Financial Advisors as ESG Gatekeepers: Regulatory Frameworks, Greenwashing Detection, and the Governance of Sustainable Finance in Europe

1. Introduction

Over the past decade, sustainable finance has evolved from a peripheral investment approach into a central pillar of global financial markets and regulatory policy. Environmental, social, and governance (ESG) considerations are now systematically embedded in investment decision-making processes, reflecting growing awareness of systemic challenges such as climate change, environmental degradation, and social inequality. As a result, financial markets are increasingly expected not only to generate returns, but also to contribute to broader societal and environmental objectives.

Within this transformation, the European Union has positioned itself as a global leader in the regulation of sustainable finance. Through an ambitious and rapidly expanding regulatory framework, including the EU Sustainable Finance Action Plan, the Sustainable Finance Disclosure Regulation (SFDR, Regulation (EU) 2019/2088), the EU Taxonomy Regulation (Regulation (EU) 2020/852), and the Commission Delegated Regulation (EU) 2021/1253 amending MiFID II, the EU aims to enhance transparency, standardize sustainability disclosures, and redirect capital flows toward genuinely sustainable economic activities. The integration of sustainability preferences into the MiFID II suitability framework has been particularly consequential: under Article 54 of Commission Delegated Regulation 2017/565/EU as amended, investment advisors are now formally required to elicit and incorporate clients’ sustainability preferences when making investment recommendations.

Despite these regulatory advancements, the rapid proliferation of ESG-labelled financial products has raised significant concerns regarding the credibility and reliability of sustainability claims. In particular, the risk of greenwashing, defined as the practice of portraying financial products as environmentally or socially sustainable without adequate alignment between stated objectives and underlying investment strategies, has emerged as a central challenge for both regulators and investors. This risk is amplified by persistent inconsistencies in ESG data, methodological divergence across rating agencies, and the absence of universally accepted sustainability metrics, all of which contribute to substantial informational asymmetries.

In this increasingly complex environment, financial advisors occupy a critical yet underexplored position within the sustainable finance ecosystem. In the European context, and particularly in Italy, the figure of the financial advisor carries formal legal responsibilities that extend well beyond product distribution. Acting as intermediaries between financial institutions and retail investors, advisors are responsible for translating highly technical financial and sustainability-related information into concrete investment recommendations that must satisfy rigorous suitability obligations under both MiFID II and the TUF (Legislative Decree No. 58/1998).

This paper advances the argument that financial advisors should be conceptualized not merely as intermediaries, but as institutional gatekeepers of sustainable finance. Beyond facilitating investment decisions, advisors have the potential to actively shape the credibility and integrity of ESG markets by critically evaluating sustainability disclosures, identifying inconsistencies between ESG claims and underlying asset allocations, and mitigating informational asymmetries between asset managers and investors.

However, despite the growing importance of this function, existing literature has largely overlooked the micro-level mechanisms through which financial advisors interpret ESG information and assess the credibility of sustainability claims. While prior research has extensively examined ESG performance, disclosure frameworks, and regulatory design, relatively limited attention has been devoted to the role of financial advisors as active agents in detecting and mitigating greenwashing risks, a gap that is particularly significant given the formal responsibilities now assigned to advisors under the reformed MiFID II framework.

By addressing this gap, this study develops a novel analytical framework that conceptualizes financial advisors as key actors in the governance of sustainable finance markets. Specifically, it investigates the mechanisms through which advisors can operate as effective gatekeepers in detecting greenwashing and enhancing investor protection within the European ESG investment landscape, with particular reference to the Italian regulatory and professional context.

2. Research Question and Contribution

2.1 Research Question

This study investigates the evolving role of financial advisors within European sustainable finance markets, focusing on their potential to act as institutional gatekeepers in addressing greenwashing risks.

The central research question is:

To what extent and through which mechanisms can financial advisors act as effective gatekeepers in detecting and mitigating greenwashing within the European sustainable finance framework?

Unlike existing approaches that primarily focus on regulatory disclosure requirements or ESG performance metrics, this research shifts attention to the micro-level processes through which sustainability information is interpreted, evaluated, and transmitted to investors.

