The State of Greenwashing in European Financial Services: 2024 Data

By Wingston Sharon | December 2024

In July 2024, the European Securities and Markets Authority published its progress report on greenwashing across the financial sector. It is not a comfortable read. ESMA's assessment found "widespread" misleading sustainability claims across investment funds, asset managers, and financial advisers — and noted that enforcement capacity across national competent authorities remains uneven enough that most violations go undetected or unpenalised.

I've spent a fair amount of time working with sustainability data at the organizational level, and I want to walk through what the 2024 data actually tells us — and where it falls short.

What ESMA Found in 2024

ESMA's greenwashing progress report, published in July 2024, covered the period from mid-2023 through Q1 2024. The key findings:

• Fund naming remains the most common greenwashing vector. Terms like "sustainable," "ESG," "green," "impact," and "responsible" appear in fund names with no binding requirement that the fund's underlying holdings reflect those terms. ESMA has pushed for stricter fund naming guidelines, which came into effect in May 2024 — but the guidelines apply only to new funds and existing funds have an 18-month transition window.
• PAI (Principal Adverse Impact) disclosures under SFDR Level 2 have improved in completeness but not in comparability. Most asset managers now publish PAI indicators. Whether those indicators reflect the same methodology across firms is a different question.
• Self-reported data is still the dominant source. ESMA explicitly acknowledges that a significant share of the underlying sustainability data used in fund reporting traces back to corporate self-disclosure with limited third-party verification.

The report does not publish a count of formal enforcement actions. That data, where it exists, sits with national competent authorities.

The SFDR Article 8 and 9 Reclassification Wave

The largest structural shift in European sustainable finance data over 2023–2024 was the wave of SFDR fund reclassifications. To understand why this matters, some context: when SFDR came into force in 2021, it created three categories. Article 6 funds make no sustainability claims. Article 8 funds "promote" environmental or social characteristics. Article 9 funds have sustainable investment as their objective.

In late 2022, the European Commission clarified that Article 9 status should be reserved for funds where the majority of holdings qualify as "sustainable investments" under a specific SFDR definition. Between Q4 2022 and Q2 2023, roughly 300 Article 9 funds — representing approximately €175 billion in assets under management — were reclassified down to Article 8. This is the figure most widely cited, drawn from Morningstar's fund flow analysis.

The reclassification wave mostly played out by mid-2023, but its effects continued through 2024. Investor interest in Article 9 funds declined. Some asset managers stopped launching new Article 9 products altogether, describing the compliance burden as disproportionate to the marketing benefit.

The honest interpretation: many funds were never truly Article 9 by any rigorous standard. The reclassification was a correction. But it was also a reminder that Article 8 and Article 9 labels are disclosure categories, not quality stamps.

Three Types of Greenwashing We See Most Often

Working with organizational data, I'd characterize the most common greenwashing patterns in financial services like this:

1. Vague claims without measurable commitments. Phrases like "committed to sustainability" or "integrating ESG considerations" in fund documentation with no disclosure of what that integration actually changes about portfolio construction. Under SFDR Level 1 (the entity-level disclosure), asset managers are required to explain their sustainability risk integration policies. Under Level 2 (the fund-level product disclosure), the requirements get more specific. The vagueness tends to survive at the entity level.

2. Cherry-picked metrics. A fund might prominently report its average portfolio carbon intensity while omitting its exposure to industries with high embedded emissions (land use, supply chains, Scope 3). The SFDR PAI framework requires disclosure of a specific list of 18 mandatory indicators plus additional voluntary ones — but how prominently each is displayed in marketing materials is not regulated.

3. Misleading exclusion claims. "We exclude companies involved in controversial weapons" sounds significant until you discover that controversial weapons exclusions are standard across almost all Article 8 and 9 funds, and that "involvement" is often defined so narrowly (direct manufacturers only, for example) that it excludes almost no large-cap holdings.

National Enforcement: Netherlands AFM and French AMF

Two national regulators have been more active than most in 2024.

The Netherlands Authority for the Financial Markets (AFM) ran a thematic review of sustainability claims in investment fund marketing in late 2023 and published findings in early 2024. The AFM found that a majority of reviewed funds contained claims that were "unclear, incomplete, or inaccurate" relative to their actual investment practices. The AFM issued guidance rather than fines in most cases — they described it as a supervisory learning exercise. The AFM has, however, indicated that subsequent reviews will lead to formal enforcement.

The French AMF published a review of Article 8 and 9 funds' compliance with SFDR Level 2 requirements in March 2024. Their sample found that around 30% of funds had material gaps in their required disclosures — particularly around the definition of "sustainable investment" used, which SFDR allows each fund manager to set internally. The AMF's position is that this definitional flexibility creates an inherent greenwashing risk and that harmonisation is necessary.

What Can and Can't Be Detected Programmatically

I'll be direct about the limitations of any automated greenwashing detection system, including what we're building at Agentosaurus.

Programmatic analysis can reasonably identify: inconsistencies between fund naming and declared investment strategy; gaps in required disclosures; significant deviations between a fund's stated sector exclusions and its reported holdings; patterns in language that regulators have flagged as vague or misleading.

Programmatic analysis cannot reliably detect: whether a fund's self-reported PAI indicators are calculated correctly; whether the underlying corporate sustainability data the fund relies on is accurate; the intent behind ambiguous language choices; whether exclusion criteria are applied consistently at the portfolio level.

The ESMA greenwashing reports consistently note that most greenwashing is structural — it lives in the gap between disclosure requirements and enforcement capacity — rather than in outright fraud. That gap is not something that any single analytical tool closes.

What Is Actually Improving

The European Green Bond Standard (EU GBS), which came into force in late 2023, imposes an external reviewer model with mandatory registration and supervision. This is genuinely different from SFDR's self-reporting structure. It doesn't solve all problems — the EU GBS is voluntary, and most green bond issuers will continue to use their own labelling frameworks — but it creates a verification layer that SFDR largely lacks.

The SFDR Level 2 PAI disclosures, now in their second annual reporting cycle (first full-year data published in mid-2024), are producing a larger and more comparable dataset than existed before. Imperfect, but improving.

The fund naming guidelines effective from May 2024 are a meaningful constraint on the worst naming abuses — though the 18-month transition window means we won't see the full effect until late 2025.

If you're working on sustainability data quality, ESG verification infrastructure, or regulatory technology for SFDR compliance, I'm interested in the problems you're trying to solve. You can reach me at hello@agentosaurus.com.