Europe is no longer tolerating empty promises. In 2025, ESG fund managers face stricter regulation as the EU tightens rules to fight greenwashing across financial products. From new Sustainable Finance Disclosure Regulation (SFDR) classifications to new national enforcement mechanisms in France and Germany, sustainable investing is entering a phase of more transparency and higher standards.
The ESG investing boom of the past decade has sparked widespread scrutiny, with asset managers under fire for inflating sustainability claims. But recent greenwashing scandals have put pressure on EU regulators to act. The EU’s response is now to force funds to prove their green credentials, or drop the label.
In April 2025, DWS, the asset management arm of Deutsche Bank, was fined € 25 million by German prosecutors for misleading investors about how ESG criteria were applied in its funds. The case followed a whistleblower complaint and a 2022 raid on the company’s headquarters in Frankfurt. According to investigators, the firm exaggerated claims that ESG factors were embedded in its investment process.
The upcoming review of SFDR Level 2 rules, expected later this year, will significantly narrow what qualifies as an Article 8 “light green” or Article 9 “dark green” fund. Early signals from the Commission suggest clearer minimum thresholds for what constitutes a “sustainable investment”, alongside enhanced disclosure requirements for climate impact.
While Brussels pushes regulation, member states are moving aggressively to enforce it. France and Germany, two of Europe’s largest financial hubs, introduced new anti-greenwashing laws in early 2025, mandating third-party verification for all sustainability claims used in marketing and stablishing heavier fines for funds and companies guilty of greenwashing practices.
Beyond finance, the EU’s Green Claims Directive, which enters force in early 2026, is setting a precedent for fund marketing. Any product, including investment vehicles, using terms like “carbon neutral” or “eco-friendly” must now back it up with independently verified science-based evidence. This dovetails with broader climate goals: the Commission also reaffirmed that it will not delay CO2 reduction deadlines for cars, despite industry pressure.
For retail and institutional investors, this regulatory tightening may bring clarity, but also costs. Labels will change, and product offerings will shrink. But in the long run, experts argue it will bolster public’s trust in sustainable finance.