To operationalize this inquiry, the analysis is structured around four interrelated sub-questions:

1. a) How has the European regulatory framework, particularly the interaction between SFDR, the EU Taxonomy, and MiFID II, redefined the role and responsibilities of financial advisors in sustainable investment advisory?
2. b) What informational challenges do financial advisors face when evaluating ESG investment products, particularly in the presence of divergent ESG ratings and inconsistent sustainability disclosures?
3. c) Through which mechanisms do financial advisors reduce (or fail to reduce) informational asymmetries between asset managers and retail investors?
4. d) What practical indicators and advisory practices can enable financial advisors to detect and mitigate greenwashing risks in ESG-labelled financial products?

2.2 Contribution of the Study

This research makes three main contributions to the literature and policy debate on sustainable finance.

First, the study contributes to the literature on sustainable finance by integrating insights from financial intermediation theory and ESG governance into a unified analytical framework.

Second, the study develops a novel conceptual framework that identifies four core functions through which financial advisors operate within ESG markets:

• Information Filtering: evaluating and synthesizing fragmented ESG disclosures and ratings
• Sustainability Translation: aligning investment products with clients’ sustainability preferences
• Greenwashing Detection: identifying inconsistencies between ESG claims and underlying portfolio composition
• Accountability Transmission: indirectly disciplining asset managers through investor guidance and capital allocation

By introducing this ESG Gatekeeping Framework, the research provides a structured way to understand how financial advisors can influence market integrity beyond their traditional advisory role.

Third, the study offers an empirical contribution through the application of the GRI framework to three documented cases of greenwashing risk in European ESG markets, the DWS Group case, the SFDR Article 9 mass reclassification of 2022–2023, and the strategic response to ESMA’s fund naming guidelines, demonstrating how structured advisory evaluation can identify and respond to distinct mechanisms of sustainability misrepresentation.

From a practical perspective, the study contributes to ongoing policy debates by proposing mechanisms through which financial advisors can strengthen investor protection and enhance the credibility of sustainable finance markets. It highlights the need for improved ESG data standardization, enhanced advisor training, and the development of operational tools for evaluating sustainability claims. These contributions acquire particular urgency in light of the proposed SFDR 2.0 framework, which removes financial advisors from formal regulatory scope and thereby increases the importance of voluntary gatekeeping standards.

3. Theoretical Framework: Financial Advisors as ESG Gatekeepers

This research develops a theoretical framework that integrates insights from financial intermediation theory, behavioral finance, and the governance literature on sustainable finance in order to conceptualize the evolving role of financial advisors within European ESG investment markets.

3.1 Financial Intermediation and Information Asymmetry

Financial intermediation theory provides the foundational lens for understanding the role of advisors in financial markets. According to Allen and Santomero (2001), financial intermediaries exist because financial markets are characterized by significant informational asymmetries between market participants.

Investors typically lack the information, expertise, and analytical capacity required to evaluate complex financial products, while financial institutions possess superior knowledge regarding product characteristics, risk profiles, and underlying investment strategies. Intermediaries therefore play a crucial role in collecting, processing, and interpreting information, thereby facilitating more efficient capital allocation.

In the context of sustainable finance, these asymmetries are significantly amplified. ESG investment products are characterized by complex disclosure requirements, heterogeneous sustainability metrics, and varying methodological approaches used by rating agencies and asset managers. As a result, investors face heightened uncertainty when attempting to assess the credibility of sustainability claims.

Within this environment, financial advisors perform a critical intermediary function by acting as information processors, translating complex ESG-related information into actionable investment recommendations.

3.2 ESG Information Complexity and Measurement Divergence

The effectiveness of financial intermediation in ESG markets is constrained by the structural characteristics of sustainability information itself.

Empirical research has shown that ESG ratings produced by different providers often exhibit low correlation, reflecting substantial divergence in measurement methodologies, indicator selection, and weighting schemes (Berg, Kölbel & Rigobon, 2022). Rather than representing a unified measure of sustainability performance, ESG ratings frequently capture different and sometimes incompatible dimensions of corporate behavior.

This fragmentation generates what can be defined as ESG information disorder, a condition in which multiple, inconsistent, and partially overlapping indicators coexist without a clear hierarchy of reliability. In such an environment, the informational advantage traditionally attributed to financial intermediaries is weakened, as even professional actors face difficulties in assessing the credibility of sustainability claims.

