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1. Context The EU sustainable finance legislative framework is still in the process of being implemented, but a set of key regulations have already entered into force:

(i) SFDR is applicable since 10 March 2021 and sets out a broad range of sustainability disclosure obligations on financial market participants (thus including IFMs) in relation to financial products (including UCITS or AIFs) they manage or advise on.

(ii) The TR amends SFDR and introduces additional disclosure requirements for IFMs in relation to financial products which either invest in an economic activity that contributes to an environmental objective or promote environmental characteristics. The first provisions of the TR relating to the objectives of climate change mitigation and climate change adaptation entered into force on 1 January 2022. The provisions relating to the remaining environmental objectives came into force on 1 January 2023.

(iii) SFDR and the TR have been supplemented by the SFDR RTS which entered into force on 1 January 2023 and provide further details on the content and the format of the transparency requirements required under SFDR and the TR.

(iv) The UCITS Directive and AIFMD frameworks were amended by Commission Delegated Regulation (EU) 2021/1255 and Commission Delegated Directive (EU) 2021/1270, as transposed by CSSF Regulation No 22-05, to require IFMs to integrate sustainability risks in their organisational arrangements. The Supervisory Briefing on sustainability risks and disclosures in the area of investment management published by ESMA in May 2022 provides guidance to national competent authorities regarding the supervision of sustainability-related disclosures and integration of sustainability risks.

In this context and centred on the CSSF's supervisory priorities in the area of sustainable finance as communicated to the industry on 6 April 2023, the CSSF has initiated various supervisory actions in order to verify the correct implementation of the aforementioned sustainability-related requirements in the investment fund industry, which include the following:

(i) on-site inspections on the integration of sustainability-related provisions in the governance of IFMs, initiated in 2022;

(i) an off-site thematic review launched in the second quarter of 2023, during which it assessed the correct implementation by a sample of IFMs of sustainability-related provisions, arising notably from SFDR, the SFDR RTS and the TR, while also giving due account to the principles laid down in the ESMA Supervisory Briefing.

The objective of this report is to inform the industry about the main observations that the CSSF has made in the context of this supervisory work and about the related recommendations for improvements in view of the applicable regulatory requirements.

The CSSF is currently engaging on a bilateral basis with IFMs in relation to the observations made in this context, asking where applicable IFMs to implement the necessary corrective measures in relation to the shortcomings observed.

IFMs shall, in the context of their ongoing assessment of their compliance with the sustainability-related requirements, also take into account the CSSF's observations below. IFMs shall, if applicable, take necessary corrective measures.