Central Bank Issues “Dear CEO” Letter on Supervisory Expectations – Key Points for Asset Managers

On 3 November 2021, the Central Bank of Ireland (the ‘CBI’) issued a letter to the Chairs and CEOs of regulated financial service providers (“RFSPs”) outlining supervisory expectations relating to climate and sustainability issues (the “Letter”) (here).

The Letter is issued in the context of the 26th UN Climate Change Conference taking place in Glasgow this month (“COP26”), the CBI’s pledge on climate change action (here) and the CBI’s view that addressing climate change needs to be a strategic priority.

The annex of the Letter sets out the CBI’s supervisory expectations in respect of all RFSPs and there is no doubt that certain expectations will be of immediate relevance for asset managers. We have summarised these expectations below:


A key focus for asset managers should be the CBI’s supervisory expectations in respect of disclosures. Indeed, the CBI specifically references “asset managers and investment product providers” in this section of the Letter and states:

“Asset managers and investment product providers are responsible for providing disclosures to their clients and customers on the sustainability risks and where relevant, impacts of investment products. They must ensure that such disclosures are clear, fair and not misleading”.

The Letter emphasises that RFSPs must adhere to transparency and disclosure principles and requirements (where applicable) including the Taxonomy Regulation and the Sustainable Finance Disclosures Regulation (“SFDR”), together with other relevant European Supervisory Authority (“ESA”) requirements.

Asset managers should note the CBI specifically references the impending date of 1 January 2022 in respect of disclosure obligations relating to climate change mitigation and climate change adaptation objectives under the Taxonomy Regulation. The CBI also references 1 January 2023 for the remaining four taxonomy objectives.

Asset managers should also have regard to the recent final report of the ESAs (here) which consolidates the regulatory technical standards (“RTS”) for taxonomy-related SFDR product disclosures and other disclosures under SFDR in a ‘single rulebook’. The ESAs’ report acknowledges that the application date of 1 January 2022 for Level 2 SFDR measures is likely to be moved forward to 1 July 2022 and this has since been confirmed by the European Commission, which has also indicated in a recent letter (here) that it plans to adopt all the Level 2 SFDR measures in one instrument.


The CBI states that RFSPs need to demonstrate clear ownership by the Board of climate risks. Taking ownership may include overseeing climate risk proactively through business strategy and risk appetite, ensuring adequate resourcing/expertise and providing that clear roles and responsibilities are assigned for Boards, board sub-committees and senior management.

Risk management framework

RFSPs need to enhance their risk management frameworks to ensure robust climate risk identification, measurement, monitoring and mitigation. The CBI states that Boards should be enabled to discuss, challenge and take decisions relating to the RFSP’s management of climate risks with the support of relevant management information and risk reporting. The CBI expects climate change to impact across the risks that an RFSP manages through its three lines of defence.

Scenario analysis

The CBI considers scenario analysis and stress testing as critical to assessing the impact of potential future climate outcomes, including impacts on capital adequacy, where applicable. The CBI states that scenarios should include differing transition paths to a carbon neutral future, as well as a path where no transition occurs. The CBI acknowledges that approaches to scenario analysis will need to evolve and mature over time.

Strategy and business model risk

The CBI expects RFSPs to undertake business model analysis to determine the impacts of climate risks on the RFSP’s overall risk profile, business strategy and sustainability and to inform strategic planning. Asset managers should note that the CBI acknowledges that business models may change to include development of new products and services and marketing sustainability features of those products and services. The CBI states that RFSPs must ensure that new and existing products and services adhere to requirements under applicable EU legislation and regulation in their development and design, as well as ensuring they meet the criteria prescribed in disclosure frameworks.


Asset managers should note that while the CBI’s supervisory expectations are not intended to be prescriptive in nature nor binding on asset managers, they clearly indicate the CBI’s areas of focus and the CBI confirms that firms can expect follow-up on these expectations.

The Letter states that amendments to the UCITS Directive, AIFMD and MiFID II clarify existing obligations in relation to sustainability. Asset managers should, therefore, assess their existing sustainability obligations to ensure they are meeting same, in addition to focusing on new sustainability disclosures under the Taxonomy Regulation and SFDR.

Asset managers should note that the CBI acknowledges that its approach will evolve and will be kept under review. The CBI also acknowledges there may be a need for sector-specific guidance.

The CBI plans to establish a Climate Risk and Sustainable Finance Forum of stakeholders to share knowledge and understanding of the implications of climate change for the Irish financial system. While such a development is to be welcomed, asset managers should note the first meeting of this forum is expected to take place in the first half of next year, which is after the initial application date of the Taxonomy Regulation.

This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.