Verstärkte nationale Durchsetzung der EU-Offenlegungsverordnung (SFDR)

28. Jänner 2025

A Ramping Up of National Enforcement of the EU Sustainable Finance Disclosure Regulation (SFDR)

National Competent Authorities (NCAs) across the EU have signaled that they will be ramping up enforcement efforts against financial market participants and financial advisers (collectively, FMPs) that fail to comply with the SFDR disclosure standards.

We address below recent developments and emerging regulatory trends pertaining to SFDR compliance. In particular, this article describes recent enforcement efforts and increased scrutiny related to SFDR compliance across Europe and highlights the growing role of NCAs in holding FMPs accountable and ensuring the integrity of (sustainable) finance markets. As NCAs increase supervision of SFDR disclosures, it is increasingly important that investment managers and other FMPs ensure that their entity- and fund-level disclosures are SFDR compliant and that their investment holdings and procedures for allocating investments align with statements made in the relevant marketing materials and SFDR disclosures.

Overview of SFDR and key compliance areas

The SFDR, which came into force in March 2021, requires FMPs – such as asset managers, institutional investors, and financial advisers – to disclose how they integrate sustainability risks into their investment decisions (periodically updated website and/or pre-contractual entity-level disclosures related to ESG risk integration, governance and remuneration policies, and the impact of sustainability factors).

In addition to the entity-level disclosures, SFDR also requires detailed information on the sustainability characteristics of financial products, (pre-contractual, periodic and website product-level disclosures), to be classified under three categories:

  • Article 6: Products that do not promote any sustainability characteristics.
  • Article 8: Products that promote environmental or social characteristics.
  • Article 9: Products with sustainable investment objectives.

SFDR thus aims to make sustainability-related disclosures consistent and comparable, and aims to increase transparency, reduce greenwashing, and promote sustainable finance.

Increased enforcement measures and scrutiny by NCAs

After an initial “honeymoon” phase by EU member states with support and further guidance from both the EU[1] and the NCAs, NCAs are taking a tougher stance on FMPs that do not comply with SFDR requirements by increasing enforcement and scrutiny.

While acknowledging overall positive progress compared to previous years, the European Supervisory Authorities (ESAs) noted in their 2024 Annual Report[2] that additional efforts are needed to achieve full compliance and encouraged NCAs to engage with FMPs that are not or only partially compliant.

On the other hand, NCAs have made it clear that market participants have had sufficient time to familiarize themselves with the obligations under SFDR and that they no longer intend only to monitor compliance but also to intensify enforcement actions against FMPs that do not comply with their obligations. The following examples should serve as a guide:

  • After announcing that they will conduct additional off-site reviews of SFDR website disclosures at the entity and product levels on a sample basis,[3] Luxembourg´s Financial Supervisory Authority, CSSF, followed through and issued the first fine on October 15, 2024, following a thematic on-site inspection of an investment management company that found persistent breaches in its internal governance framework relating to five sub-funds of a managed fund classified as an Article 8 fund.[4]
  • After announcing its supervisory priorities for 2023, France´s Financial Markets Authority (AMF) conducted a so-called SPOT (Supervision of Operational and Thematic Practices) inspection campaign and published its results in July 2024, listing numerous bad (and good) practices.[5] It further published in December 2024[6] that they will apply and enforce ESMA´s guidelines on fund names using ESG or sustainability related terms for new funds and will start doing so for already existing financial products beginning on May 21, 2025.
  • Germany´s Federal Financial Supervisory Authority (BaFin)[7] notified ESMA in October and announced on January 6, 2025, that they have opted in to apply and enforce ESMA’s guidelines on fund naming rules and recommended that existing financial products (funds) that would fall under these timely contact them to, on a case-by-case basis, determine whether changes are necessary to become compliant.
  • The Dutch Authority for the Financial Markets (AFM) stressed in May 2024 that it was unacceptable that some FMPs still reported that they were lagging behind and further noted that templates often contained vague or overly general information or referred to insufficient data. It is clear from AFM´s report[8] that it will start to apply a much greater level of scrutiny.
  • Austria´s financial regulator, the FMA, highlighted that its focus in 2025 will be on combating greenwashing, conducting targeted supervisory activities as part of its off-site analyses and on-site audits to verify disclosures and compliance, and using automated text analysis and artificial intelligence (which is also used by the Central Bank of Ireland as the Irish regulator and various other NRAs).[9]

In most cases, regulator’s focus on non-compliance related to inadequate or insufficient documentation and metrics to justify a classification as an Article 8 or Article 9 financial product, overstating the sustainability credentials of financial products leading to potential greenwashing, misleading marketing materials, lack of adequate disclosure of specific sustainability objectives or how the fund´s investments contribute to achieving these objectives.

