• Supervisory review finds shortcomings in SFDR compliance and risk integration
• Report identifies issues at both entity and product levels
• ESMA urges national regulators to increase scrutiny and follow up on vulnerabilities
The European Securities and Markets Authority (ESMA) has published the results of its 2023–2024 Common Supervisory Action (CSA) on the integration of sustainability risks and disclosures in the investment management sector. The report, developed in coordination with national competent authorities (NCAs) across the EU, identifies key areas for improvement in how asset managers comply with the Sustainable Finance Disclosure Regulation (SFDR), the EU Taxonomy Regulation, and other related rules.
While ESMA found the overall level of compliance to be “satisfactory,” the report highlights shortcomings in sustainability risk integration and SFDR disclosures at both the entity and product levels. These findings come as part of ESMA’s broader push to strengthen supervisory convergence and reinforce market integrity across EU jurisdictions.
Key findings
The CSA exercise assessed how investment firms implement sustainability-related requirements across the UCITS, AIFMD, SFDR, and Taxonomy frameworks. ESMA and NCAs reviewed:
Integration of sustainability risks into investment decision-making
Entity-level SFDR disclosures (such as principal adverse impact statements)
Product-level SFDR disclosures (such as fund documentation and marketing materials)
The report identifies multiple areas where supervised entities fell short:
Vague or boilerplate disclosures in fund documentation that lack sufficient detail on ESG strategies
Inconsistent integration of sustainability risks into internal processes
Weak governance frameworks, with unclear assignment of responsibilities for ESG oversight
Misalignment between disclosed ESG objectives and actual investment practices
In some cases, the review revealed breaches of applicable rules, which were addressed through follow-up actions by national regulators.
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Implications and next steps
Based on the CSA’s findings, ESMA is calling on national supervisors to:
Continue proactive engagement with asset managers
Follow up on identified vulnerabilities
Promote greater consistency in how sustainability risks and SFDR disclosures are supervised
ESMA also plans to facilitate further discussions among NCAs on best practices for enforcing sustainability-related obligations and closing the gaps identified through this CSA.
“This exercise confirmed that while there is a foundation of compliance in place, significant work remains to ensure clarity, accuracy and accountability in sustainability disclosures,” the report notes.
Why it matters
The findings come at a time when regulatory scrutiny of ESG claims is intensifying across Europe, and as financial institutions prepare for new and evolving disclosure requirements under the European Sustainability Reporting Standards (ESRS) and the Corporate Sustainability Due Diligence Directive (CSDDD).
The CSA demonstrates the EU’s commitment to ensuring that sustainability risks are properly integrated into investment strategies, and that investors can trust the ESG claims made by fund managers. With investor demand for ESG products continuing to grow, regulators are expected to ramp up enforcement efforts in the months ahead.
Read the Full Report Here
