Purpose and Scope
On 21 October 2024, the Commission de Surveillance du Secteur Financier (the "CSSF") published a communiqué1 containing Circular CSSF 24/8632 (the "Circular"). This communiqué follows on from the communiqué3 published on 21 August 2024, announcing the translation of the ESMA Guidelines on funds' names using Environmental, Social and Governance ("ESG") or sustainability-related terms into all the official languages of the European Union (the "Guidelines").
In summary, the Guidelines place an obligation on UCITS management companies (including any UCITS which do not have a UCITS management company), Alternative Investment Fund Managers (including internally managed AIFs, EuVECA, EuSEF and ELTIF and money market fund managers) and competent authorities to act honestly, fairly and ensure all information, including fund documentation and marketing communications, are fair, clear and not misleading.
The Circular implements the Guidelines into the Luxembourg regulatory framework. The Guidelines will apply to all new funds from 21 November 2024 and a six-month transition period until 21 May 2025 will apply for existing funds.
Key Terms in the Guidelines
Certain key terms used in the name of funds / sub-funds will trigger the Guidelines (e.g. transition, environmental, social, governance, impact, sustainability, etc.) However, it must be noted that any term derived from these obvious terms will also fall under the Guidelines (e.g. progress, evolution, green, impactful, etc.)
Recommendations to Fund Managers
A fund / sub-fund named with a term falling under the Guidelines must meet a threshold of 80% (being the proportion of investments used to meet environment or social characteristics or sustainable investment objectives).
Priority for Existing Funds
The CSSF has announced that it will use a priority processing procedure (the "PPP") for existing UCITS and AIFs. The use of the PPP will be limited to amendments to relevant documents necessary to comply with the Guidelines. These amendments will be restricted to a name change of at least one sub-fund or minor adjustments related to ESG engagement or Sustainable Finance Disclosures Regulation ("SFDR") pre-contractual disclosure.
How to Avail of the PPP
To avail of the PPP, the CSSF have established a Fund Naming Confirmation Letter4 (the "Confirmation Letter") which needs to be completed and submitted to the CSSF by the relevant market participant, along with the related updated documentation to perfect the filing.
The Confirmation Letter contains:
(a) Appendix 1 provides text boxes to insert changes related to the
sub-funds name; and
(b) Appendix 2 provides a 'tick the box' method to enable
market participants to address the minor changes in the fund /
sub-funds investment policy.
Supervisory Expectations
In the communiqué the CSSF notes that they expect market participants to carry out a self-assessment on which Guidelines are applicable to them. The CSSF has reminded market participants of the following principles when applying the Guidelines to their funds / sub-funds:
(a) funds' names should accurately reflect their sustainability characteristics and not be misleading, and ensure that any claims made are supported by actual characteristics within the fund;
(b) pre-contractual documents must provide sufficient disclosure supporting the use of ESG or sustainability related terms in funds' names;
(c) the ESG and sustainability-related terms referenced in the Guidelines are not an exhaustive list and names of financial products should be reviewed individually; and
(d) market participants must monitor and consider any further developments on the Guidelines at a European level.
Footnotes
Luxembourg - CSSF Update on ESMA Guidelines Circular CSSF
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.