ESMA publishes findings from CSA on sustainability risks and disclosures
What has ESMA published?
On 30 June 2025, ESMA published its final report on the 2023-2024 Common Supervisory Action (CSA) on the integration of sustainability risks and disclosures (Report).
In it, ESMA sets out its key findings from the CSA initiated by it and EU national competent authorities (NCAs) in July 2023 on the integration of sustainability risks and disclosures in the investment funds sector.
In the Report, ESMA notes that there is “room for improvement” on the integration of sustainability risks and SFDR disclosures. The Report also sets out some ‘good practices’, ‘below average practices’ and ‘examples of non-compliance’ identified by NCAs in conducting the CSA.
In this briefing we identify some of the key takeaways for fund management companies arising from the Report relating to disclosure obligations imposed in respect of both the fund management company itself and its funds under management as well as the governance arrangements of fund management companies for the integration of sustainability risks.
Fund-level disclosures under the SFDR
Topic | Key takeaway |
|---|---|
Clarity of ESG claims
| Disclosures should not be vague or overly general. Use of jargon should be avoided and simple language which helps investor comprehension should be used. |
Substantiation of ESG claims
| The description of a fund’s ESG strategy in both regulatory and marketing documentation must be substantiated by ESG metrics and data. Appropriate controls should be implemented by the fund management company to ensure that this is the case. |
Reliance on third party data providers
| Periodic checks should be carried out on ESG data obtained from an ESG data provider. Reliance should not be placed on incomplete or inaccurate ESG data. |
Do No Significant Harm (DNSH) assessment for investments categorised as “sustainable investments”
| All mandatory principal adverse impact (PAI) indicators set down in Annex I to the SFDR Level 2 measures[1] must be taken into account when carrying out the DNSH assessment to determine whether or not an investment constitutes a “sustainable investment” under the SFDR framework |
Fund management company disclosures and governance arrangements
Topic | Key takeaway |
|---|---|
Greenwashing risk
| Fund management companies must account for and appropriately manage greenwashing risk[2] within their organisation and their sustainable finance governance framework. |
Integration of sustainability risk into investment management process
| Procedures should outline the due diligence carried out to ensure that sustainability risks are integrated into the investment management process. This involves identifying sustainability risk indicators used to monitor the level of sustainability risk within a fund’s portfolio and setting corresponding limits in the risk profile for each fund. Appropriate escalation procedures should also be incorporated into the documented policies and procedures of the fund management company. |
Assessment of impact of sustainability risk on funds under management | A robust methodology should be used to quantify the likely impact of sustainability risks on funds under management which should be carried out at least annually. |
Good governance assessments on Article 8 investments | Processes must be in place to ensure that good governance practices are followed in the companies invested in by Article 8 funds. This should include criteria which will be used to determine whether, and if so, for how long, a company could remain in a portfolio if found to be in violation of good governance principles. |
Remuneration policy
| The remuneration policy of the fund management company should include specific criteria and indicators to measure how such policies are consistent with the integration of sustainability risk. |
Adequate resources | Fund management companies should ensure that there is an appropriate number of dedicated employees with requisite expertise for sustainability related tasks. |
PAI entity-level reporting | Fund management companies which provide entity-level PAI reporting should ensure that an appropriate level of detail is provided in its PAI report. For those fund management companies which opt out of entity-level reporting, an adequate explanation of non-consideration of PAI should be provided. |
ESMA recommendations to NCAs
In addition to the above, the Report contains a number of recommendations to NCAs in monitoring compliance with applicable requirements under the SFDR and UCITS/AIFMD frameworks.
Of particular interest are the following:
while acknowledging that reform of the SFDR framework is on the horizon, it emphasises the need for fund management companies to continue to comply with the current requirements and for NCAs to continue monitoring implementation of the existing framework.
noting that the majority of NCAs have not yet used enforcement action in this area to date, ESMA emphasises the importance of NCAs using the “full range of the supervisory and enforcement toolkit” and invites the NCA to “use their enforcement powers if and when appropriate in case of regulatory breaches”.
ESMA calls on NCAs to develop tools which will allow them to perform controls on product-level and entity-level disclosures to verify the accuracy of disclosures against the investments made. It noted that one NCA has already implemented a tool which assesses pre-contractual documents against the latest portfolio submitted for the fund in question.
Are we expecting anything further from the Central Bank of Ireland on the CSA?
We understand that the Central Bank of Ireland (the “Central Bank”) will publish its own report outlining its findings from the CSA which will likely require all Irish fund management companies to take any necessary actions to address specific issues highlighted in the Central Bank’s report. We will keep readers updated on related developments.
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Footnotes:
[1] Commission Delegated Regulation (EU) 2022/1288
[2] The definition of greenwashing risk used by ESMA and NCAs in this context is set down in the ESMA 2023 Progress Report on Greenwashing
DISCLAIMER: This document is for information purposes only and does not purport to represent legal advice. If you have any queries or would like further information relating to any of the above matters, please refer to the contacts above or your usual contact in Dillon Eustace.
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