Consequently, the role of financial advisors shifts from simple information transmission to active information interpretation and validation, requiring the ability to critically assess the coherence between ESG disclosures, ratings, and underlying portfolio composition.

3.3 Behavioral Finance and Investor Dependence on Advice

Insights from behavioral finance further reinforce the importance of financial advisors in ESG investment contexts.

Individual investors often face cognitive limitations, including bounded rationality and susceptibility to behavioral biases such as framing effects and overreliance on heuristics. These constraints become particularly salient in sustainable finance, where investment decisions involve multiple dimensions: financial performance, environmental impact, social responsibility, and regulatory compliance.

As a result, investors exhibit a strong reliance on professional advice when making ESG-related investment decisions. This reliance increases the influence of financial advisors not only on portfolio allocation, but also on how sustainability itself is understood and prioritized.

In this sense, financial advisors act as cognitive intermediaries, shaping investor perceptions, expectations, and ultimately capital allocation decisions within sustainable finance markets.

3.4 Governance of Sustainable Finance and Greenwashing Risk

The governance literature on sustainable finance emphasizes that the credibility of ESG markets depends on the availability of reliable, comparable, and verifiable sustainability information.

However, the rapid expansion of ESG-labelled financial products has increased the risk of greenwashing. Greenwashing arises when financial products are marketed as sustainable without sufficient alignment between stated ESG objectives and actual investment strategies. As highlighted by Delmas and Burbano (2011), this phenomenon is fundamentally rooted in informational asymmetries between firms and stakeholders.

Regulatory frameworks such as the Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy Regulation aim to address these challenges by improving transparency and standardizing sustainability disclosures. Additionally, recent amendments to the MiFID II framework require financial advisors to incorporate clients’ sustainability preferences into investment suitability assessments.

Despite these efforts, regulation alone cannot fully eliminate greenwashing risks, as the interpretation and application of sustainability information remain contingent on the practices of financial intermediaries.

3.5 The ESG Gatekeeping Model

Building on the theoretical perspectives outlined above, this study develops an original conceptual model that positions financial advisors as ESG gatekeepers operating at the intersection of regulation, financial markets, and investor behavior.

Within this framework, financial advisors perform four interrelated gatekeeping functions.

Information Filtering: Advisors collect, evaluate, and synthesize sustainability information originating from multiple sources, including ESG ratings, regulatory disclosures, and asset manager reports. Given the fragmentation of ESG metrics, this function involves selecting relevant information and assessing its reliability. Through this process, advisors reduce informational asymmetries between financial institutions and investors.

Sustainability Translation: Following the introduction of sustainability preference requirements under MiFID II, advisors must translate investors’ abstract environmental and social preferences into concrete investment strategies. This function involves aligning financial products with individual sustainability objectives, thereby transforming normative preferences into actionable portfolio decisions.

Greenwashing Detection: Advisors play a crucial role in identifying inconsistencies between sustainability claims and underlying investment practices. This function involves: comparing ESG ratings across providers, analyzing portfolio holdings, assessing taxonomy alignment and identifying discrepancies between marketing materials and actual investment strategies. Through this monitoring role, advisors can detect potential greenwashing risks and prevent the allocation of capital to misleading ESG-labelled products.

Accountability Transmission: Beyond filtering and detecting, advisors also act as channels of market discipline. By guiding investor capital toward credible sustainable products and away from misleading ones, advisors indirectly exert pressure on asset managers to improve the quality and reliability of ESG disclosures. In this way, financial advisors contribute to the transmission of accountability within sustainable finance markets.

This conceptualization builds on the classical gatekeeping theory developed by Kraakman (1986), which identifies third-party enforcers as actors capable of deterring misconduct by withholding cooperation from those who engage in it. In the ESG context, financial advisors occupy precisely this role: by directing investor capital away from products with misleading sustainability claims, they can exert indirect disciplinary pressure on asset managers, thereby contributing to the governance of sustainable finance markets beyond the reach of formal regulation.

4. The European Regulatory Framework for Sustainable Finance: Opportunities and Limitations

Before developing the analytical framework applied in this study, it is necessary to examine the European regulatory architecture within which financial advisors operate. The following section provides the regulatory background required to contextualise both the GRI framework introduced in Section 5 and the empirical analysis conducted in Section 6.

