Industry Insights: Ireland’s Evolution to an Outcomes-Focused Supervision of Sustainable Finance for Funds

In 2026, Ireland's funds sector is evolving towards greater risk-based supervision for sustainable finance, shifting from broad principles to detailed enforcement. The era in which a Sustainable Finance Disclosure Regulation ("SFDR") classification could be treated as a primarily “disclosure-led” exercise is giving way to an "outcomes-focused approach". Where a fund’s name, marketing or reporting communicate sustainability characteristics or objectives, the Central Bank of Ireland ("Central Bank") expects firms to evidence—through governance procedures, portfolio construction, controls and data—how those claims are implemented and monitored in practice. This focus ensures that sustainable finance is not a peripheral consideration, but a central component of risk management and supervision.

Substance Over Form

This shift is being driven through the convergence of several supervisory developments:

(i) ESA's 2023-2024 reports on greenwashing in the financial sector.

(ii) ESMA’s report on its common supervisory action on sustainability risks and disclosures ("CSA") and the Central Bank’s resulting industry feedback report in October 2025.

(iii) The domestic application of ESMA’s guidelines on funds' names using ESG or sustainability-related terms ("fund‑naming guidelines").

(iv) The European Commission's SFDR 2.0 legislative proposal (November 2025), which would shift SFDR from primarily a disclosure regime to a product categorisation framework with direct naming and marketing implications.

(v) The Central Bank’s broader supervisory priorities as articulated in its Regulatory & Supervisory Outlook 2026 ("RSO") (February 2026).

For Irish UCITS management companies and AIFMs ("Firms"), the central practical question is not whether sustainability disclosures exist. The question is whether the Firm can demonstrate a coherent “evidential chain” from product development to investment process to investor communications and reporting —and maintain that chain through delegated arrangements, pre-contractual disclosures, marketing communications, periodic reporting and evolving EU expectations.

The EU's recent 2040 climate target imposes a legally binding reduction target of 90% in net greenhouse gas emissions by 2040. It also acknowledges that current progress towards the EU’s climate neutrality objective appears to be insufficient. The scale of the Irish ESG fund market underscores the urgency: ESG funds represented 32% by fund count (2,878) and 39% by net asset value (€2.07 trillion) of all Irish funds in September 2025.

Within the funds sector, the RSO allocates a dedicated focus on climate and ESG-related risks. It targets ESG governance requirements throughout both the authorisation and ongoing supervisory processes. The stated aim is to uphold high standards for ESG funds, reduce greenwashing risk, and assess climate risk as investor demands and regulation evolve.

The Central Bank's specific forward-looking ESG commitments include:

• Continuing use from H1 2026 of its bespoke ESG dashboard as a supervisory tool to assess SFDR compliance as well as the ongoing appropriateness of disclosures (whether fund-, Firm-, and environmental-specific).

• Continued monitoring of compliance with the fund‑naming guidelines at both the authorisation gate and through data-led supervisory reviews.

Against that backdrop, the Central Bank's feedback report is best read as a statement of supervisory direction of travel. ESMA’s CSA was designed to drive consistent supervisory approaches across the EU. The feedback report, alongside recent European supervisory publications promoting clarity on sustainability-related communications are therefore a valuable insight into good versus weak practices, future supervisory priorities and areas supervisors are likely to examine in future reviews. Taken together, they signal that EU supervisors are increasingly looking past form and toward substance.

Supervisors will assess whether sustainability risks are embedded in the investment process, and whether disclosures are consistent with periodic reports and sufficiently specific for investors to make informed decisions.

Ireland's position as a leading EU fund domicile, including for cross-border distribution brings opportunity. It also means that Irish Firms — particularly those running large umbrella platforms—must manage sustainability claims across multiple strategies and portfolios, multiple delegates and multiple distribution channels. Where sustainability language is used in a fund name or marketing narrative, supervisors increasingly expect that the portfolio aligns with the claim and ongoing compliance can be evidenced (not just a point-in-time classification).

