Additional sustainable finance requirements for Luxembourg UCITS management companies and AIFMs

On 1 August 2022, the following delegated acts, which complement the Sustainable Finance Disclosure Regulation 2019/2088 (SFDR) entered into force:

While the Delegated Regulation 2021/125 is of direct application, the Delegated Directive 2021/1270 was due to be transposed by Member States by 31 July 2022 at the latest with changes to be effective from 1 August 2022. Luxembourg implemented just on time the latter with the publication of CSSF Regulation 22-05 (only in French) on 28 July 2022. CSSF Regulation 22-05 amends CSSF Regulation 10-04 on organisational and prudential requirements of UCITS management companies (and self-managed UCITS) and it entered into force on 31 July 2022, a day earlier than required by the Delegated Directive 2021/1270.

The delegated acts introduce similar requirements for UCITS management companies and AIFMs. They require asset managers to integrate sustainability considerations in their decision-making and risk management processes, as well as in their structure and organisation (eg resources, governance and management of conflicts of interest).

In particular, the Delegated Regulation and the CSSF Regulation 22-05 introduce the following:

  • Definitions: the SFDR definitions of “sustainability risk” and “sustainability factors” have been added in both regulations. Sustainability risk is defined under SFDR as “an environmental, social or governance event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of the investment”. Sustainability factors are defined by SFDR as “any environmental, social and employee matters, respect for human rights, anti-corruption and anti-bribery matters”.
  • Organisational requirements: asset managers must take into account sustainability risks (i) when establishing and implementing their internal procedures and organisational structure and (ii) in managing UCITS or AIFs, in both cases while considering the principle of proportionality (ie the nature, scale and complexity of their business as well as the nature and range of services and activities carried out).
  • Responsibility: senior management of the asset manager is responsible for the integration of sustainability risks in its procedures, processes and organisation.
  • Human resources: asset managers must retain the resources and expertise necessary for the effective integration of sustainability risks.
  • Conflicts of interest: conflicts of interest arising from the integration of sustainability risks must be included in the asset managers’ processes, systems and internal controls.
  • Due diligence requirements: asset managers must take into account as part of the due diligence in selecting and monitoring investments (i) sustainability risks and (ii) the principal adverse impacts on sustainability factors (if these are considered in the investment decision process).
  • Risk management: the risk management policy of asset managers must consider the exposure of each fund managed to sustainability risks.

Jean-Christian Six - Partner

Yannick Arbaut - Partner

Joanna Pecenik - Counsel

Codrina Constantinescu - Counsel

Miao Wang - Counsel

Jennifer Rouault - Counsel

Lisa Klemann -Senior Associate

Vittoria Faraone - Senior Associate

Céline Baiverlin - Senior Associate