CSSF Feedback Report on ESMA Common Supervisory Action on Sustainability Risks and Disclosures in the Investment Management Sector

On 30 September 2025, the Commission de Surveillance du Secteur Financier ("CSSF") published its feedback report on the ESMA Common Supervisory Action ("CSA") regarding the integration of sustainability risks and sustainability-related disclosures by investment fund managers (“IFMs”).

The exercise, which covered 30 Luxembourg-domiciled IFMs, aimed to evaluate compliance with the Sustainable Finance Disclosure Regulation (EU) 2019/2088 (“SFDR”), the Taxonomy Regulation (EU) 2020/852, and related delegated regulations, focusing on both entity-level and product-level obligations.

The CSSF’s key supervisory priorities include:

• Strengthening disclosure quality and accessibility;
• Preventing greenwashing; and
• Ensuring transparency for investors through robust, verifiable sustainability information.

The CSSF also confirmed that bilateral engagements with IFMs will continue following this CSA to monitor progress on the identified shortcomings.

Key findings

1. Entity-Level SFDR Disclosures

1.1 Remuneration Policies

All sampled IFMs included information on the integration of sustainability risks in their remuneration policies, using criteria such as sustainability risk indicators in performance objectives, clawback provisions, key sustainability indicators used in the process for the determination of the remuneration level, and the consideration of sustainability risks in the remuneration practices of delegates in the due diligence on delegates.

1.2 Principal Adverse Impacts (PAIs)

In respect of the required statements on principal adverse impacts ("PAIs") of investment decisions on sustainability factors, the CSSF identified several recurring issues:

• Website Location & Accessibility: While all IFMs disclosed their PAI statements, these were not always easily accessible. The CSSF reminds IFMs that disclosures must be easy to find and clearly labelled as "Sustainability-related disclosures".
• Coverage: Some IFMs limited PAI statements to funds disclosing under Article 8 and 9 of SFDR, but the CSSF clarifies that all investment decisions, including those relating to funds disclosing under Article 6 of SFDR, must be covered.
• Data Coverage & Reliability: There was significant variation in the percentage of coverage for each PAI metric. The CSSF encourages IFMs to improve data collection and reliability. The CSSF reminds IFMs that, where information is not readily available, they should include details of the best efforts used to obtain the information either directly from investee companies or by carrying out additional research and to include the respective proportions in the disclosures under article 7 (2) of Commission Delegated Regulation (EU) 2022/1288 ("SFDR RTS").
• Summary Section: The CSSF reminds IFMs of the requirements under Article 5 of the SFDR RTS. During the CSA, diffing practices as regards the summary of the PAIs have been identified, with some IFMs providing comprehensive summaries and others offering only generic information. The CSSF expects clear, detailed, and accessible summaries and recommends to provide the following information in the summary section: (i) comments on the PAIs monitored, (ii) summary of the evolution and/or objectives of the PAIs, and (iii) summary of the integration of the PAIs in the investment process.
• Description of PAIs: According to the CSSF's feedback report, some IFMs omitted required metrices (e.g., Scope 3 GHG emissions, real estate PAIs, indicators from Tables 2 or 3 of Annex I of the SFDR RTS) or altered the mandatory template of Annex I of the SFDR RTS. The CSSF insists on full completion of all relevant fields and minimal template modification in accordance with Articles 2 and 6 of the SFDR RTS.
• Actions and Targets: Some IFMs reported generic actions across all PAIs, which the CSSF considers poor practice. Actions should be tailored to each PAI, and future targets should be specific. The CSSF considers the lack of granularity as a poor practice and recommends that actions taken are appropriately tailored to the specific characteristics of each PAI.
• Policies to Identify and Prioritise PAIs: Some IFMs omitted required details such as policy approval dates and methodology margins of error. The CSSF emphasizes that it expects full disclosure as per Article 7 of the SFDR RTS.
• Engagement Policies: The CSSF considered the information provided in the summaries of the engagement policies as often being insufficient, particularly regarding how these policies are adapted when PAIs do not improve over more than one reporting period. The CSSF expects detailed engagement policy disclosures as required by Article 8 of the SFDR RTS.
• References to International Standards: While most IFMs disclosed the responsible business conduct codes and internally recognised standards to which they adhere as well as the working groups in which they participate, the regulator requires more detailed descriptions on indicators, methodologies, and use of climate scenarios in accordance with Article 9 of the SFDR RTS.

CSSF expectation: IFMs must provide comprehensive, quantitative and qualitative disclosure of PAIs, following the prescribed SFDR RTS templates without modification.