The feedback report found that some Firms had robust and effective delegate oversight and control frameworks to support proactive and consistent sustainability risk monitoring across all their funds. However, the Central Bank also expressed concern about limited oversight coverage across parts of some Firms’ fund ranges. It observed varying approaches to sustainability risk integration. These ranged from quarterly or ad-hoc reporting to boards and sub-committees, to sustainability risk dashboards, to integration into the three lines of defence. Control frameworks should include ongoing due diligence of funds, data, and delegates, supported by consistent independent monitoring across all funds.

In the sustainability context, governance should support robust, ongoing verification of greenwashing risk in disclosures. Firms should avoid overreliance on ESG dashboards or delegate confirmations alone. Where Firms rely on delegate attestations (including in relation to Article 8 / Article 9 requirements), the information provided should be detailed enough to allow an active assessment of SFDR compliance.

ESMA's thematic notes on sustainability-related claims set expectations for how communications should be designed and controlled in a way that will stand up to scrutiny under both product-disclosure rules and general "clear, fair and not misleading" expectations. ESMA articulates four core principles: sustainability-related claims must be accurate, accessible, substantiated and up to date.

A fund name is often the first (and most powerful) communication to investors—particularly in a crowded cross-border distribution market. ESMA's fund-naming guidelines are now a clear supervisory compliance item aiming to reduce the risk that a fund name over-promises relative to its strategy and holdings. Where a fund uses ESG- or sustainability-related terms, portfolio construction and monitoring should evidence ongoing alignment with relevant thresholds and exclusions under the fund-naming guidelines.

The real-world impact is already visible as ESMA's December 2025 study on the impact of the fund naming guidelines found that 64% of a sample set of funds changed their name (in most cases to avoid the use of ESG-related terminology, with one third also deciding to update their investment policy) and 56% updated their investment policies to strengthen sustainability focuses. It also found that funds retaining ESG terms reduced the portfolio share of fossil fuel holdings more than all other funds, indicating efforts to “green” their portfolios. Looking ahead, the SFDR 2.0 proposal would further tighten naming constraints by precluding non-categorised products from making sustainability-related claims in names or marketing communications entirely.

A recurring lesson from sustainability regulation is that inconsistency is risk. Greenwashing concerns can arise not because a strategy is flawed but when claims drift over time. A fund name, factsheet, and website narrative may imply a stronger sustainability proposition than the binding investment constraints and SFDR disclosures actually support.

The feedback report highlights consistency issues across disclosures and fund portfolios. It points to the need for clearer articulation of how sustainability risks and characteristics are integrated and monitored. Taken together, a Firm's SFDR positioning should be treated as a single joined-up disclosure architecture, spanning:

•  pre-contractual disclosures and ongoing updates;

• website disclosures;

• periodic reporting packs; and

• marketing materials and communications.

Treating sustainability claims as a product governance matter rather than a periodic disclosure task entails proper resourcing, skill and expertise, clear ownership, escalation mechanisms and a change-control process for sustainability language in investor-facing communications.

Conclusion

The key lesson for the asset management sector is that sustainable finance is now being supervised as a credibility exercise. Supervisors and institutional investors will test consistency across naming, portfolio composition, and SFDR disclosures—and will expect Firms to evidence decision-making through governance and data. ESMA's CSA and the Central Banks's feedback report should be treated as a roadmap for future supervisory queries. Key themes include clarity, consistency and the embedding of sustainability risks in the investment process.

If enacted, the SFDR 2.0 reforms would further improve the end-investors’ ability to understand and compare sustainability-linked financial products, and to protect against potentially misleading ESG claims. While changes to SFDR will take time to finalise and implement, Firms are expected to maintain clear and transparent disclosures, stay alert to any updates or new guidance and proactively review controls to implement necessary changes promptly and maintain compliance.

Ireland’s attractiveness as a funds domicile depends not only on speed-to-market and infrastructure, but on supervisory credibility and market integrity—particularly in sustainable finance. In this respect, the enhanced supervisory expectations are seen as a positive development for the Irish funds sector. By raising the bar on sustainability claims, the Central Bank is reinforcing Ireland's reputation as a jurisdiction where ESG bona fides carry genuine credibility. This approach strengthens the domicile's attractiveness to investors who increasingly scrutinise supervisory practices as part of their due diligence. The Firms getting this right are those who build sustainability considerations into their processes first and document it second.