CSSF Feedback Report On ESMA Common Supervisory Action On Sustainability Risks And Disclosures In The Investment Management Sector

Further to the publication of ESMA's final report on the 2023-2024 common supervisory action (CSA) on the integration of sustainability risks and SFDR disclosures in June 2025 (the "ESMA Report"), the CSSF published its feedback report on 30 September 2025 (the "Feedback Report").

Background

The ESMA Report concluded that, while there was an overall satisfactory level of compliance by financial market participants (e.g. UCITS management companies and AIFMs (together the "IFMs")) with the applicable regulatory requirements on sustainability risks and disclosures, there was still room for improvement as regards the integration of sustainability risks and the SFDR disclosures both at entity level and at product level.

For further information on the ESMA Report, please refer to our Newsflash of 9 July 2025 available on our website.

For the CSA, the CSSF had selected 30 Luxembourg-domiciled IFMs for assessment.

The Feedback Report

The CSSF noted that the overall level of compliance of Luxembourg-domiciled IFMs with the relevant sustainability rules is consistent with ESMA's conclusions¹. The objective of the Feedback Report is to present the CSSF's main observations, related recommendations for improvement and examples of good practices.

The CSSF expects all IFMs to conduct a comprehensive assessment of their compliance with the ESMA Report and the Feedback Report and take corrective measures where necessary.

CSSF key observations

The CSSF mentioned room for improvement regarding different entity-level disclosures and, in particular, disclosures concerning the consideration of principal adverse impacts (PAIs) of investment decisions on sustainability factors. Points highlighted by the CSSF included that PAI statements were not always "easily accessible" as required by Article 2 of the SFDR RTS. The CSSF also mentioned that IFMs must give due account to all their investment decisions (i.e. including those related to funds disclosing under Article 6 SFDR and not only those funds disclosing under Article 8 and 9).

Regarding the integration of sustainability risks in the risk management framework, the CSSF encouragingly observed a positive evolution regarding the content and quality of policies and procedures of the IFMs in scope when compared to the results of the previous CSSF Thematic Review². However, the CSSF noted that some IFMs did not apply the same risk assessment to funds disclosing under Article 6 SFDR (compared to those disclosing under Article 8 or 9) and also noted room for improvement regarding the types of assets covered (e.g. cash, fixed term deposits, structured products and derivatives) and for alternative investment funds investing in private assets (e.g. real estate, private equity or infrastructure).

As regards product-level (fund) disclosures, the CSSF had the following main observations:

Precontractual disclosures (PCDs)

• information on the methods used by IFMs to define "sustainable investments" pursuant to Article 2 (17) SFDR was overly general. The CSSF cited by way of example general references to the UN SDGs as not being sufficient to justify contribution to an environmental or social objective. The CSSF also pointed out that it expects initial and ongoing monitoring of all the sustainable investment criteria given the dynamic nature of the criteria and evolving regulatory and market environments;
• the establishment and maintenance of a comprehensive internal control framework to review and validate sustainability-related disclosures which was in accordance with CSSF supervisory expectations;
• although not expressly covered by ESMA's CSA as such, the CSSF assessed how IFMs communicated about their product-level "credentials" (which, according to the CSSF, include labels, ratings or certifications). The CSSF emphasised that it expects disclosures regarding credentials to be fair, clear and not misleading – irrespective of the media used to communicate on the credentials. In this regard, the CSSF expects the following information to be provided: identification of the certifying body (with a link to the body's website), verifiable sources that are disclosed and the period for which the credential has been granted. In relation to the use of internal scores and ratings, the CSSF mentioned the disclosure of meaningful information about the calculation methodology and data as being good practice.

Periodic disclosures

• the CSSF recalled that the periodic disclosures of Article 8 and 9 SFDR funds present various sets of quantitative information (e.g. proportion of investments that have attained the promoted E/S characteristics/sustainable investment objective during the refence period) which should allow investors to compare these figures with the binding commitments set out in the SFDR pre-contractual disclosures and that the periodic disclosures should therefore be consistent with the pre-contractual ones;
• the CSSF emphasized that it expects funds to comply on an ongoing basis with all binding commitments in the prospectus, including the SFDR pre-contractual disclosures (e.g. minimum proportion of sustainable investments). In this regard, the CSSF noted that the actual level of sustainable investments set out in the periodic disclosures complied in all cases the CSSF had assessed with the commitments made in the pre-contractual disclosures. Helpfully, the CSSF highlighted in its Feedback Report the example of a ramp-up period during which the minimum proportion of sustainable investments was not met and which was expressly disclosed both in the pre-contractual and the periodic disclosures. The fact that the CSSF cited this example should provide some comfort to IFMs, in particular those that manage private assets, that the use of ramp-up periods in respect of minimum ESG commitments is deemed acceptable by the CSSF;
• for the DNSH assessment of sustainable investments, at least all mandatory PAI indicators in Table 1 of Annex I of that Regulation, and also any relevant indicators from Tables 2 and 3 of Annex I have to be taken into account.

What next?

Even though the CSSF continues to engage on a bilateral basis with IFMs in relation to the observations made in the context of the CSA exercise, thereby asking those IFMs to implement the necessary corrective measures when needed, the CSSF specifically asks all IFMs to "conduct a comprehensive assessment of their compliance with the observations" in both the ESMA Report and the Feedback Report. In this context, the CSSF stressed that IFMs should take the necessary corrective measures where applicable and that this assessment must be carried out by all IFMs, as some observations apply regardless of whether IFMs manage sustainability-related products under SFDR or not.

Accordingly, AIFMs and UCITS management companies should carefully assess the Feedback Report and identify areas in their policies/procedures and/or organisational set up that may have to be improved in light of the CSSF's findings.

Footnotes

1. The Feedback Report's observations are only based on the 30 IFMs that the CSSF had assessed.

2. CSSF Thematic Review on the implementation of sustainability-related provisions in the investment fund industry published on 3 August 2023

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