Europe’s asset managers are feeling the heat after Luxembourg’s financial watchdog slapped Aviva Investors with a 56,500-euro fine for breaching the EU’s Sustainable Finance Disclosure Regulation (SFDR). The penalty—the first of its kind—has rattled the industry, with legal experts warning that regulators are stepping up efforts to crack down on greenwashing.
Article 8 funds, once a popular marketing tool, are now under the microscope, forcing managers to justify their ESG claims or face scrutiny in every EU market where they operate.
A partner with a law firm closely linked to the case said the Luxembourg penalty, the first of its kind in Europe, has “certainly made an impact.” Another lawyer noted that it shows supervisors now focus on the interests of retail investors when considering sustainable investment funds.
“This action marks the start of the enforcement phase,” said Cyril Clugnac, senior associate at Norton Rose Fulbright Luxembourg.
The fine has brought Europe’s fund managers under even sharper scrutiny. “If your fund has been labelled as Article 8 under SFDR, you are at risk of being challenged to defend your classification by the financial regulator in any EU country where the fund is marketed,” one industry expert observed.
The 56,500-euro penalty levied on Aviva Investors Luxembourg S.A., made public on 29 November, has shifted attention towards the enforcement of sustainable finance regulations, sparking questions about how asset managers approach ESG compliance. London-headquartered Aviva manages some 96 billion dollars in assets.
Emerging markets bond fund
A CSSF inspection last year focused on five Aviva sub-funds marketed under Article 8 of SFDR, which requires funds to promote environmental or social characteristics. The review found that Aviva’s Emerging Markets Bond Fund, with assets of 3.23 billion dollars, had invested 5.5 percent of its portfolio in bonds from five countries that did not meet the fund’s stated exclusion thresholds.
Additionally, four equity funds—including Aviva’s Climate Transition Global Equity Fund and Natural Capital Transition Global Equity Fund—were flagged for failing to ensure their investments primarily targeted United Nations Sustainable Development Goals (SDGs), as claimed in their prospectuses.
Aviva responded by strengthening compliance processes and updating prospectus wording. “The CSSF has confirmed that the remedial actions taken by the Management Company… are adequate to address their findings,” an Aviva spokesperson said.
For Luxembourg-based legal specialists, the fine does not come as a total surprise. The 2022 visit by the G7’s Financial Action Task Force has underscored the need for stronger enforcement not only in anti-money laundering but also more widely in the financial sector. “There is a clear goal to increase oversight. In that sense it is no surprise,” one lawyer said.
‘Clear signal’
While the industry has long expressed frustration over the perceived lack of clarity on SFDR’s Article 8 definitions, the fine for Aviva now leaves no doubt about what is permitted and what is not. “It is a clear signal from the CSSF showing that they expect markets to play by the rules,” the partner said.
While the financial penalty was modest, legal specialists are puzzled about why London-headquartered Aviva, often commended for its sustainability efforts, was singled out. Aviva’s strict self-imposed standards may have made it more vulnerable to scrutiny. “If you set rules you can’t comply with, you’re at greater risk,” said a European fund manager.
Under SFDR, introduced in 2021, fund managers can decide for themselves what sustainability characteristics they assign to their funds, but they are expected to deliver what they promise. Article 6 funds lack ESG ambitions, while Article 9 funds, often described as dark green, have stricter criteria. Problems frequently arise with Article 8 funds, which leave room for interpretation.
Industry guidance stepped up
In 2023 and 2024, supervisors like the CSSF provided clearer guidance on Article 8 funds, prompting reclassifications across numerous products. The light green category of Article 8, in the early years of SFDR, has long been open to “wide interpretation,” a lawyer said, and often was abused also for marketing reasons.
“These are the most vulnerable to greenwashing risks, as under less stringent rules than ‘green’ products in the Article 9 SFDR category, when it comes to the composition of their portfolios,” said NRF’s Clugnac.
Luxembourg’s enforcement action is part of a broader EU push to ensure sustainability communications are fair, clear, and not misleading. In August, the CSSF released a thematic review outlining expectations for fund managers, while the Netherlands’ Authority for the Financial Markets (AFM) issued Guidelines on Sustainability Claims in October. These guidelines also warn against the misuse of SFDR classifications as sustainability labels.
SFDR 2.0 being prepared
The SFDR framework, central to Europe’s sustainable finance ambitions, is expected to undergo significant revisions to clarify definitions and reporting standards. Once adopted as SFDR 2.0—potentially by 2028—new fund categories could align sustainability claims more closely with actual investment practices.
In the meantime, penalties like the one for Aviva provide additional clarity to the market. Clugnac pointed to “an increased awareness of the importance of the wording of SFDR disclosures, and the particular attention that should be given to them, which may lead to a reassessment of some investment selection processes.”
Although the Aviva fine is the first under SFDR, it’s not the first sanction against a European asset manager for sustainability claims. In 2023, Frankfurt-based DWS was fined 19 million dollars by the U.S. Securities and Exchange Commission for false ESG marketing.