2. Integration of Sustainability Risks in Risk Management

The CSSF confirmed a positive evolution of the quality and content risk management policies and procedures IFMs in scope of the CSA, compared to CSSF Thematic Review on the implementation of sustainability-related provisions in the investment fund industry from August 2023 with a globally satisfactory level of description of the arrangements implemented. All IFMs covered by the CSA confirmed to have updated risk management policies to include sustainability risks for UCITS and AIFs. However, the CSSF identified the following areas for further enhancement:

• Granularity: More detailed descriptions of sustainability risk indicators, methodologies, and limits are needed.
• Scope: All funds, including those disclosing under Article 6 SFDR (not only Articles 8 and 9) are to be covered by a robust sustainability risk assessment.
• Asset Classes: Sustainability risk assessment should extend to all asset types including cash, derivatives and private assets.
• Frequency of Reporting: The CSSF expects regular sustainability risk reporting to senior management and governing bodies.
• Escalation Procedures: Clear internal escalation mechanisms should be established to address non-compliance.

3. Product-Level Disclosures

3.1 Precontractual Disclosures

Definition of “Sustainable Investment”

Under Article 2(17) SFDR, sustainable investments must contribute to an environmental or social objective, do no significant harm ("DNSH"), and ensure good governance.

The CSSF observed that IFMs have developed internal criteria and systems to assess compliance the criteria of Article 2(17) SFDR (in accordance with the clarifications provided by the European Commission), , but noticed that methodologies and thresholds varied significantly.

Key CSSF Observations

• Contribution to Environmental or Social Objectives: IFMs use diverse indicators (e.g. SDG alignment, ESG scores, green or social financing, taxonomy alignment, transition commitments, peer comparison and use of ESG benchmarks)). The CSSF recommends defining clear quantitative criteria for contribution measurement.
• DNSH: According to the feedback report, IFMs generally apply a combination of measures to assess and monitor DNSH, taking into account the mandatory and applicable optional PAI indicators of the SFDR RTS. The methodologies or measures of the IFMs include internal scorings, exclusion policies, negative screenings, exclusion of the worst sectorial performers, minimum safeguard analysis and controversy screening. The CSSF also noted that most IFMs are applying thresholds (primarily based on quantitative indicators) for the contribution to sustainable investments and DNSH tests.
• Good Governance: IFMs typically rely on internal or external governance scoring systems, but continuous monitoring and engagement are expected.
• Disclosure Quality: The CSSF criticized the disclosure of only overly general information, in particular in respect to the contribution to environmental or social objectives. In particular, many disclosures remained generic, referencing the UN SDGs without linking them to the underlying investment strategy. The CSSF expects specific and data-based disclosures and reminds IFMs that the underlying assumptions to the assessment of the criteria used for the application of Article 2(17) of SFDR must be disclosed in a clear, comprehensive manner.

3.2 Fund Names

The CSSF found an overall satisfactory level of compliance with ESMA’s Guidelines on Fund Names.

However, it reminded IFMs of their ongoing obligation to self-assess the use of ESG-related terms and ensure clear substantiation for funds disclosing under Articles 6, 8 or 9 SFDR.

3.3 Website Disclosures

Most IFMs provided adequate summaries, though some failed to ensure clearly summarize each section of the website disclosures in the summary section. The CSSF expects again clear, comprehensive and easily accessible sustainability disclosures on websites.

3.4 Sustainability Credentials (Labels, Ratings, Certifications)

Where IFMs referenced ESG labels or certifications, the CSSF expects disclosure of:

• The certifying body and its identification;
• The verifiable source or methodology behind the rating; and
• The validity period of the label or rating.

The CSSF highlights that misleading or unverifiable use of ESG credentials may constitute greenwashing.

3.5 Periodic Disclosures

• Consistency: Reported levels of sustainable or taxonomy-aligned investments generally matched precontractual commitments. The CSSF expects explanations for any deviations.
• DNSH and PAIs: Some IFMs omitted certain mandatory PAI indicators for DNSH assessments. The CSSF reiterated that all mandatory PAIs from Table 1 of Annex I of the SFDR RTS as well as any relevant indicators from Tables 2 and 3 thereof must be considered and disclosed.

4. Practical Implications for IFMs

The CSSF’s findings highlight the regulator's expectation for sustainability risk disclosures.

To ensure compliance and mitigate reputational risk, IFMs should:

• Review and align their SFDR disclosures with the CSSF’s feedback report;
• Implement robust data collection frameworks to ensure traceability of sustainability metrics;
• Enhance internal controls for sustainability risk reporting;
• Perform regular audits of website and fund documentation; and
• Train staff and delegates on SFDR, SFDR RTS templates, and applied methodologies.

5. CSSF’s Supervisory Focus Going Forward

The CSSF confirmed that targeted supervisory follow-ups will continue throughout 2026, focusing on:

• The quality of sustainability-related data and metrics;
• Verification of DNSH and PAI methodologies; and
• Ongoing monitoring of fund naming practices to prevent greenwashing.

The CSSF also announced that future supervisory actions will be closely coordinated with ESMA and other EU national competent authorities to ensure consistent interpretation across the EU.

Conclusion

The CSSF feedback report underscores a clear regulatory trajectory:

Luxembourg IFMs are expected not only to comply formally with SFDR obligations, but to demonstrate credible, evidence-based integration of sustainability principles into governance, risk management, and clear, not misleading and easily accessible disclosures.