CSSF Thematic Review on the implementation of sustainability-related provisions in the investment fund industry


As sustainable finance gains momentum, regulators worldwide are placing greater emphasis on the integration of environmental, social, and governance (ESG) considerations into investment practices. 

In that context, the Luxembourg Commission de Surveillance du Secteur Financier (CSSF) has taken several initiatives to verify the correct implementation of the sustainability-related requirements in the investment fund industry, including (i) on-site inspections on the integration of sustainability-related provisions in the governance of investment fund managers (IFMs) and (ii) an off-site thematic review to assess the adherence of IFMs to sustainability-related provisions, notably under the SFDR1 , the SFDR RTS2  and the Taxonomy Regulation3. 

On 3 August 2023, the CSSF released its review, which findings are set to pave the way for the upcoming common supervisory action led by the European Securities and Markets Authority (ESMA). 

The CSSF's observations and expectations are divided into five categories: 

  1. Organisational arrangements of IFMs, including the integration of sustainability risks by IFMs; 
  2. Compliance of precontractual disclosures, including product website disclosures;
  3. Compliance of periodic disclosure information; 
  4. Fund documentation and marketing communications; and
  5. Portfolio analysis.

This publication is designed to highlight the main features of the review.

a. Organisational arrangements of IFMs

The CSSF emphasises that IFMs bear the responsibility for complying with sustainability-related provisions, even in case of delegation of certain functions to third parties. This highlights the need for proper due diligence and ongoing monitoring of third-party delegation, with a specific focus on integrating sustainability considerations into portfolio management. IFMs are expected to obtain full documentation from delegated portfolio managers, outlining how sustainability provisions are being integrated into investment decisions. Comprehensive Key Performance Indicators (KPIs) provided by delegated portfolio managers are needed to enable independent review of sustainability performance. IFMs must establish appropriate frequencies for KPI assessments to ensure effective oversight and compliance with SFDR.

Moreover, sustainability risk management should not be confined to compliance with ESG-related investment restrictions, but a holistic view covering all relevant risks should be adopted. IFMs are required to incorporate sustainability risks into their risk management frameworks for all funds that they are managing (not only for funds falling under the scope of Article 8 or Article 9 SFDR). In that respect, they shall establish, implement and maintain processes that provide, as of the product design phase and continuing throughout the entire product life cycle, for the identification of the relevant sustainability risks, which may be inter alia supported by the use of sustainability risk indicators, stress tests and scenario analyses specific to sustainability risks, for each fund they have under management. 

Finally, the CSSF reminded that IFMs providing portfolio management and investment advisory services must also comply with disclosure obligations on the integration of sustainability risks and that IFMs considering principal adverse impacts indicators (PAI) of investment decisions on sustainability factors are mandated to publish an annual statement on their website by 30 June each year, using the specific template provided under the SFDR RTS.

b. Compliance of precontractual disclosures and product website disclosures

Precontractual disclosures play a pivotal role in promoting transparency. The CSSF reminds that IFMs are expected to provide clear, concise, and non-misleading disclosures regarding environmental/social characteristics or sustainable objectives pursued by their funds, so that investors are reasonably able to take investment decisions on an informed basis.

Ensuring that fund names accurately reflect the effective application of sustainability characteristics is essential in avoiding any misleading terms. In line with ESMA’s supervisory briefing on sustainability risks and disclosures4  (the Supervisory Briefing), the use of terms such as “Green”, “ESG”, “sustainable” or “impact” or any other ESG-related terms should only be used when supported in a material way by evidence of sustainability characteristics, themes or objectives reflected in the fund’s investment objectives. 

Additionally, the CSSF reiterates the European Commission’s position that SFDR does not prescribe a single methodology to account for sustainable investments, as defined in Article 2(17) SFDR. IFMs must carry out their own assessment of sustainable investments and disclose the methodology used, considering contributions to environmental/social objectives and good governance practices. The information related to such assessment should be sufficiently detailed and easily accessible in the pre-contractual disclosures and/or on the website disclosures. 

The asset allocation disclosed must align with the environmental/social characteristics promoted by the fund or the environmental and/or social objectives selected by the fund...

IFMs are also expected to provide a clear and reasoned explanation of how financial products consider PAI on sustainability factors. This includes providing descriptions of adverse impacts and mitigation procedures, with a focus on individual funds rather than entity-level impacts. 

