On 30 June 2025, the European Securities and Markets Authority (ESMA) published its Final Report on the 2023-2024 Common Supervisory Action (CSA) concerning the integration of sustainability risks and disclosures within the EU investment fund sector. The report, developed in collaboration with National Competent Authorities (NCAs), provides an assessment of how investment fund managers—both UCITS management companies and AIFMs—are complying with the requirements of the Sustainable Finance Disclosure Regulation (SFDR), the Alternative Investment Fund Managers Directive (AIFMD), and the UCITS Directive.
The CSA was conducted using a harmonised assessment framework agreed between ESMA and NCAs, covering a representative sample of managers across the EU/EEA. The review combined desk-based analysis and, in some cases, on-site inspections, focusing on both entity-level and product-level disclosures under the SFDR, as well as the integration of sustainability risks into organisational processes and governance.
Key Findings and Broader Conclusions
The CSA results indicate that, while the majority of managers demonstrate an overall satisfactory level of compliance with the regulatory framework, there remains significant room for improvement in several critical areas. The review identified a number of recurring issues:
- Quality and Consistency of Disclosures: Many managers were found to use vague or overly general language in their sustainability disclosures, with insufficient detail and, in some cases, inconsistencies between pre-contractual, periodic, and website disclosures. Importantly, discrepancies were also noted between disclosures and marketing materials, particularly regarding the substantiation of sustainability claims and methodologies.
- Principal Adverse Impact (PAI) Statements: At the entity level, the quality of PAI statements was often inadequate, with insufficient explanation of non-consideration, inconsistencies in calculations, and a lack of detail regarding methodologies and data sources. Some managers limited their PAI statements to Article 8 or 9 funds, rather than covering all investments as required.
- Integration of Sustainability Risks: While most managers had policies and procedures in place, there were notable deficiencies in documentation, escalation procedures, and the integration of sustainability risks into risk management processes. Smaller managers, in particular, were sometimes found to lack adequate resources or expertise dedicated to sustainability matters.
- Remuneration Policies: A number of managers failed to provide clear information on how their remuneration policies are consistent with the integration of sustainability risks, with some disclosures being vague or not linked to specific ESG metrics. In some cases, remuneration policies were only published at group level, rather than at the level of the manager as required.
- Controls and Data Quality: There was a lack of robust processes to ensure that ESG strategies were substantiated by reliable metrics and data. Reliance on third-party ESG data providers without adequate verification was a common issue, as was the absence of regular audits of internal policies.
- Greenwashing Risks: The review highlighted confusion among some managers between sustainability risks and greenwashing risks, with the latter not always being clearly defined or addressed in internal policies. ESMA emphasised the need for clear definitions and robust procedures to identify and manage greenwashing-related conflicts of interest.
- Product-Level Disclosures and Fund Naming: At the product level, the quality of disclosures varied widely, with some managers providing only generic information on PAIs and sustainability characteristics. The use of ESG or sustainability-related terms in fund names was generally appropriate, but there were instances where funds disclosing under Article 6 of SFDR inappropriately used such terms or suggestive imagery, raising concerns about potential greenwashing.
- Methodologies for Sustainable Investments: There was significant variation in how managers defined and calculated sustainable investments under Article 2(17) SFDR, leading to a lack of comparability and, in some cases, misleading disclosures regarding minimum commitments and achieved levels of sustainable or taxonomy-aligned investments.
Next Steps
ESMA has encouraged NCAs to continue proactive engagement with market participants, including bilateral engagement, supervisory orders, and, where necessary, enforcement actions. The report underscores the importance of ongoing supervisory convergence and the development of tools to monitor both entity-level and product-level disclosures. ESMA also notes that while a future review of the SFDR may introduce clearer product categories and criteria, asset managers must continue to comply with the current framework and should expect continued scrutiny, particularly in relation to greenwashing risks and the quality of sustainability disclosures. Managers should be prepared for greater scrutiny from regulators, highlighting the necessity of directing resources towards the development, or improvement, of internal processes and procedures that are robust and defensible and SFDR disclosures that reflect exactly what is done in practice.
In terms of immediate action, managers should review the ESMA findings against their own policies, procedures and disclosures to ensure they are consistent with the regulatory expectations.
