The Central Bank of Ireland (the “Central Bank”) has published a detailed feedback report following ESMA’s Common Supervisory Action (“CSA”) on Sustainability Risks and Disclosures in the Investment Funds Sector (the “Feedback Report”) in which the Central Bank has outlined its observations from the CSA, as well as setting out its expectations for fund management companies (“FMCs”).
Observations
Under the CSA, the Central Bank sought to investigate compliance with the Sustainable Finance Disclosures Regulation (“SFDR”) and the Taxonomy Regulation, including corresponding Level 2 measures. Overall, the Central Bank found that the level of compliance of FMCs was varied, and that enhancements in transparency, in the monitoring and oversight of environmental, social, and governance (“ESG”) risk, and improvements to ESG-related disclosures need to be addressed by many FMCs.
The Feedback Report categorises the Central Bank’s observations under four separate themes:
- Sustainability Risk Integration and Monitoring
The Central Bank found that many FMCs had robust and clearly defined controls in place to support initial and ongoing SFDR compliance monitoring. However, the Central Bank also identified an overreliance by FMCs on delegates’ attestations of compliance with SFDR, with limited information provided to justify the attestations. - Data Limitations
The Feedback Report notes that data limitations and the need for improvements to data quality and reliability was a regular area of discussion during the onsite inspections that were conducted as part of the CSA, with FMCs consistently referring to the challenges they faced regarding the availability and interpretation of different data. The Central Bank noted that it was evident from its review that FMCs interpreted the same data sources differently, leading to inconsistent monitoring. - SFDR Disclosures
The Central Bank assessed SFDR disclosures in respect of a number of funds as part of the CSA, which highlighted the need for enhanced transparency at product level. In certain cases, the Central Bank identified vague language in describing the environmental and social characteristics promoted by a fund or its sustainable investment objective. The Central Bank also identified, in some cases, a lack of specific metrics, thresholds, or key terms that could be quantifiably assessed. The Feedback Report also notes inconsistent approaches to website disclosures. - SFDR Regulations and Guidance
The Feedback Report notes that FMCs highlighted enhancements to specific guidance and criteria that would support a consistent application of certain elements of SFDR, such as a definition of “sustainable investment”.
Expectations
Under each theme, the Central Bank set out its expectations for FMCs. These expectations are detailed in the table below, together with recommended actions to be taken.
| Central Bank Expectations | Recommended Actions |
|---|---|
| The Central Bank’s expectation is that all FMCs have a documented, robust and effective control framework in place that ensures their funds under management comply with the requirements of SFDR. This should include effective ongoing due diligence of funds, data and delegates combined with consistent independent monitoring carried out across all funds. | Review and, if required, enhance / put in place policies in relation to the oversight and ongoing due diligence of funds, data and delegates in relation to SFDR / the Taxonomy Regulation, and in relation to the independent monitoring thereof. |
| FMCs should ensure the information provided as part of delegate attestations contain necessary details to actively assess fund compliance. | Review and, if required, seek enhancement of delegate attestations in relation to SFDR compliance / request such attestations to be provided as part of regular delegate reporting. |
| FMCs should continue to monitor their level of resourcing, skills, knowledge and expertise on an ongoing basis relevant to the nature, scale and complexity of their funds in scope of Article 6, Article 8 and Article 9. | Review and keep under review the skill, knowledge and expertise of personnel with regard to SFDR and the Taxonomy Regulation. If relevant, expand the delegate attestation referred to above to address the skill, knowledge and expertise of delegate personnel. |
| Data constraints should be identified and considered in depth at the earliest stage of strategic planning and fund onboarding to ensure FMCs have the ability to fulfil their fund compliance monitoring obligations. FMCs are also expected to perform appropriate due diligence on the data and data providers on an on-going basis to ensure the data used to substantiate the requirements of SFDR is accurate, reliable and up to date. | Embed consideration of data limitations into the product design phase. Review and, if relevant, enhance / put in place initial and ongoing due diligence processes for data providers. |
| The Central Bank also expects that FMCs are in a position to document and verify the underlying data used to substantiate SFDR compliance in instances where FMCs are using attestations to conduct fund monitoring and oversight. | Review data monitoring processes to ensure verification of underlying data in the case of reliance of attestations to conduct monitoring and oversight. |
| FMCs should have robust frameworks in place to ensure that the disclosures made to investors in accordance with SFDR are clear and do not mislead. | Review and, if required, enhance / put in place a framework in relation to the form and content of SFDR-related disclosures, and their periodic review. Review existing disclosures for compliance with the Central Bank’s expectations. |
| There should be clear and detailed disclosure regarding the binding elements used to attain each of the environmental or social characteristics promoted by a fund, or the sustainable investment objective (as relevant). Where a fund applies exclusions as a binding element of the strategy, there should be clarity regarding the thresholds applied, what constitutes “involvement” or the ESG score that would result in a fund excluding certain companies from investment. There should be no option within the disclosure to dis-apply the binding element of the strategy. | Review existing disclosures for compliance with the Central Bank’s expectations and embed compliance with Central Bank’s expectations into the product design phase for new products. |
| Where a fund tracks an index, the ESG criteria applied by the index should be detailed in the binding elements. It is not sufficient for an FMC to provide that tracking the performance of the index is the fund’s binding element. Finally, FMCs should keep such disclosures under regular review to ensure the accuracy of the content continues to align with these expectations. | Review existing disclosures for compliance with the Central Bank’s expectations and embed compliance with Central Bank’s expectations into the product design phase for new products. |
| The Central Bank expects that FMCs have processes in place to regularly review and approve the language contained in pre-contractual, website and periodic disclosures to ensure that these are aligned and meet the requirements of SFDR. These reviews should be documented and conducted periodically. | Review and, if required, enhance / put in place a framework in relation to the form and content of SFDR-related disclosures, and their periodic review. |
| FMCs should strive to be as clear and transparent as possible in applying SFDR, including considering how their disclosures will be understood by the end investor. | Review and, if required, enhance / put in place a framework in relation to the form and content of SFDR-related disclosures, and their periodic review. Ensure compliance monitoring includes SFDR-related updates and procedures are in place to communicate such updates to relevant stakeholders. |
| The Central Bank expects FMCs to remain vigilant to SFDR, and where updates to SFDR are implemented or additional supporting guidelines are published, to ensure that these are considered appropriately and without delay to avoid instances of non-compliance. | Ensure compliance monitoring includes SFDR-related updates and procedures are in place to communicate such updates to relevant stakeholders. |
Timing to Implementation and Conclusion
FMCs are expected to review and consider the contents of the Feedback Report in conjunction with ESMA’s Final Report on Greenwashing (published on 4 June 2024) and ESMA’s Final Report on the Integration of Sustainability Risks and Disclosures (published on 30 June 2025). A summary of these reports can be found in Appendix I.
While the Central Bank has not set a deadline for compliance with the expectations in the Feedback Report, the Central Bank expects that the Feedback Report is discussed by the board of each FMC and relevant personnel and that the observations and expectations are given due consideration to ensure appropriate measures and controls are in place.
The Central Bank will incorporate the key observations and expectations identified in the Feedback Report into its ongoing supervision of FMCs and use them to further build out its knowledge of ESG and SFDR related matters.
For more information and advice on the Central Bank and ESMA reports, please contact any member of our Asset Management and Investment Funds Group.
