The European Securities and Markets Authority (ESMA) has published its final report on the 2023-2024 common supervisory action (CSA) carried out with national competent authorities (NCAs)on the integration of sustainability risks and disclosures in the investment management sector. The CSA assessed how NCAs supervise compliance with the Alternative Investment Fund Managers Directive (AIFMD), the Undertakings for Collective Investment in Transferable Securities (UCITS) Directive and the Sustainable Finance Disclosure Regulation (SFDR). ESMA concludes that while there is a satisfactory level of compliance, significant vulnerabilities remain, including: (i) inconsistent integration of sustainability risks into investment processes; (ii) deficiencies in entity-level and product-level SFDR disclosures; and (iii) ongoing greenwashing risks. The report highlights the need for enhanced supervisory convergence, urging NCAs to maintain proactive engagement with market participants and to follow up on cases where vulnerabilities were identified. NCAs are also encouraged to apply the European Supervisory Authorities' (ESAs) common understanding of greenwashing as a reference point in their ongoing supervision.
ESMA also acknowledges challenges reported by NCAs regarding ambiguities in key SFDR concepts, such as the definition of "sustainable investment" under Article 2(17). While ESMA supports a future review of the SFDR to introduce clearer product categories and criteria, it notes that such changes will not take effect in the near term. In the meantime, ESMA emphasises that market participants must comply with the existing regulatory framework and NCAs should exercise their enforcement powers where regulatory breaches are identified.
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