The European Union has developed one of the most advanced regulatory frameworks for sustainable finance globally, with the objective of enhancing transparency, improving comparability of sustainability disclosures, and redirecting capital flows toward environmentally and socially sustainable activities.

This framework is primarily structured around three key regulatory pillars: the Sustainable Finance Disclosure Regulation (SFDR), the EU Taxonomy Regulation, and the integration of sustainability preferences into the MiFID II framework. While these instruments collectively aim to reduce information asymmetries and mitigate greenwashing risks, their effectiveness remains contingent on how sustainability information is interpreted and operationalized in practice.

4.1 The Sustainable Finance Disclosure Regulation (SFDR): Transparency without Full Clarity

The SFDR represents the cornerstone of the EU’s sustainable finance agenda, introducing standardized disclosure requirements for financial market participants and investment products.

A central feature of the SFDR is the classification of financial products into three categories:

• Article 6 (non-sustainable products)
• Article 8 (products promoting environmental or social characteristics)
• Article 9 (products with sustainable investment objectives)

This classification aims to enhance transparency and enable investors to distinguish between different levels of sustainability ambition.

However, despite its importance, the SFDR exhibits several structural limitations.

First, the regulation relies heavily on disclosure rather than substantive verification, allowing financial institutions to define sustainability criteria with a degree of flexibility that may enable strategic interpretation. This creates a risk that ESG classifications reflect marketing strategies rather than genuine sustainability performance.

Second, the distinction between Article 8 and Article 9 products has proven ambiguous in practice. Asset managers often face uncertainty regarding classification thresholds, leading to frequent reclassifications and inconsistencies across the market. This ambiguity can reduce the effectiveness of the SFDR as a tool for mitigating greenwashing.

Third, the regulation assumes that increased transparency will automatically translate into better investment decisions. However, in the presence of complex and heterogeneous ESG information, disclosure alone may not be sufficient to reduce informational asymmetries.

These structural limitations have prompted a comprehensive legislative review. On 20 November 2025, the European Commission published a proposal for a revised framework, SFDR 2.0 (COM/2025/841 final), which shifts from a disclosure-based regime to a product categorisation system built around three new labels: Transition (proposed Article 7), ESG Basics (proposed Article 8), and Sustainable (proposed Article 9), each requiring a minimum of 70% of investments to meet clearly defined sustainability criteria. Notably, the proposal removes financial advisors from the scope of the regulation entirely. The governance implications of this development are examined in detail in Section 7.2.

4.2 The EU Taxonomy Regulation: Standardization with Practical Constraints

The EU Taxonomy Regulation seeks to establish a common classification system for environmentally sustainable economic activities, thereby addressing the lack of standardization in sustainability reporting.

By defining criteria for determining whether an economic activity is environmentally sustainable, based on principles such as “substantial contribution” and “do no significant harm”, the taxonomy aims to provide a scientific and objective benchmark for sustainability.

In theory, this framework represents a significant step toward reducing greenwashing by introducing a clear reference point for evaluating sustainability claims.

However, its practical implementation faces several challenges.

First, taxonomy alignment is often partial and difficult to measure, particularly for diversified financial products such as investment funds. Many funds report only limited alignment with taxonomy criteria, reducing the taxonomy’s effectiveness as a comprehensive evaluation tool.

Second, the taxonomy currently focuses primarily on environmental objectives, while social and governance dimensions remain less developed. This creates an imbalance in ESG evaluation and limits the taxonomy’s applicability for holistic sustainability assessments.

Third, the complexity of technical screening criteria makes the taxonomy difficult to interpret and apply in real-world investment advisory contexts, particularly for financial advisors who must translate these criteria into actionable recommendations for clients.

4.3 MiFID II and the Transformation of Financial Advisory

The integration of sustainability preferences into the MiFID II framework represents a critical shift in the governance of sustainable finance.

Under the updated rules, financial advisors are required to assess clients’ sustainability preferences, incorporate these preferences into suitability assessments, and recommend investment products aligned with ESG objectives.

This reform effectively embeds sustainability considerations within the core logic of investment advice, transforming financial advisors from neutral intermediaries into key actors in the implementation of sustainable finance policy.

