LUXEMBOURG Law and Practice Contributed by: Anna Gassner, Philipp Mössner, Andrea Carraretto and Etienne Weryha, GSK Stockmann SA
tions and commitments, and the JV contract will, at a minimum, stipulate certain obligations in this respect (mostly to comply with the internal policies of certain shareholders). ESG issues may also have a greater or lesser impact on customer/supplier relations, on internal govern - ance procedures and risk management (including sustainability risks), depending on the JV’s field of activity and where this business is operated. In fact, ESG-focused evaluation criteria are increasingly being used in management incentive packages, further emphasising their growing importance. In summary, JV partners are strongly advised to adopt a compre - hensive risk-based approach when establishing and operating a new JV. This entails ensuring appropriate ESG compliance and implementing a robust compli - ance management system that encompasses the JV, its employees, and shareholders. If the JV vehicle qualifies as a fund, ESG topics are a must. Indeed, since the entry into force of Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial sector (SFDR), the number of ESG and impact funds has been rising. Luxembourg currently stands as the number-one green financial centre in the EU. As a result of pressure from both investors and legislators, it appears certain that sustainable finance products will become a major trend in the investment funds industry in general. Revision of the EU Disclosure Regulation Last September, the EU Commission launched a con - sultation on the review of the SFDR, which ended on 22 December 2023. Some extensive changes could be made to the previous version, which has been in force since March 2021. For example, the disclosure obligations at company level in the SFDR could be removed and replaced by the obligations of Directive (EU) 2022/2464 on sustainability reporting by compa - nies (CSRD), which has not been transposed in Lux - embourg yet. Additionally, the current categorisation of financial products into Article 6, 8, or 9 products may be abandoned. Shortcomings in this classifica - tion have become apparent in the past, for example from the Article 8-Plus classification created by the market for MiFID marketing. The European Commis - sion is now considering introducing sustainability dis -
closure standards for all financial products. It is also considering switching to a more differentiated clas - sification system for sustainable products. ESMA Guidelines on ESG Terms in Fund Names On 14 May 2024, the European Securities and Markets Authority (ESMA) published its final report on the use of ESG or sustainability-related terms in fund names. Accordingly, the use of ESG or sustainability-related terms in fund names is subject to certain conditions. Fund names incorporating ESG or sustainability-relat - ed terms are permissible only if at least 80% of the fund’s investments consider ESG criteria or pursue sustainability objectives. In addition, it is assumed that the exclusion criteria of the Paris-Aligned Benchmarks (PAB) are taken into account and that a significant pro - portion is invested in sustainable investments within the meaning of Article 2 (17) of the SFDR in order to reflect the expectations of investors based on the fund name. The Guidelines also address, for the first time, the use of transition-related terms and the combina - tion of different terms. Funds that are subject to supervision by the CSSF, regardless of whether they qualify as an Article 6, 8 or 9 product, must use fund denominations that are consistent with the respective investment objective and investment policy of the fund and with the ESMA Guidelines. The CSSF also expects that future devel - opments on this topic will be implemented at the European level. EU Taxonomy Regulation Since 1 January 2023, non-financial companies have had to provide evidence of the rate of conformity of their business activities with the environmental objec - tives of the Taxonomy Regulation as part of their reporting. However, this only applies to the environ - mental objectives of climate protection and adaptation to climate change. From 1 January 2024, the reporting obligation also applies to financial companies when it comes to these two environmental objectives. With regard to the other environmental objectives, how - ever, non-financial companies fall under the reporting requirement as of 1 January 2025 and financial com - panies as of 1 January 2026. The implementation of the EU Taxonomy is to be facilitated by a communica -
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