The Financial Sector Supervisory Commission (CSSF) announced in a that it had imposed an administrative fine on the investment fund manager Aviva Investors Luxembourg S.A. for noncompliance with professional obligations related to general organisational requirements and rules of conduct. The €56,500 fine was imposed on 15 October 2024 and came after a thematic on-site inspection of Aviva Investors Luxembourg, focusing on sustainability/environmental, social and governance (ESG) aspects. The inspection, carried out between 3 October 2022 and 11 May 2023, found “persistent breaches in the internal governance framework of the manager.”
The CSSF noted in its communiqué that it had taken into account the gravity and duration of the breaches, the conduct and past record of the manager, the level of cooperation of the manager with the regulator and the fact that the manager confirmed it had implemented corrective measures to fix the identified breaches when determining the type and amount of the administrative sanction.
Focus on ESG aspects
The CSSF’s observations made concern five sub-funds of an investment fund which were classified by the manager under article 8 of the Sustainable Finance Disclosure Regulation (SFDR). Article 8 funds are meant to promote “environmental and social characteristics” (in contrast with article 9 funds, which have a sustainable sustainable investment objective, and article 6 funds, which do not have specific ESG criteria).
Read also
For one of the sub-funds, “an investment process was implemented with the aim to filter out assets with the least favourable ESG characteristics,” explained the regulator in its press release. To do so, a threshold triggering the exclusion from the investment universe was defined and disclosed in the pre-contractual disclosures. But “from 16 February 2023 to 28 July 2023, the CSSF noted that the portfolio of the first sub-fund did not comply with the investment strategy described in the pre-contractual disclosures.” Specifically, “the CSSF identified the presence of several bonds--representing on average 5.5% of the net assets of the sub-fund--issued by five countries whose ESG score was below the exclusion threshold.”
For the other sub-funds, Aviva Investors had indicated in the fund prospectus (which is document that describes a mutual fund to prospective investors) that they were “primarily targeting” different Sustainable Development Goals as defined by the UN. However, “the CSSF noted that the measures put in place by the manager did not allow it to ensure that the SDGs disclosed in the fund’s prospectuses were effectively primarily targeted by these sub-funds.”
SFDR, which started applying March 2021, sets out how financial market participants have to disclose sustainability information, . It aims to increase transparency and help investors make informed choices and assess how sustainability risks are integrated into the investment process.
Paperjam contacted Aviva Investors for comment, who replied, “Aviva Investors worked with the CSSF to ensure that their concerns were swiftly addressed after they were raised. The CSSF has confirmed that the remedial actions taken by the management company in updating the prospectus wording and updating its monitoring framework are adequate to address their findings.”
The administrative sanction related to 5 sub-funds in Aviva Investors Luxembourg Sicav range: Aviva Investors--Emerging Markets Bond Fund; Aviva Investors--Climate Transition Global Equity Fund; Aviva Investors--Natural Capital Transition Global Equity Fund; Aviva Investors--Social Transition Global Equity Fund; and Aviva Investors--Climate Transition European Equity Fund (this sub-fund was closed in 2023).
“Specifically, in relation to the EM Bond fund, investors have suffered no financial detriment as a result of the fund holding those bonds which the CSSF consider did not comply with the terms of the prospectus,” said Aviva Investors.