However, this transformation also introduces significant challenges.

The concept of “sustainability preferences” remains inherently ambiguous and difficult to operationalize, as investors may have heterogeneous and sometimes inconsistent expectations regarding environmental and social outcomes.

Furthermore, financial advisors often lack the tools, training, and standardized metrics necessary to accurately match investment products with client preferences, particularly in the presence of inconsistent ESG data.

Finally, the regulation implicitly assumes that advisors can effectively evaluate the credibility of ESG products, despite the structural limitations of available sustainability information.

5. Methodology

This study adopts a qualitative multi-method research design aimed at capturing how sustainability information is interpreted and operationalized within financial advisory practices. Rather than relying on a single source of evidence, the research combines regulatory analysis, qualitative evidence drawn from industry statements, and comparative case studies of ESG investment products. This approach allows for a comprehensive understanding of the interaction between regulatory frameworks, market practices, and product-level realities.

The choice of a qualitative methodology is motivated by the nature of the research question. Investigating how financial advisors evaluate ESG products and detect potential greenwashing risks requires an in-depth exploration of interpretative processes, professional judgment, and decision-making practices that cannot be fully captured through quantitative data alone. The research therefore prioritizes analytical depth and contextual understanding over statistical generalizability.

5.1 Research Design

The study is structured around a triangulation strategy that integrates three complementary analytical components, each of which informs a distinct dimension of the empirical analysis.

First, a regulatory analysis examines the formal structure of sustainable finance governance in the European Union, with particular attention to how disclosure requirements and advisory obligations shape the informational environment in which financial advisors operate. Given its foundational importance, this component has been developed in advance of the methodological framework, in Section 4, to provide the regulatory context necessary to understand both the GRI framework and the case studies that follow. The regulatory analysis focuses on the interaction between three key instruments: the Sustainable Finance Disclosure Regulation (SFDR), the EU Taxonomy Regulation, and the sustainability preference requirements introduced under the MiFID II framework, including the most recent legislative developments represented by the European Commission’s November 2025 proposal for SFDR 2.0 (COM/2025/841 final).

Second, qualitative evidence drawn from publicly available industry sources, including supervisory reports, NGO research, professional publications, and academic studies, is used to contextualise advisory practices and document the real-world manifestations of greenwashing risk. This evidence is integrated throughout Section 6 to support the interpretation of each case and to ground the analysis in documented market behaviour rather than theoretical abstraction.

Third, comparative case studies of three documented greenwashing episodes, the DWS Group case, the SFDR Article 9 mass reclassification of 2022–2023, and the strategic response to ESMA’s fund naming guidelines, constitute the primary empirical contribution of the study. Each case is systematically analyzed through the structured application of the GRI framework, allowing for cross-case comparison and the identification of recurring patterns of greenwashing risk across different institutional contexts.

By combining these three elements, the research bridges the gap between regulatory intent, professional interpretation, and market outcomes, providing a more nuanced and empirically grounded analysis of sustainable finance dynamics.

5.2 Data Collection

Regulatory and Document Analysis

The first component of the research consists of a systematic analysis of the European regulatory framework governing sustainable finance. In particular, the study focuses on the interaction between three key instruments: the Sustainable Finance Disclosure Regulation (SFDR), the EU Taxonomy Regulation, and the sustainability preference requirements introduced under the MiFID II framework.

The analysis examines how these regulatory instruments define sustainability, structure disclosure obligations, and influence the role of financial advisors in investment decision-making processes. Qualitative Evidence from Industry Sources

The study employs a document-based qualitative approach grounded in the analysis of publicly available sources, including industry reports, professional publications, statements from financial advisors and wealth management professionals, supervisory guidance from regulatory authorities, and research produced by asset managers and ESG specialists. This methodology is consistent with established practices in legal and regulatory scholarship, where document analysis and systematic review of institutional sources constitute primary modes of empirical inquiry. The selected sources are used to reconstruct how financial advisors approach ESG evaluation in practice, the informational challenges they face, and the strategies they employ when assessing sustainability-related claims.

ESG Investment Product Case Studies

The third component of the research consists of comparative case studies of ESG-labelled investment funds operating within the European market.

