European regulators to assess ESG disclosures and sustainability risks in fund market
07 July 2023
It is just over two years since the European Sustainable Finance Disclosure Regulation (SFDR) came into force and most of its reporting obligations are now live. So it comes as no surprise that the European Securities and Markets Authority (ESMA) and the National Competent Authorities (NCAs) of Member States think it is a good time to assess funds' and fund managers' SFDR disclosures and how they are treating sustainability risks under this relatively new regime.
The launch of a Common Supervisory Action (CSA) which was announced on 6 July 2023 goes wider than SFDR and will include an assessment of 'compliance of supervised asset managers with the relevant provisions in the SFDR, the Taxonomy Regulation and relevant implementing measures, including the relevant provision in the UCITS and AIFMD implementing acts on the integration of sustainability risks'.
The main objectives of the CSA are:
- to assess whether market participants adhere to applicable rules and standards in practice;
- to gather further information on greenwashing risks in the investment management sector; and
- to identify further relevant supervisory and regulatory intervention to address the issue.
The regulators are concerned that there needs to be greater convergence in the supervision of risks stemming from incorrect and misleading disclosures under the SFDR. NCAs will undertake their supervisory activities and share knowledge and experiences through ESMA during 2023 and until Q3 2024.
The outcome of this work will undoubtedly be further clarification on regulators' expectations around managers' integration of sustainability and the relevant disclosures made by managers and funds under SFDR and Taxonomy Regulation.
We suggest this is a useful time to revisit your SFDR and Taxonomy disclosures to ensure that they reflect the clearer expectations on the regulators in this area.
