The CSSF reports on diversity through its data collection exercise


In a press release dated 10 October 2023, the Luxembourg Commission de Surveillance du Secteur Financier (the CSSF) presented the current state of diversity within the management bodies of less significant institutions (LSI) in a report. This report stems from the survey launched in April 2023 targeting 46 LSI and aimed at gathering additional information on the implementation of diversity policies.

The CSSF launched this survey namely to assess how the obligation of putting in place a policy promoting diversity within the management body, provided for under Article 38-2(8) of the law of 5 April 1993 on the financial sector, as amended (the 1993 Law), is implemented in Luxembourg LSI. The rationale behind this obligation is to engage a broad set of qualities and competencies when recruiting members to the management body, leading to the necessity of promoting diversity.

The CSSF’s survey was essentially targeting diversity in terms of gender, assessing compliance of LSI with respect to the adoption of a diversity policy and its concrete outcomes.

Against this backdrop, the survey led to the assessment of the necessity of Luxembourg LSI to (i) improve its compliance with Article 38-2(8) of the 1993 Law, (ii) follow the CSSF’s recommendations highlighted in the report, and (iii) effectively implement their diversity policies to lead to a significant improvement within management bodies and avoid greenwashing.

The banking sector required to make effort in diversity

According to Article 38-2 (8) of the 1993 Law, CRR institutions and, where applicable, their respective nomination committees shall engage a broad set of qualities and competences when recruiting members to the management body and for that purpose shall put in place a policy promoting diversity within the management body.

More expectations from the CSSF and the European Banking Authority were provided for in Circular CSSF 22/807 updating Circular CSSF 12/552 on central administration, internal governance and risk management.

Thus, via their policies, in-scope entities should ensure fair treatment and equal opportunities for all staff. The supervisory body should also have non-discrimination guidelines and should improve the representation of the under-represented gender among staff in management positions.

For more information in this respect, please refer to our eAlert on Circular CSSF 22/807 released in April 2022.

CSSF findings

According to the CSSF’s report, at the end of December 2022, an important majority of LSI did not show enough improvement in terms of gender diversity, with 97% of their management body being predominantly male and a quarter having no female members.

In terms of compliance with the provisions of the 1993 Law, only three-quarters of the LSI had put in place the required diversity policy, 6% of which did not consider diversity in terms of gender.

In addition, the CSSF highlighted a failure in concrete positive outcomes of the diversity policy, since 25% of LSI having a diversity policy have management body solely composed of men. The management body of one LSI is however, in majority, composed of female members.

In this context, the CSSF shares its expectations of good practices that LSI must put in place in the future to achieve better diversity at the management level. These practices include:

  • Facilitating access to each level position for diverse profile;
  • Equal treatment and opportunities for promotion and training; and
  • Equal provision and implementation of career planning elements.

Such good practice shall lead to a significant improvement in the diversity of LSI’s management bodies in terms of gender and shall ensure a pool of diversified profiles for the succession of members of management bodies.

The CSSF wishes to emphasise that it will increase supervision in this area and will take strict measures, or even impose sanctions.

Towards more S into the banking sector and avoidance of greenwashing

The current focus on sustainability matters brings the “ESG” consideration to the table of most financial market players. Integrating environmental, social, and governance (ESG) considerations into the business is material from a financial and impact perspective. This double materiality leads to companies having a prosperous and long-term financial success, alongside a positive impact on the climate and society, which confirms the role that the financial sector can play in the transition towards a sustainable economy.

Diversity is an ESG factor that matters to employees, customers, and the long-term business productivity. Diversity reinforces the “S” component of ESG, by improving work conditions and well-being of employees, but also noticeably the “G”, by strengthening the executive decision-making process and leadership of a company.

From reputation to the wellbeing of employees, through competition, promotion of inclusion and attractiveness, the integration of diversity into a business has many drivers and benefits.

However, as highlighted by the CSSF’s report, diversity is still lacking at the level of management of most financial institutions. Even when having a diversity policy is a legal requirement, the result of having such policy in place is sometimes – or most of the time - not satisfactory in terms of gender representation at management level.

The CSSF’s report interestingly shows that companies of the financial sector may face difficulties when implementing concrete actions that would lead to equal treatment and opportunities for staff of different genders. As written in the report, “measures dedicated to equal opportunities […] are an essential prerequisite for greater diversity within the management bodies, notably by fostering access to management positions for people from more varied backgrounds, allowing them to build skills and experience”. Any diversity policy must be accompanied by concrete measures.

In addition, firms should be aware of greenwashing risks when communicating about diversity and inclusion. A misalignment between a claim promoting gender diversity and the reality of the internal processes within the firm may lead to misleading communication about the level of internal promotion of diversity. Such behavior may be qualified as “greenwashing”[1].

As the financial market is increasingly facing greenwashing risks, any green and sustainable claims, including on diversity, should be cautiously checked and substantiated. According to the latest report from the EBA, 23% of total alleged greenwashing cases involved an EU company are in the EU financial sector[2]. As the risk is present, any claims about diversity and inclusion, including policies, should be supported by concrete measures proving the efforts made in that respect by the financial institutions.

As other sustainability-related claims, regulators are expected to bring their attention to diversity and inclusion policies and concrete measures, to avoid any greenwashing risk and misleading information for consumers or investors.

Should you have any questions relating to the above, please do not hesitate to contact one of the experts of our investments funds and regulatory teams.

[1] No definition of “greenwashing” is binding but the European Supervisory Authorities adopted a common understanding on 1 June 2023: Practice where sustainability-related statements, declarations, actions, or communications do not clearly and fairly reflect the underlying sustainability profile of an entity, a financial product, or financial services. This practice may be misleading to consumers, investors, or other market participants

[2] EBA progress report on greenwashing monitoring and supervision