Luxembourg increases sustainability requirements for Mifid firms

Article published on 24 November 2020 www.igniteseurope.com

The Luxembourg financial regulator has unveiled new requirements to compel asset managers to pay more attention to environmental, social and governance risks.

The new rules put Luxembourg market participants at the forefront of tackling sustainability risks as EU regulatory amendments on ESG integration have yet to be finalised.

The Commission de Surveillance du Secteur Financier published a new circular earlier this week compelling asset managers and other financial institutions to integrate sustainability factors into their governance procedures.

The circular applies to firms carrying out investment activities or services under Mifid II, such as managing segregated mandates or providing investment advice.

According to the CSSF, firms should give ESG factors the same prominence as liquidity and solvency risks when considering the “‘viability of [their] business model”.

The new obligations come as EU policymakers put the finishing touches to a number of new rules to compel senior managers to take account of ESG risks.

Amendments to the Ucits directive, Mifid II and the Alternative Investment Fund Managers Directive are expected to be finalised in the coming weeks, while firms must also contend with the sustainable finance disclosure regulation, which comes into force next March.

Sebastiaan Hooghiemstra, Luxembourg-based associate at NautaDutilh, says many firms have already begun integrating sustainability risks into their investment decision making processes in order to comply with SFDR.

SFDR, which requires firms to make disclosures on ESG factors at both a company and product level, is also leading firms to incorporate sustainability risks into other governance procedures such as remuneration policies, adds Mr Hooghiemstra.

Other EU regulators have also challenged firms to do more to meet their sustainability objectives.