As the first half of the year draws to a close, ESMA has released its Final Report on the 2023–2024 Common Supervisory Action (CSA) on sustainability-related disclosures, providing timely insights for fund managers and compliance teams navigating the complexities of the SFDR.
While the report acknowledges progress in several areas, ESMA makes clear that significant gaps remain in the integration of sustainability risks, entity-level SFDR disclosures, and product-level SFDR disclosures.
Although the report does not address potential future changes to the SFDR, which are currently under review, it will undoubtedly help firms prepare for the evolving regulatory landscape.
Funds disclosing under Article 6 SFDR were not overlooked. Some were found to be using environmental imagery, such as wind turbines, recycling symbols, or wildlife, that could mislead investors about the fund’s actual sustainability profile.
Takeaway: Visual elements matter. Imagery implying sustainability must be supported by robust disclosures.
ESMA highlighted recurring weaknesses in verifying “good governance” practices within portfolio companies. While many managers claim to assess governance, the underlying policies often lack detail on engagement timeframes, thresholds, or escalation procedures, leaving such claims open to challenge.
ESMA also noted significant variation in how firms assess what qualifies as a sustainable investment. In particular, it found that overly general references to the UN Sustainable Development Goals (SDGs) were not always fair, clear, or non-misleading, reminding firms that broad claims must be backed by clear methodologies and evidence.
Many UCITS managers and AIFMs continue to rely on outdated sustainability risk policies.
ESMA’s findings serve as a clear reminder to review and update internal frameworks to ensure alignment with current supervisory expectations.
ESMA makes explicit reference to its Supervisory Briefing on sustainability risks, a document that, while non-binding, increasingly shapes regulatory expectations.
At Zeidler, we have long emphasised that the Supervisory Briefing acts as a de facto benchmark for assessing how firms comply with SFDR, especially in the context of pre-contractual documents and marketing materials.
This is particularly relevant for managers relying on high-level sustainability claims in their marketing. Without robust, documented processes, such claims could attract regulatory scrutiny.
Our Marketing Material Review Tool (MMR-Tool) has the Supervisory Briefing’s expectations built in by design. The tool automatically checks your materials against ESMA’s guidance and global regulations, helping you identify and resolve potential issues, before the regulator does.
If you would like to understand how your marketing content measures up, we invite you to Try it for yourself.
For any questions or support, please do not hesitate to reach out to our ESG Legal Team. We are already advising clients on how best to prepare.
