Background

On 30 June 2025, the European Securities and Markets Authority (ESMA) published its final report on the Common Supervisory Action (CSA) carried out with National Competent Authorities (NCAs) across the EU/EEA between 2023 and 2024.

Launched in July 2023 as part of ESMA’s Union Strategic Supervisory Priorities, the CSA aimed to ensure supervisory convergence across Member States.

It assessed whether UCITS management companies and AIFMs:

  • Integrated sustainability risks into governance, processes, and risk management;

  • Complied with entity- and product-level disclosure obligations under the Sustainable Finance Disclosure Regulation (SFDR) and the Taxonomy Regulation; and

  • Had controls in place to mitigate greenwashing risks, in line with the ESMA Supervisory Briefing on sustainability risks and disclosures.

In Luxembourg, the CSSF participated by addressing ESMA’s standardised questionnaire to selected market participants and collecting responses for analysis.

Key takeaways

The CSA results showed an overall satisfactory level of compliance across the sector. However, ESMA identified material shortcomings in several areas, which are expected to guide the supervisory priorities of NCAs, including the CSSF, in the coming months.

The main issues and vulnerabilities highlighted by ESMA are:

  • Product-level disclosures: vague and overly general language; missing or inadequate details; inconsistencies between pre-contractual, periodic and website disclosures; discrepancies between sustainability information disclosed and more granular website content on methodologies and data sources; unclear measurement and fulfilment of promoted environmental or social characteristics; and use of ESG-related imagery in Article 6 SFDR products.

  • PAI statements at entity level: Inadequate level of detail; unsatisfactory explanation of non-consideration of PAIs; and inconsistencies in calculations or due diligence policy descriptions.

  • Integration of sustainability risks: Lack of properly documented policies; insufficient escalation procedures in the event of breaches; and gaps in governance and risk frameworks.

  • Resources: Low number of dedicated employees for sustainability tasks; or insufficient knowledge and expertise on sustainability matters within relevant teams and senior management.

  • Remuneration policies: Lack of specific criteria and indicators to measure consistency with the integration of sustainability risks.

  • Controls and processes: Absence of processes to ensure ESG strategies are substantiated by underlying ESG metrics/data, and that they are consistent with environmental/social characteristics and good governance principles.

  • ESG data: Lack of verification or review processes for data obtained from third-party ESG providers; incomplete or inaccurate information; and insufficient checks before use.

  • Auditing system: Lack of internal audit or oversight of the implementation of sustainability-related policies and procedures

ESMA’s findings are illustrated with practical examples of good, below-average, and non-compliant practices to help guide managers in improving their approaches.

ESMA’s supervisory expectations

Based on the findings, ESMA sets out clear supervisory expectations for both NCAs and fund managers:

  • Proactive follow-up: NCAs are expected to continue engaging with market participants and, where necessary, take supervisory or enforcement measures. Bilateral follow-up actions are already underway in most jurisdictions.

  • Improving disclosure practices: Managers should ensure sustainability-related disclosures are fair, clear, not misleading, and presented in a consistent and accessible manner across all communication channels.

  • Mitigating greenwashing risk: ESMA encourages the adoption of robust internal procedures and clear methodologies for ESG claims, including proper documentation, verifiable data, and transparent engagement policies.

  • Clarifying methodologies: In light of diverging practices, ESMA urges managers to document and explain how sustainable investments are determined (e.g. DNSH tests, contribution thresholds, good governance assessments), especially given the discretion currently allowed under SFDR.

What asset managers should do now

Given the CSSF’s active participation in the CSA, asset managers operating in Luxembourg should:

  • Conduct a gap analysis against ESMA’s key findings and recommendations;

  • Review and, where necessary, enhance sustainability policies and procedures, including integration into risk management, remuneration and control functions;

  • Ensure entity- and product-level disclosures are up-to-date, sufficiently detailed, and internally consistent;

  • Reassess any Article 6 SFDR funds with ESG-related names or marketing content to avoid greenwashing risks; and

  • Prepare for possible follow-up engagement or requests from the CSSF, in line with ESMA’s supervisory roadmap.

What’s next?

While a potential review of the SFDR framework is on the horizon, ESMA underlines that existing rules remain in full force. Managers must comply with current obligations and should not expect regulatory forbearance pending legislative changes.

ESMA confirms that further convergence work and supervisory scrutiny will follow. In parallel, the CSSF is likely to integrate the CSA findings into its own supervisory priorities, including ongoing thematic reviews and on-site inspections.

Need assistance?

Contact our Investment Management team should you require support in interpreting the implications of the CSA report, conducting an internal review, or enhancing your firm’s sustainability governance and disclosures.