Moreover, IFMs have a duty to publish and maintain sustainability-related disclosures on their websites for funds disclosing under Article 8 or 9 of SFDR, in line with Article 10 of SFDR. These disclosures should be easily accessible, non-discriminatory, prominent, simple, concise, comprehensible, fair, clear, and not misleading for investors and published in the same part of their website as the other information relating to the financial product, including marketing communications.

The CSSF provides further guidance on the website disclosures, for instance in relation to the “Summary” section, which should be limited to two sides of A4-sized paper when printed, or the "Data sources and processing" section, which should provide clarity on data sources used for sustainable investment objectives, data quality measures, data processing, and the proportion of estimated data.

c. Compliance of periodic disclosure information

The CSSF reminds that a prominent statement should be inserted in the annual report for funds disclosing under Article 8 or Article 9 of SFDR, indicating the availability of information on environmental/social characteristics or sustainable investments in the annex to the report. 

The periodic disclosure should also present the performance of sustainability indicators used to measure environmental/social characteristics or the overall sustainability-related impact for the funds. 

Information on the consideration of PAI on sustainability factors should be provided for each fund individually and not as a global policy applicable to all funds managed, taking into account the qualitative and/or quantitative information set out in the precontractual disclosures. 

Concrete actions and engagements taken by the IFM in relation to the investments during the period should be provided in the periodic disclosure for each fund. 

Most importantly, the periodic disclosure should be consistent with the precontractual disclosures, ensuring that the quantitative information aligns with the binding commitments set out in the offering document/prospectus. 

d. Fund documentation and marketing communications

IFMs must ensure that their marketing communications align with the information disclosed in accordance with SFDR. The CSSF clarifies that these communications should not contain contradictory information and should accurately reflect the claims made in the fund documentation. 

Specific information related to the fund and any product-level sustainability credentials should be clearly identified and referenced. When referring to certifications or labels, the CSSF expects the IFMs to provide a clear reference to the entity that granted such credential, a brief description of the credential, and a hyperlink to the website where further information can be found.

Limiting the use of hyperlinks in marketing communications is essential, and when used, they should direct investors to the exact location of the relevant information. IFMs are expected to maintain hyperlinks over time to ensure ongoing access to the required information. A good practice recommended by the CSSF is to indicate one hyperlink that points to all the sustainability-related information of the fund or to direct the hyperlink to the fund's webpage, facilitating investors in finding the fund-specific sustainability-related information.

e. Portfolio analysis

In line with the Supervisory Briefing, the IFMs must ensure that the portfolio holdings of funds align with the information disclosed to investors, including the fund's name, investment objective, strategy, and characteristics. Financial products disclosing under Article 9 of SFDR may invest in a wide range of underlying assets, including sustainable investments and investments for specific purposes, as long as they are in line with the sustainable investment objective of the product.

Exclusion policies should be carefully designed to align with the sustainable objective pursued by the fund. For example, if a fund aims at excluding coal-related activities, it should consider the broader impact of its exclusion policy on the fund's sustainability objective, rather than focusing solely on individual coal-related activities. 

Control processes and procedures should be in place to assess controversies and ensure that the investments remain compliant with the provisions on controversies disclosed in the precontractual disclosures. Providing clear and comprehensive disclosures on controversies enables investors to make informed decisions about the fund's sustainability criteria.


The CSSF's thematic review on sustainability-related provisions in the investment fund industry highlights the importance of transparency, accountability, and adherence to sustainability objectives. The observations and expectations outline the need for IFMs to embrace sustainable finance and align with SFDR. By promoting clear and comprehensive disclosures, and integrating sustainability risks into their risk management frameworks, IFMs can play a crucial role in advancing the sustainable finance agenda. 

As regulatory scrutiny intensifies across the EU, IFMs must proactively consider these guidelines to foster investor trust and contribute to the broader goal of achieving a more sustainable financial landscape.

1 Regulation (EU) 2019/2088 of 27 November 2019 on sustainability-related disclosures in the financial services sector, as amended.

2 Commission Delegated Regulation (EU) 2022/1288 of 6 April 2022 supplementing SFDR.

3 Regulation (EU) 2020/852 of 18 June 2020 on the establishment of a framework to facilitate sustainable investment.

4 https://www.esma.europa.eu/sites/default/files/library/esma34-45-1427_supervisory_briefing_on_sustainability_risks_and_disclosures.pdf