SFDR: Can I be fined for non-compliance?

The Omnibus Proposal has introduced legal uncertainty around mandatory sustainability reporting. As a result, companies and investors are assessing how to respond to the potential amendments. With the unstable regulatory landscape and the CSRD and CSDDD still untransposed in several EU countries, enforcement is likely to remain on hold for now.

Meanwhile, the SFDR remains unchanged, and it is rarely mentioned in EU debates. The regulation is fully in force, yet many investors wonder whether the broader uncertainty around sustainability rules will affect SFDR enforcement.

So, can you be fined for SFDR non-compliance? In theory, yes. Let's provide you with some context:

Are There Fines under the SFDR?

Unlike the CSRD, which requires transposition, the SFDR is a fully enforceable regulation, meaning financial authorities can take action against firms that fail to comply. However, enforcement has been minimal so far.

The reality is that regulators across Europe are still refining their approach, watching how firms implement the rules, and providing additional guidance rather than rushing to impose fines. In other words, regulators are currently more like spectators than strict enforcers. It makes sense when you consider that the SFDR and sustainability reporting in general is still evolving.

Meanwhile, regulatory bodies such as ESMA and the European Supervisory Authorities (ESAs) are persistently issuing detailed guidance on what constitutes compliance and what does not. In the past, firms could navigate SFDR’s imprecisions and argue that the framework left room for interpretation. Now, with regulators providing clear expectations, financial market participants have been warned.

The era of ambiguity is coming to an end, testing the limits of compliance is not a viable strategy.

Has Anyone Actually Been Fined under the SFDR?

So far, only one national regulator has issued a fine for SFDR non-compliance: Luxembourg’s CSSF. While other authorities, such as the French AMF, have hinted at possible sanctions and issued warnings, they have yet to take action.

The CSSF fined Aviva Investors Luxembourg S.A. €56,000 for not complying with the self-imposed commitments the firm had established in the Prospectus Disclosure of its Article 8 funds. In particular, the Exclusion List was not duly applied and the investments were not aligned with the UN Sustainable Development Goals.

Should You Worry?

While the risk of fines remains low today, that doesn’t mean it will stay this way forever. As sustainability regulations mature, enforcement will likely increase. Ensuring compliance now not only reduces legal risk but also enhances transparency and trust with investors.

Firms should be particularly concerned if they classify a fund as Article 8 or 9 but fail to adhere to their own sustainability commitments. As seen in the Luxembourg case, clear breaches can lead to fines. Additionally, firms that do not have proper documentation in place are at risk, as national authorities can request these documents at any time, as well as evidence of Principal Adverse Impact (‘PAI’) calculations.

In cases where a breach is less obvious, authorities may issue warnings and demand corrective action to address misleading or dubious claims. In short, diligence is key. If you ensure proper documentation and show your will to comply, you are unlikely to face issues.

What if you state in your reports that your target is to reduce the GHG emissions of your portfolio and the historical comparison of the PAI indicators shows otherwise? Well, actually achieving these targets is not binding. The legal framework explicitly acknowledges the challenges of achieving specific outcomes and recognises the possibility that certain indicators may worsen due to external factors, such as macroeconomic conditions or shifts in portfolio composition.

In addition, not all firms have full control over their portfolio. In some cases, the decision to invest on implementing a certain action rests with the management of the company or with more influential shareholders. It is important, however, to allocate some effort to engage with your portfolio and try to drive improvements.

As said, act diligently and stay calm. If you were not in a position to invest on sustainability improvements this year, register the reasons that led to that decision and add them to your explanations in the Periodic Disclosure. Transparency and good faith are key.

You've likely been checked and noted by your national authority in charge of SFDR enforcement

Despite the current focus on guidance rather than sanctions, financial market participants (FMPs) may be overestimating how lenient supervisors really are. The idea that regulators aren’t actively monitoring SFDR compliance is simply not accurate. In reality, both ESMA and national authorities like the Dutch AFM are closely watching and documenting the state of play across the market.

Their yearly supervisory reports read more like audit summaries than policy updates. They highlight a range of persistent bad practices that many investors continue to overlook, even after repeated soft-law guidance and informal warnings.

Among the most frequently identified issues are:

• ‍Unclear or missing explanations in the PAI disclosure tables. Many firms simply list indicators and values without accompanying narrative, leaving stakeholders unable to understand how these impacts are managed.‍
• Generic and copy-pasted “actions taken”, often merged across multiple indicators, with no indicator-specific detail or measurable targets. Some statements refer vaguely to sustainability reports without offering concrete updates or progress metrics.‍
• Statements lacking structure or clarity, often written in dense, technical language, with little context or accessibility for non-experts.‍‍
• PAI disclosures featuring short, incomplete paragraphs, missing units of measurement and formatting issues that make interpretation difficult.‍
• Opaque governance: Firms frequently fail to explain how responsibility for ESG or PAI oversight is allocated internally an essential component of meaningful compliance.‍
• No quantified targets for improvement of PAIs, making it impossible to assess ambition or track progress.‍
• For Article 8 and 9 funds, failure to report results on an indicator-specific basis, undermining the usefulness of disclosures.‍

Lastly, ESMA warns of outright red flags, such as:

• ‍Lack of an English translation (mandatory for cross-border accessibility)‍
• Outdated statements from 2022 or early 2023‍
• Missing publication dates, leaving users uncertain whether the data is up to date.
  

Taken together, these recurring mistakes suggest that while many firms are trying to meet the requirements, they fall short on its spirit and on transparency.

More importantly, they suggest that regulators are quietly building a case file. By tracking year-over-year disclosures, monitoring websites, and documenting these systemic shortcomings, supervisors are creating the basis for more formal enforcement actions in the future.

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Do you have further questions? Reach out!

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414 specialises in assisting financial entities with SFDR compliance. Our tool enables PE/VC investors to measure all sustainability indicators of their portfolio companies and prepare disclosure documents at both entity and product levels.

Additionally, we offer advisory services on sustainability reporting matters and provide tailored guidance throughout the reporting process.