SFDR Greenwashing Enforcement
SFDR greenwashing enforcement is accelerating across the EU — national regulators are actively reviewing fund disclosures, requesting explanations for sustainability claims, and in some cases initiating formal investigations. Understanding the enforcement landscape is essential for any fund manager with Article 8 or 9 products.
SFDR greenwashing enforcement is accelerating across the EU — national regulators are actively reviewing fund disclosures, requesting explanations for sustainability claims, and in some cases initiating formal investigations. SFDR enforcement is decentralised — each EU member state's National Competent Authority (NCA) enforces SFDR in its jurisdiction.
The enforcement landscape — who is checking what
SFDR enforcement is decentralised — each EU member state's National Competent Authority (NCA) enforces SFDR in its jurisdiction. The key NCAs for asset management are:
AFM (Netherlands): One of the most active SFDR enforcers. AFM has conducted sector-wide reviews of Article 8 and 9 fund disclosures, issued public findings on common errors, and required mandatory restatement from several managers. AFM's 2023 review found that 40% of reviewed Article 8 funds had incomplete or non-compliant pre-contractual templates.
AMF (France): Active reviewer of fund disclosures, particularly for French-domiciled UCITS. AMF has issued guidance on sustainable investment definition operationalisation and DNSH methodology.
BaFin (Germany): Focused on fund naming and marketing material consistency with SFDR disclosures. BaFin requires funds using ESG-related names to have substantive sustainability characteristics — consistent with ESMA fund naming guidelines.
CBI (Ireland): Ireland-domiciled funds represent a large proportion of EU-distributed UCITS. CBI has issued SFDR-specific supervisory expectations and is actively reviewing fund manager compliance.
ESMA coordinates supervisory convergence across NCAs — publishing common supervisory actions, Q&A updates, and supervisory briefings that all NCAs are expected to follow.
ESMA fund naming guidelines — the ESG name rules
ESMA published guidelines on fund names using ESG or sustainability-related terms in May 2024, effective from May 2025 for new funds and November 2025 for existing funds.
The guidelines set minimum quantitative thresholds for funds using ESG-related terms in their names:
Funds using 'ESG', 'SRI', or similar terms: Must have at least 80% of investments meeting ESG characteristics, applying good governance practices and PAI exclusions for certain controversial sectors (controversial weapons, tobacco, UNGC violators).
Funds using 'sustainable', 'sustainability', or equivalent: Must meet the 80% ESG threshold plus have a minimum 50% sustainable investment allocation as defined by SFDR Article 2(17).
Funds using 'impact' or related terms: Must meet the sustainable fund criteria plus demonstrate measurable positive impact with evidence of intentionality and additionality.
Funds using 'transition', 'transformative', or related terms: Must have 80% investments in companies with measurable transition characteristics — credible decarbonisation trajectories aligned with Paris Agreement.
Funds that cannot meet these thresholds must rename or reclassify. Many fund managers conducted pre-emptive renaming exercises in 2024–2025 ahead of the effective date.
Greenwashing risks specific to SFDR
The most common SFDR greenwashing patterns identified by regulators and NGOs:
Article 9 overclaiming: classifying funds as Article 9 using expansive interpretations of the sustainable investment definition — claiming near-100% sustainable investment based on loose ESG screening rather than substantive sustainability assessment. The 2022 reclassification wave corrected the most egregious cases, but NCAs continue to monitor for residual overclaiming.
PAI indicator gaming: selecting optional PAI indicators that show favourable results while avoiding indicators where portfolio performance is weak. ESMA's supervisory convergence work is addressing PAI selection consistency across managers.
Fund name-strategy mismatch: using ESG-related fund names without the substantive sustainability characteristics implied — now addressed by ESMA fund naming guidelines.
Inconsistent marketing claims: sustainability claims in marketing materials that exceed what is disclosed in the SFDR pre-contractual template. AFM and AMF have specifically cited marketing consistency as a key enforcement focus.
Engagement claims without substance: claiming active engagement with investees to reduce PAIs without evidence of actual engagement activity or outcomes.
For fund managers: conduct a regular internal audit comparing marketing materials, website sustainability claims, and fund names against the SFDR pre-contractual template content. Any claim in marketing that exceeds what is disclosed in the template is a greenwashing risk.
Frequently asked questions
What penalties can NCAs impose for SFDR non-compliance?
Penalties vary by jurisdiction but include: mandatory restatement of prospectus and pre-contractual documents; public censure; regulatory investigation; product distribution suspension pending remediation; and fines under national transposition of SFDR. Reputational damage from public enforcement actions typically exceeds direct financial penalties for asset managers.
Can NGOs trigger SFDR enforcement?
NGOs cannot directly initiate SFDR enforcement proceedings — only NCAs have formal enforcement powers. However, NGOs (ShareAction, Reclaim Finance, Urgewald) conduct their own SFDR compliance reviews and publicly report findings. NCA enforcement has followed NGO reports — AFM's 2023 review was partly triggered by NGO research on Article 8 and 9 fund disclosures.
How do we reduce greenwashing risk in our SFDR disclosures?
Three steps: (1) Internal consistency audit — compare all sustainability claims across marketing, website, pre-contractual templates, and periodic reports for consistency. (2) Template completeness — ensure every mandatory field in RTS Annex II or III is completed with specific, verifiable content. (3) Data verification — verify PAI indicators against source data, not just third-party provider estimates, for at least a sample of holdings.