accordingly.
Feel free to contact our Investment Management team for more information on how this Circular may impact your fund management activities.
SFDR comparison table
Compare two products:
| Dark Green Taxonomy aligned products (art.9 SFDR & art.5 Taxonomy Regulation) | Dark Green non-Taxonomy aligned products (art.9 SFDR) | Light Green Taxonomy aligned products (art. 8 SFDR & art.6 Taxonomy Regulation) | Light Green non-Taxonomy aligned products (art.8 SFDR) | Other products (art.6 SFDR & art.7 Taxonomy Regulation) |
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|---|---|---|---|---|---|
| Characteristics | • Invest in an economic activity that contributes to environmental objectives as set out under the Taxonomy Regulation and social objectives • Do not significantly harm any of the above objectives • The money is invested in companies which follow good governance practices • Comply with the relevant technical screening criteria set out under Taxonomy Delegated Acts | • Invest in an economic activity that contributes to environmental or social objectives (other than those included in the Taxonomy Regulation) • Do not significantly harm any of those objectives. The money is invested in companies which follow good governance practices | • Promote environmental or social characteristics, or a combination thereof, provided that the companies in which investments are made follow good governance practices • Include some sustainable investments with environmental objectives as set out under the Taxonomy Regulation • Do not significantly harm any of those objectives • Align with the relevant technical screening criteria set out under Taxonomy Delegated Acts | Promote environmental or social characteristics, or a combination thereof, provided that the companies in which investments are made follow good governance practises. They may, further, make some sustainable investments non-Taxonomy aligned | Sustainable investments or promotion of environmental and/or social characteristics is not the objective of the product |
| Scope | All investments of the dark green Taxonomy-aligned product must: • contribute at least to one of the six environmental objectives set out in the Taxonomy Regulation (art. 5 Taxonomy Regulation) • comply with the technical screening criteria set out in the Taxonomy Delegated Acts (art. 3 Taxonomy Regulation) • comply with the principle of ‘Do not significant harm’ (art. 3 Taxonomy Regulation) • be aligned with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights, the eight fundamental conventions in the Declaration of the International Labour Organisation on Fundamental Principles and Rights at Work and the International Bill of Human Rights (art. 3 Taxonomy Regulation) | All investments of the dark green product must contribute to environmental and/or social objectives other than those set out in the Taxonomy Regulation (art. 9 SFDR) and comply with the principle of ‘Do no significant harm’ (art. 2 SFDR) | Light green Taxonomy- aligned products shall promote environmental or social characteristics, or a combination thereof, provided that the companies in which investments are made follow good governance practises (art. 8 SFDR). In addition, the product may make some Taxonomy-aligned sustainable investments with the following characteristics (art. 6 Taxonomy Regulation): • contribute to one of the six environmental objectives set out in the Taxonomy Regulation (art. 3 Taxonomy Regulation) • comply with the technical screening criteria set out in the Taxonomy Delegated Acts (art. 3 Taxonomy Regulation) • comply with the principle of ‘Do not significant harm’ (art. 3 Taxonomy Regulation) • be aligned with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights, the eight fundamental conventions in the Declaration of the International Labour Organisation on Fundamental Principles and Rights at Work and the International Bill of Human Rights (art. 3 Taxonomy Regulation) | Light green products shall promote environmental or social characteristics, or a combination thereof, provided that the companies in which investments are made follow good governance practises (art. 8 SFDR). In addition, the product may make some non-Taxonomy aligned sustainable investments contributing to environmental and/or social objectives other than those set out in the Taxonomy Regulation | Other financial products should not make sustainable investments or promote environmental and/or social characteristics (art. 6 SFDR). |
