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Sustainable Finance Requirements for Fund Management Companies

Delegated acts amending the UCITS Directive and the AIFMD apply with effect from 1 August 2022 (Delegated Acts). The Delegated Acts - one of a suite of interrelated measures introduced by the EU Commission under the Action Plan on Financing Sustainable Growth, introduce significant changes for fund management companies (FMCs).

The Delegated Acts create requirements for FMCs to integrate sustainability risks into their organisational procedures, conflicts of interest management, conduct of business rules and risk management procedures, as well as a requirement to consider sustainability risks and factors when undertaking investment due diligence.

These requirements are in addition to the disclosure requirements under the Sustainable Finance Disclosure Regulation (SFDR) and the Taxonomy Regulation and apply regardless of whether the fund under management is an Article 6, Article 8 or Article 9 fund under the SFDR.

This update focuses on the practical implications of the Delegated Acts for FMCs.

FMCs will need to take account of sustainability risk and sustainability factors as part of their duties towards investors.

The definitions of “sustainability risk” and “sustainability factors” in the Delegated Acts are aligned with the definitions in the SFDR:

  • Sustainability risk is defined as “an environmental, social or governance event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of the investment”.
  • Sustainability factors are defined as “environmental, social and employee matters, respect for human rights, anti-corruption and anti-bribery matters”.

High level impact of the Delegated Acts for FMCs

The Delegated Acts take a high-level principled approach in their application to FMCs, with clear recognition that there is a ‘no-one size fits all’ policy. Nevertheless, the Delegated Acts introduce five overarching amendments:

Organisational structure

  • FMCs are required to incorporate sustainability risks into their organisational structure and investment-decision making processes.
  • The integration of sustainability risk is the responsibility of senior management of the FMC.


  • FMCs must retain the necessary resources and expertise for the effective integration of sustainability risks and ensure that there is the technical capacity and knowledge to analyse sustainability risks.

Conflicts of interest

  • FMCs must include conflicts of interest that arise from the integration of sustainability risks into their processes, systems, and internal controls.

Sustainability risk management

  • FMCs must update risk management processes to include procedures to enable the FMC to assess sustainability risks.

Investment due diligence process

  • FMCs are required to consider sustainability risks as part of the due diligence requirements in the selection and ongoing monitoring of investments and update related policies and procedures.


The Delegated Acts provide that FMCs can consider the nature, scale, and complexity of the business in integrating sustainability risks. While this allows FMCs some flexibility to adopt different approaches to the organisational changes required, careful consideration will be required by boards of FMCs as to implementation and oversight. This may include updating the business plan and FMC policies and procedures as well as updating outsourcing arrangements, to ensure that sustainability risks are appropriately addressed.

For further information on the likely impact the Delegated Acts may have on your organisation’s operations and fund management activities, contact a member of our Investment Funds team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.

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