LUXEMBOURG Trends and Developments Contributed by: Claire Guilbert, Geoffroy Hermanns and Cyril Clugnac, Norton Rose Fulbright
The increased oversight of NAV calculation errors, the change in rules effected by CSSF Circular 24/856 (which will come into effect on 1 January 2025) and increased scrutiny by the CSSF, coupled with an ongoing agitated eco - nomic environment, may lead to such errors being detected and reported more frequently in the future, with high levels of compensation being paid to investors when these errors are material in the spirit of ensuring investors receive due compensation and protection. Beware “green” names for investment funds In May 2024, ESMA published its eagerly antici - pated final guidelines on using environmental, social and governance (ESG) or sustainability- related terms in fund names. In August 2024, ESMA published the official translations of the guidelines, which means that they will apply from 21 November 2024. Asset managers should therefore be taking urgent steps to ensure com - pliance. Investor demand for investment funds that incorporate ESG factors has grown and will continue to grow in the future. In this context, the name of a fund is important as it is usually the first attribute thereof that investors see, with the potential to have a significant impact on their investment decisions. Financial services regulators are aware of this and have concerns regarding the risks of greenwashing from this point of view. On 31 May 2022, ESMA issued a supervisory briefing on sustainability risks and disclosures in investment management (the “Briefing”), containing inter alia principles-based guidance on fund names with ESG and sustain - ability-related terms. The Briefing was issued under Article 29(2) of the Regulation estab - lishing ESMA, meaning that it was intended to promote common supervisory approaches and practices, but it was not binding with member state competent authorities (national competent
authorities (NCAs)) nor subjected to a comply- or-explain mechanism. Almost six months later, ESMA followed up the Briefing with a consultation on draft guidelines on using ESG or sustainability-related terms in fund names (the “Consultation”). The draft guidelines contained more specific guidance on the issue compared to the supervisory briefing. The Consultation closed on 23 February 2023, with ESMA expecting to issue the final guide - lines relatively quickly thereafter, by Q2/Q3 2023. However, given the significant amount of feed - back from the market, the publication of the final guidelines (the “Guidelines”) was delayed until 14 May 2024. The Guidelines were issued under Article 16 of the Regulation establishing ESMA meaning that, unlike the Briefing, NCAs are sub - ject to a comply-or-explain mechanism. The Guidelines introduce quantitative thresholds (eg, the proportion of ESG-related investments and/or sustainable investments) that will apply as a condition for funds using ESG and/or sus - tainability related terms in their names, as well as minimum safeguards (including the exclusion criteria defined in Commission Delegated Regu - lation (EU) 2020/1818 of 17 July 2020), depend - ing on the type of terms used by a fund in its name. The Guidelines apply to: • management companies of UCITS funds within the meaning of the UCITS Directive, including UCITS funds that have not desig - nated such management company (ie, inter - nally managed UCITS funds); • AIFMs within the meaning of the AIFMD, including internally managed AIFs within the meaning of the AIFMD; • the managers of EuVECAs, EuSEFs, ELTIFs and MMFs; and
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