With a focus on risk-based supervision, the Luxembourg Financial Sector Supervisory Commission (CSSF) has set out its 2024 priorities to foster sustainable finance practices, emphasising transparency and environmental, social and governance risk management, the regulator in a press release on Friday 22 March. The CSSF stated that this initiative reflects its long-term goal of integrating sustainability and sustainability risks as fundamental components of financial strategies, aiming for a cohesive implementation of the sustainable finance framework across the sector and the incorporation of ESG requirements into its supervisory practices.
Regulatory framework
The CSSF is enhancing and progressively refining the regulatory framework related to sustainable finance, adopting a risk-based approach to supervision that takes into account both regulatory developments and evolving practices, stated the press release.
However, the CSSF emphasised that the primary responsibility for compliance with applicable requirements rests with the supervised entities and their board members, who are expected to focus on integrating ESG factors into governance, risk management, and compliance tools, and prioritising ESG education within their organisations.
Supervisory priorities
The CSSF’s supervisory priorities include several key areas for credit institutions, such as transparency and disclosures, risk management and governance, and rules related to sustainability under the markets in financial instruments directive (Mifid). The authority ensured supervision of disclosure obligations under the sustainability-related disclosures in the financial services sector and assessed the integration and mitigation of climate-related and environmental risks, aligning with the Single Supervisory Mechanism’s (SSM) priorities for 2023-2025.
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It also scrutinised investment firms and issuers, focusing on disclosure obligations, ESG risk management, governance, and the integration of sustainability factors into product governance arrangements.
Asset management industry
For the asset management industry, the CSSF monitored compliance with sustainability-related provisions under the Sustainable Finance Disclosure Regulation, the SFDR regulatory technical standards (RTS), and the Taxonomy Regulation, taking into account the principles and guidance laid out in the European Securities and Markets Authority’s on sustainability risks and disclosures in investment management.
The authority’s focus encompassed organisational arrangements of investment fund managers, verification of compliance with pre-contractual and periodic disclosures, consistency of information in fund documentation and marketing material, and portfolio analysis to ensure that portfolio holdings reflect the fund's stated objectives and strategies.
International role and cooperation
In addition, the CSSF highlighted its international role in sustainable finance, supporting efforts by the European Supervisory Authorities (ESAs) and international bodies such as the Basel Committee on Banking Supervision (BCBS), the European Financial Reporting Advisory Group (Efrag), the International Sustainability Standards Board (ISSB), and the Network for Greening the Financial System (NGFS) to promote a coherent, cohesive, and consistent sustainable finance framework.
This includes participation in national, European and international groups to advance initiatives related to sustainable finance and to clarify fundamental concepts, supporting the European Commission’s work on ensuring consistency in international disclosures.