ESMA and EU regulators look to foster convergence on the supervision of ESG disclosures

ESMA has today announced that it will launch a Common Supervisory Action (CSA) with EU regulators until Q3 2024 aimed at (i) assessing the compliance of asset managers with their sustainability related disclosure obligations under the SFDR, Taxonomy and UCITS/AIFMD, and (ii) fostering convergence in how EU regulators supervise such disclosures through the sharing of knowledge and experiences.

The main objectives of the CSA are to:

• Assess whether market participants adhere to applicable rules and standards in practice;
• Gather further information on greenwashing risks in the investment management sector; and
• Identify further relevant supervisory and regulatory intervention to address the issue.

Incorrect and misleading ESG disclosures are a key strategic priority for ESMA and the launch of the CSA is a further development in ESMA’s aim to improve the comprehensibility of ESG disclosures by asset managers. In addition, preliminary findings on the identification of greenwashing risks will contribute to ESMA’s Final Report on greenwashing which is expected in May 2024 (following ESMA’s Progress Report on greenwashing which we covered here).

The CSA emphasises that greenwashing, and addressing its risks, continues to remain a key focus area for ESMA and EU regulators. In addition, the results of the CSA will likely provide further guidance to managers on the regulatory expectations around SFDR compliance, which remains an evolving and complex area for managers to navigate. Further, the EU is not alone in its concerns and regulatory scrutiny associated with greenwashing risks is also a key priority for regulators in the US and the UK.