ESMA publishes results of Common Supervisory Action on MiFID II sustainability aspects

Background

In October 2023, ESMA launched the CSA with national competent authorities (NCAs) to assess the progress made by investment firms and credit institutions in applying the key sustainability requirements introduced under the MiFID II Delegated Acts (CDR (EU) 2021/1253 and CDR (EU) 2021/1269), and the related ESMA Guidelines on suitability and product governance. A total of 29 EU and EEA NCAs participated in the exercise, which covered a sample of 245 firms.

The exercise, conducted over the course of 2024 and 2025, provides a comprehensive overview of the progress made by firms in implementing the MiFID II sustainability requirements, identifies key areas of deficiency, and sets out high-level interim supervisory expectations.

Key findings

The CSA confirms that firms have continued to make progress in integrating the MiFID II sustainability requirements into their suitability and product governance processes. However, practices remain uneven across firms and jurisdictions, and further improvements are needed in several areas. The key findings are summarised below.

Within the suitability framework:

• Most firms have adopted interactive questionnaires and educational materials, though communicating the regulatory definition of “sustainability preferences” to clients in plain language remains a common challenge.
• Questionnaire quality has improved overall, but key gaps remain: some firms fail to consider clients with no expressed preferences as “sustainability neutral”, use disclaimers that potentially influence client’s sustainability preferences, and do not clearly inform the client whether multiple preferences are applied cumulatively or alternatively.
• Policies and procedures to map the ESG characteristics of financial instruments have been broadly adopted, though implementation levels vary considerably. Data gaps, inconsistent manufacturer disclosures, and technical uncertainties continue to affect product categorisation reliability and matching with clients’ preferences.
• Difficulties in matching client preferences persist due to limited product availability, low minimum proportion thresholds, or limited questionnaire granularity.
• Adaptation processes are broadly implemented, typically through automatic controls that are triggered where no suitable product can be recommended. Most firms allow clients to  then adapt their preferences at the time of the specific recommendation or when entering into a portfolio management agreement. However, some firms recommend products before the client adapts their sustainability preferences or apply the adaptation to the client’s overall profile, without clearly informing the client.
• Not all firms ensure complete and detailed record keeping. Deficiencies are particularly evident with regard to the recording of preference adaptations and their rationale; in some cases, only final preferences are documented.

Within the product governance framework:

• Approaches to specify sustainability-related objectives have been broadly developed, generally based on the regulatory definition of sustainability preferences. However, the level of detail varies considerably, as some firms define these objectives with insufficient granularity to allow effective matching with clients’ preferences.
• Only a few firms currently consider sustainability-related objectives in the negative target market assessment for products that do not consider sustainability factors.

Interim supervisory expectations

In light of the CSA findings, ESMA has set out high-level interim supervisory expectations across the four key areas assessed. These expectations are intended to provide practical guidance while also taking into account ongoing legislative developments under the Retail Investment Strategy and the review of the SFDR that will impact MiFID II requirements.

The ESMA expects firms to:

• Reinforce their processes to collect sustainability preferences in a clear, neutral andproportionate manner, avoiding unnecessary technical complexity.
• Clearly explain the approach applied (cumulative or alternative) when clients express multiple sustainability preferences.
• Apply a proportionate approach to updating clients’ sustainability preferences.
• Apply consistent procedures for clients who do not express sustainability preferences or express general interest in sustainability without specifying detailed preferences.
• Strengthen proportionate product categorisation methodologies and keep them regularly updated.
• Ensure complete and traceable records of the clients’ sustainability preferences, the matching process and any adaptations of the clients’ sustainability preferences.
• Refine their definitions of sustainability-related objectives in target market assessments to enable meaningful matching with clients’ sustainability preferences.

In view of ongoing legislative developments and ESMA’s strategic priority of promoting simplification and reducing undue burdens on firms and clients, ESMA invites NCAs to foster dialogue with firms rather than prioritise enforcement during this transition period.

Next steps

Building on the insights gained from the exercise, ESMA will further reflect on the results in the context of any future updates of the MiFID II Delegated Acts on sustainability and the related updates of the ESMA Guidelines on suitability and product governance, with a view to simplifying the framework where appropriate and supporting a more consistent and effective application of the relevant requirements.

Read the Public Statement here.