On 30 June 2025, ESMA published its long-awaited final report on the common supervisory action (CSA) on the integration of sustainability risks and SFDR disclosures.
This report sets out ESMA's analysis and conclusions on the CSA exercise and presents ESMA's views on its findings, including on whether financial market participants (e.g. UCITS management companies and AIFMs) adhere to the relevant rules and standards on sustainability risks and disclosures. It also provides specific recommendations to national competent authorities (NCAs) and financial market participants.
The findings in this report are important (both for financial market participants and at fund boards) as they are likely to inform the supervisory approach of national competent authorities (NCAs), including the CSSF, in the area of sustainability risks integration (including greenwashing) and sustainability-related disclosures going forward.
Background
In July 2023, ESMA launched a CSA with NCAs on the integration of sustainability risks and disclosures in the investment fund sector.
The CSA's aim was, amongst other, to assess compliance with: i) the provisions on the integration of sustainability risks; ii) the SFDR, including financial product disclosures and the Taxonomy Regulation and related SFDR implementing measures and iii) the adherence to the principles of the ESMA Supervisory briefing on sustainably risks and disclosures in the area of investment management. The CSA also focused on the current greenwashing practices and risks.
In Luxembourg, the CSSF implemented this CSA by contacting several financial market participants with the questions set by ESMA.
Key findings
While the NCAs reported back to ESMA that there was an overall satisfactory level of compliance with the applicable regulatory requirements, ESMA is of the view that there is room for improvement and has highlighted several areas for NCAs to focus on.
According to ESMA, the main issues and vulnerabilities can be summarised as the following:
a) Disclosures: vague and overly general language, missing or inadequate details and difficult to locate. Several inconsistencies were also observed between pre-contractual, periodic and website disclosures and marketing material, with discrepancies between the sustainability information disclosed and in the more granular sections of the website concerning methodologies and data sources and processing. Key findings identified by NCAs were that the environmental or social characteristics in the pre-contractual information were not clearly disclosed, making it unclear how the characteristics were measured and fulfilled. Furthermore, the identification of promoted features/objectives was often too generic (e.g., 'the product promotes environmental features', 'the product pursues social objectives').
b) PAI statements at entity level: inadequate level of details and unsatisfactory explanation of non-consideration, and inconsistencies in the calculations;
c) Integration of sustainability risks: lack of properly documented policies and lack of escalation procedures in case of breach of the policies;
d) Resources: cases of low number of dedicated employees for sustainability tasks, or unsatisfactory knowledge of sustainability matters from the relevant employees;
e) Remuneration policies: lack of specific criteria and indicators to measure how remuneration policies are consistent with the integration of sustainability risk;
f) Controls and processes in place: lack of processes to ensure that the description of the funds' ESG strategies is substantiated by the ESG metrics/data used or consistent with environmental and/or social characteristics and good governance principles;
g) ESG data: lack of verification or review process of data from third parties, data sometimes incomplete or inaccurate, information obtained by an ESG-provider without further checks;
h) Auditing system: lack of audit of the implementation of the internal policies.
What next?
ESMA expects NCAs to focus on the identified shortcomings
through proactive engagement with financial market participants.
ESMA acknowledges that SFDR is being reviewed by the European
Commission but underlines that it expects compliance with the
current rules.
AIFMs and UCITS management companies should carefully assess the
CSA report and identify areas in their policies/procedures and/or
organisational set up that may have to be improved in light of
ESMA's findings.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
