EU Regulators launch review of SFDR compliance in the investment fund sector

By: Shane Geraghty and Áine Ní Riain

On 6 July, the European Securities and Markets Authority (ESMA) announced it had launched a Common Supervisory Action (CSA) with National Competent Authorities (NCAs) on the integration of sustainability risks and on sustainability-related disclosures in the investment fund sector.

ESMA states the goal of the CSA as assessing the compliance of asset managers with the Sustainable Finance Disclosure Regulation (SFDR), the Taxonomy Regulation and the various implementing measures. The CSA is also intended to promote greater convergence in the supervision of risks from incorrect and misleading disclosures, to foster transparency and to improve the comprehensibility of disclosures within the sustainable finance value chain.

Among the objectives of the CSA, ESMA highlights that it intends to:

  • Assess adherence by financial market participants to the rules and standards;
  • Gather information on greenwashing risks in the sector; and
  • Identify further relevant supervisory and regulatory intervention on the issue.

The CSA will continue until Q3 2024. In this time, NCAs will undertake their supervisory activities and share their experiences and findings with ESMA. Typically, the information provided by NCAs culminates in a report from ESMA which highlights divergences and expectations in national guidance based on NCAs’ domestic findings and ESMA’s report.

As of today’s date, industry is understood to still be awaiting the CSA’s release so its full scope has yet to be seen. Given the continuing evolution of the regulation of ESG within the EU, it is important to keep a close watch on developments as they arise.

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