SFDR does not contain an autonomous, EU-wide penalty regime. Instead, enforcement stems from national legislation and NCA regulatory action and can thus vary from member state to member state. Nonetheless, public “shaming” and reputational damage that non-compliant firms face because of fines or other regulatory action transcend national borders.

Takeaways for Financial Market Participants

FMPs disclosing under SFDR should carefully review their entity- and product-level documentation and thoroughly review their internal processes to quickly improve any inadequacies and correct misleading information, and update disclosed information, if needed, to align with statements made in the prospectus for the firm’s financial products and SFDR disclosure. In doing so, they can ensure compliance with SFDR and provide meaningful transparency to investors.

RECENT REGULATORY TRENDS

Recommendation for Alternative Product Categories under SFDR

In addition to the signaled tightening of SFDR enforcement by NCAs, the EU Platform on Sustainable Finance (Platform)[10] recently published a report recommending three alternative product categories (collectively, the Categories) to replace the existing Article 6, 8, and 9 product categories as follows:[11]

  • Sustainable: Contributions through Taxonomy-aligned investments or sustainable investments with no significant harmful activities, or assets based on a more concise definition consistent with the EU Taxonomy.
  • Transition: Investments or portfolios that support the transition to net zero and a sustainable economy, avoiding carbon lock-ins, in line with the European Commission´s recommendations on facilitating financing for the transition to a sustainable economy.
  • ESG collection: Excluding significantly harmful investments/activities, investing in assets with better environmental and/or social criteria or applying various sustainability features.

All other products should be identified as unclassified products.

The adoption of the Categories which are proposed by the Platform (or variations of them) is expected to yield greater legal certainty and, notably, administrative practicability, relative to the use of the existing, Article 6, 8 and 9 categorization scheme[12], with respect to categorization of financial products under SFDR.

The Platform, nonetheless, does not see the current version of the Categories as final, and is soliciting market and other stakeholder feedback and conducting a market assessment of the use of the Categories. In particular, the Platform is seeking feedback as to how a sustainability indicator can provide more information on whether and, if so how, a financial product qualifies as an “ESG” product.

Given the Platform’s intention that the Categories will eventually replace the existing Article 6, 8 and 9 categories, we recommend that FMPs continue to monitor developments relating to the evolution and implementation of the Categories.

Omnibus Simplification Package

On November 8, 2024, the President of the EU Commission announced the intention to introduce an Omnibus Simplification Package (Omnibus), which is expected in February 2025 and is aimed at consolidating existing EU corporate sustainability reporting requirements, such as those set forth in the EU Taxonomy Regulation (Taxonomy), the Corporate Sustainability Reporting Directive (CSRD), and the Corporate Sustainability Due Diligence Directive (CSDDD) (collectively, the Existing Regulations).

SFDR and various other EU laws have also been identified as in need of simplification, and the Omnibus may eventually cover them as well. This simplification could happen either directly, or, if and to the extent the Taxonomy is targeted by the Omnibus, indirectly in certain circumstances. Either way, the result would be at least a partial reduction of the administrative burden of SFDR compliance.

The details of the Omnibus have yet to be decided. The goal of the Omnibus would not be to change the content of the Existing Regulations or other legislation, but to avoid duplication in the collection and reporting of data required under such legislation.[13]

CONCLUSIONS

In summary, FMPs should ensure full compliance with their reporting obligations under SFDR and the Taxonomy while staying alert to any important changes and developments related to ESG and sustainability reporting and disclosure requirements. The landscape is expected to evolve toward increased scrutiny of FMPs, sanctions for failing to meet SFDR disclosure requirements, adjustments to sustainable finance product categories, and efforts to clarify requirements and reduce paperwork.

 

Edgar Langeder

 

[1] Regulatory Technical Standards (RTS and its amendment), consultation papers, (summary) reports, supervisory briefings, ESMA Guidelines on fund names using ESG or sustainability related terms, published Q&A´s.

[2] Annual Report to the EC, JC 2024 68, dated October 30, 2024, p 5.

[3] CSSF Communique dated March 22, 2024.

[4] CSSF, administrative decision.

[5] AMF, Summary dated July 2024.

[6] AMF News dated Dec 17, 2024.

[7] BaFin announcement.

[8] AFM Report dated May 14, 2024.

[9] FMA, Facts and Figures, Trends and Strategies 2025.

[10] An advisory expert body to the European Commission established under article 20 of the Taxonomy Regulation.

[11] Categorisation of Products under SFDR: Proposal of the Platform on Sustainable Finance, December 2024.

[12] Originally, SFDR was designed as a disclosure regime but is de facto being used as a labelling system.

[13] Jon McGowan in Forbes dated 10 Dec 2024.

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