Enforcement update: EU Sustainable Finance Disclosure Regulation (SFDR)

The SFDR is coming of age both those complying with SFDR and those enforcing the rules are getting to grips with what is required. As a result we are seeing more enforcement actions from national competent authorities.  We discuss them further below.

The Sustainable Finance Disclosure Regulation (SFDR) has been in force since 2021 and in this time there have been few enforcements by competent authorities.  But this is changing and in 2025 investment managers need to make sure their fund- and entity-level disclosures are up to scratch as they face higher levels of scrutiny from regulators on SFDR than before.

Overall positive progress on disclosure

The European Supervisory Authorities (ESAs) found “overall positive progress” on PAI reporting under the SFDR compared with previous years in their 2024 annual report.  The report incorporated a survey of national competent authorities (NCAs) of 29 member states on disclosure standards and remarked on the improved quality of responses provided by NCAs (which reflected improvements in the accessibility of disclosure and the level and quality of information disclosed).

The honeymoon period is over and NCAs are toughening up on the supervision of SFDR disclosures

Despite this overall positive story, NCAs have increased their supervisory actions in relation to the SFDR.  Perhaps indicating that the regulators think that market participants have had enough time to get to grips with their obligations under the SFDR.

The following examples show an uptick in NCA supervisory actions and analysis:

• In October 2024, Luxembourg’s financial regulator, the CSSF, fined an investment company for historical shortcomings in its internal governance frameworks relating to SFDR funds.The CSSF said that the quantum of the administrative sanction reflected the manager’s swift conduct in remedying the breaches and the duration and severity of the transgression. The CSSF has previously highlighted that its supervision of transparency and disclosure under the SFDR would be a priority in 2024 and stated that “additional off-site reviews of SFDR website disclosures at entity and product level will be performed on a sample basis”.

• Norway’s FSA ranked 87 entities on their SFDR disclosures ranking them according to the quality of their disclosure. More than half of the investigated market participants received a fail and only 10% received an excellent.[1]
• France’s AMF completed spot inspections on five asset managers (whose names were not disclosed) and found that no French asset managers were in full compliance with the SFDR at entity or fund level. The AMF has stated that it will step up its enforcement against asset managers who fail to comply with recommendations on compliance with the SFDR and it is reported that investigations and requests for remediation are underway. The AMF’s report on spot inspections was intended to identify good and bad practices and does not form recommendations or identify an official position.[2]
• Italy’s CONSOB has also started a programme of investigating compliance with the SFDR in co-ordination with ESMA.It has published a list of positive and negative market practices to help market participants to ensure improvement and consistency in their disclosure.[3]

Likely that CSRD will follow a similar pattern

The increased supervisory actions are to be expected given that SFDR is coming of age.  The story is likely to follow a similar path for the Corporate Sustainability Reporting Directive (CSRD) in light of the political headwinds in the EU and how new and complex compliance with the directive is (some member states have not yet transposed it – see here for more information). 

In an interview with Ralf Becker, Head of Balance Sheet Control on BaFin’s website, the magnitude and complexity of complying with CSRD is acknowledged. He said that BaFin will take action in clear cut cases but that they will “avoid checking immediately and comprehensively with a very sharp pencil”.  We understand that the Dutch AFM is taking the “exact same” approach.  The Danish are still deciding.  The French AFM says it will be pragmatic.  The Italian CONSOB says it will apply the ESMA guidelines calling for a supportive approach but will enforce where necessary.[4]

Next Steps

Financial market participants disclosing under SFDR should internally audit their processes and system to ensure that they are in compliance with SFDR to mitigate the risk of breaches and falling foul of their national competent authorities.

Our global Sustainable Finance & Investment group brings together a multidisciplinary global team that provides clients with best-in-market support.  We are following supervisory matters in relation to the SFDR and CSRD very closely so please get in touch if you would like to discuss.

This note is intended to be a general guide and covers questions of law and practice. It does not constitute legal advice

Authored by Emily Julier and Rita Hunter