| Disclosures at product level | i. Pre-contractual disclosures on the integration of sustainability risks (art.9 SFDR), positive or negative consideration of principal adverse impacts (art.7 SFDR), sustainable investment objectives (art. 9 SFDR and art. 5 Taxonomy Regulation) ii. Template provided in Annex III of RTS iii. Periodic reports (Annex V of RTS) iv. Website disclosures (art. 10 SFDR) All the above disclosures should be reviewed and adapted regularly. | i. Pre-contractual disclosures on the integration of sustainability risks (art. 9 SFDR), positive or negative consideration of principal adverse impacts (art. 7 SFDR), sustainable investment objectives (art. 9 SFDR) ii. Template provided in Annex III of RTS iii. Periodic reports (Annex V of RTS) iv. Website disclosures (art. 10 SFDR) All the above disclosures should be reviewed and adapted regularly. | i. Pre-contractual disclosures on the integration of sustainability risks (art. 8 SFDR), positive or negative consideration of principal adverse impacts (art. 7 SFDR), promotion of environmental and social characteristics (art. 8 SFDR), sustainable Taxonomy aligned investments (art. 6 Taxonomy Regulation) ii. Template provided in Annex II of RTS iii. Periodic reports (Annex IV of RTS) iv. Website disclosures (art. 10 SFDR) All the above disclosures should be reviewed and adapted regularly. | i. Pre-contractual disclosures on the integration of sustainability risks (art. 8 SFDR), positive or negative consideration of principal adverse impacts (art. 7 SFDR), promotion of environmental and social characteristics (art. 8 SFDR), sustainable non-Taxonomy aligned investments (if any) (art. 8 SFDR) ii. Template provided in Annex II of RTS iii. Periodic reports (Annex IV of RTS) iv. Website disclosures (art. 10 SFDR) All the above disclosures should be reviewed and adapted regularly. | i. Pre-contractual disclosures on integration or not of sustainability risks (art. 6 SFDR), consideration or not of principal adverse impacts (art.7 SFDR) and the statement included in art.7 of Taxonomy Regulation The above disclosures should be adapted in case the product wishes to become a light green product (art. 8 SFDR) or a dark green product (art. 9 SFDR). |
| Disclosures at entity level | Website disclosures: • Sustainability risk policy (art. 3 SFDR) • Positive or negative consideration of principal adverse impacts of investments decisions (art.4 SFDR) • Remuneration policy in relation to the integration of sustainability risks (art.5 SFDR) | Website disclosures: • Sustainability risk policy (art. 3 SFDR) • Positive or negative consideration of principal adverse impacts of investments decisions (art.4 SFDR) • Remuneration policy in relation to the integration of sustainability risks (art.5 SFDR) | Website disclosures: • Sustainability risk policy (art. 3 SFDR) • Positive or negative consideration of principal adverse impacts of investments decisions (art.4 SFDR) • Remuneration policy in relation to the integration of sustainability risks (art.5 SFDR) | Website disclosures: • Sustainability risk policy (art. 3 SFDR) • Positive or negative consideration of principal adverse impacts of investments decisions (art.4 SFDR) • Remuneration policy in relation to the integration of sustainability risks (art.5 SFDR) | Website disclosures: • Sustainability risk policy (if it is considered, otherwise a negative statement and the reasons why sustainability risks are not taken into consideration) (art.3 SFDR) • Positive or negative consideration of principal adverse impacts of investments decisions (art.4 SFDR) • Remuneration policy in relation to the integration of sustainability risks (if they are considered, otherwise a negative statement and the reasons why sustainability risks are not taken into consideration) (art.5 SFDR) |
| Benefits and/or Limitations | Benefits: • Increasing investors’ and market interest • increasing domestic market shares in Luxembourg • Reduced rate of subscription tax depending on the proportion of investments in sustainable economic activities Limitations: • High compliance cost • Possible reclassification of product from art. 9 SFDR to art. 8 SFDR in case investments are not exclusively sustainable | Benefits: • Increasing investors’ and market interest • increasing domestic market shares in Luxembourg Limitations: • High compliance cost • Possible reclassification of product from art. 9 SFDR to art. 8 SFDR in case investments are not exclusively sustainable | Benefits: • Increasing investors’ and market interest • increasing domestic market shares in Luxembourg • More flexible than art.9 SFDR products • Reduced rate of subscription tax depending on the proportion of investments in sustainable economic activities Limitations: • High compliance cost | Benefits: • Increasing investors’ and market interest • increasing domestic market shares in Luxembourg • More flexible than art.9 SFDR products Limitations: • High compliance cost | Benefits: • Lower compliance cost Limitations: • Decreasing investors’ and market interest |
