The European Commission's renewed Sustainable Finance Strategy, adopted in July 2021 and building on a 2018 Action Plan, was certainly ambitious. Indeed, the Commission has rightly credited the EU with "global leadership in setting international standards". But blazing a trail in a complex and novel regulatory field is a double-edged sword: there are bound to be missteps and – as asset managers will testify – the EU's rules have given rise to a number of challenges. Understanding and applying the complex and (in places) poorly drafted rules is, perhaps, the main challenge for firms (although final proposed versions of the Sustainable Finance Disclosure Regulation's (SFDR's) implementing rules – published this week – will help), while regulators and NGOs have expressed concern that the disclosure regime might actually exacerbate "greenwashing". The Taxonomy – a centrepiece of the EU's sustainable finance strategy – is narrow in scope and is clearly only a starting point. Emerging rules on corporate disclosures will be burdensome, while a proposal on sustainability due diligence has come in for significant criticism.It is to be expected, therefore, that the European Commission will have to amend, evolve and clarify its new rules in some important respects in the coming years. ESMA, the pan-EU supervisor, recently explained how it is going to help – and its Sustainable Finance Roadmap offers alternative asset managers some clues about what is likely to change in the near future.ESMA's roadmap, published in February and building on the Commission's own priorities, points out that it must respond to "copious legislative activity" and "strong investor demand for sustainable products". Combating greenwashing and promoting transparency is clearly regarded as a central part of ESMA's mission – and the SFDR's de facto labels are identified as part of the problem. The European Commission has already announced that it will develop minimum standards for "Article 8 products" – those that promote environmental and/or social characteristics – and ESMA plans to support the Commission's work in this regard.The lack of minimum standards is perhaps not surprising in a disclosure regime, but baseline criteria would seem to be a prerequisite for a label. In fact, ESMA has been adamant on a number of occasions that the SFDR is not a labelling regime, and the supervisor is aware that – if it is seen as such by investors – it could result in investors being misled.But there is also a recognition among policymakers that – whether intended or not – the SFDR's categories are being...

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