As the first half of the year concludes, the European Securities and Markets Authority (ESMA) has published its Final Report on the 2023–2024 Common Supervisory Action (CSA) focused on sustainability-related disclosures, offering fund managers and compliance teams a clear signal on the current regulatory landscape under the Sustainable Finance Disclosure Regulation (SFDR).
Zeidler Group, which offers compliance tools for investment funds, recently delved into the report and what it means for fund managers and compliance teams.
The report acknowledges improvements across several areas but points to continuing gaps in how firms are integrating sustainability risks and managing both entity-level and product-level SFDR disclosures, Zeidler said. While it does not cover potential amendments to the SFDR currently under review, the findings will help firms adjust their strategies in anticipation of evolving supervisory expectations.
Funds disclosing under Article 6 SFDR remain under scrutiny, with ESMA observing the use of environmental imagery, such as wind turbines and wildlife, which may mislead investors regarding the true sustainability profile of these funds. The message is clear: visual elements used in marketing and disclosures must align with the actual sustainability claims made within fund documentation, it said.
The report also identifies persistent governance gaps within Article 8 strategies. While managers often state they assess “good governance” in portfolio companies, the supporting policies frequently lack sufficient detail regarding engagement thresholds, timeframes, and escalation measures, leaving these claims open to regulatory challenge.
ESMA has also raised concerns about vague references to the United Nations Sustainable Development Goals (SDGs), noting that general statements without robust methodologies and evidence may fall short of the requirement for communications to be fair, clear, and non-misleading.
Outdated sustainability risk policies continue to be an issue among many UCITS managers and AIFMs. The report serves as a reminder that firms need to refresh their internal frameworks regularly to align with current supervisory expectations Zeilder noted.
Zeidler’s Marketing Material Review Tool (MMR-Tool) has been designed to incorporate these supervisory expectations, checking marketing materials automatically against ESMA’s guidance and global regulations, helping firms identify and rectify potential compliance issues early.
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