The analysis focuses in particular on funds classified under SFDR Article 8 and SFDR Article 9.  For each selected fund, the study examines sustainability disclosures, ESG methodologies, degree of alignment with EU Taxonomy criteria, and portfolio composition.

The objective is to assess whether sustainability claims are consistent with actual investment strategies, thereby identifying potential discrepancies that may signal greenwashing risks.

5.3 Analytical Framework: Greenwashing Risk Indicators (GRI)

In order to systematically evaluate ESG investment products, this study develops an original analytical tool referred to as the Greenwashing Risk Indicators (GRI) framework. The GRI framework is designed to operationalize greenwashing detection for financial advisors, translating complex and fragmented sustainability information into a structured, replicable evaluation methodology.

The framework responds to a gap identified both in the academic literature and in supervisory practice. Existing approaches to greenwashing detection have largely relied on quantitative methods, such as NLP-based textual analysis of fund disclosures or carbon footprint measurement, that presuppose access to large datasets and technical expertise unavailable to most financial advisors in practice (Berg et al., 2022; ESMA, 2024). The GRI framework, by contrast, is designed to be applied using publicly available information, including SFDR disclosures, fund prospectuses, ESG rating reports, and portfolio holdings data, making it directly actionable in an advisory context.

The GRI framework evaluates ESG investment products across four primary dimensions, each operationalized through specific observable indicators and assessment criteria.

Dimension 1 — Disclosure Consistency (DC)

This dimension assesses whether the sustainability claims communicated in marketing materials are coherent, specific, and verifiable across all official documentation.

Key indicators:

• Alignment between sustainability language in marketing materials and formal SFDR pre-contractual disclosures (Art. 6 SFDR)
• Presence of measurable sustainability targets (e.g., specific carbon reduction objectives, minimum taxonomy-aligned investment percentages)
• Consistency of ESG claims across the fund prospectus, Key Information Document (KID/KIID), and Periodic Disclosure Reports
• Use of vague or non-falsifiable language (e.g., “sustainability-aware”, “ESG-integrated” without definition)

Risk signal: significant divergence between marketing narratives and formal disclosures, or reliance on broad sustainability claims without measurable commitments, constitutes a high-risk indicator of potential greenwashing.

Dimension 2 — ESG Rating Divergence (ERD)

This dimension examines the degree of variation in ESG scores assigned to the same product or its underlying holdings by different rating providers, and whether such divergence is adequately explained.

Key indicators:

• Cross-provider ESG score comparison (e.g., MSCI, Sustainalytics, Morningstar) for the same fund or underlying issuers
• Presence or absence of an explicit explanation for methodological divergence in fund documentation
• Whether the asset manager’s proprietary ESG methodology is disclosed and independently verifiable
• Degree of reliance on a single rating provider without triangulation

Risk signal: substantial and unexplained divergence across providers, particularly when the asset manager selects exclusively favorable ratings for marketing purposes, indicates potential cherry-picking and constitutes a medium-to-high greenwashing risk. This is consistent with findings by Berg et al. (2022), who document that ESG ratings from different providers exhibit correlations as low as 0.38–0.71.

Dimension 3 — Portfolio Alignment (PA)

This dimension evaluates whether the actual composition of the fund’s investment portfolio is consistent with its stated sustainability objectives.

Key indicators:

• Exposure to sectors excluded under the fund’s stated ESG policy (e.g., fossil fuels, tobacco, weapons) relative to industry benchmarks
• Proportion of holdings with poor or controversial ESG track records (e.g., companies flagged for ESG incidents by RepRisk or similar providers)
• Comparison between top portfolio holdings and stated ESG strategy
• Presence and scope of exclusion criteria, best-in-class selection, or active engagement strategies

Risk signal: material exposure to controversial sectors or issuers inconsistent with the fund’s stated strategy, particularly in the absence of disclosed engagement policies, constitutes a strong indicator of portfolio misalignment and potential greenwashing.

Dimension 4 — Taxonomy Alignment (TA)

This dimension assesses the degree to which the fund’s investments are genuinely aligned with

the EU Taxonomy Regulation’s technical screening criteria, and whether alignment figures are

presented in a substantively meaningful manner.

Key indicators:

• Disclosed percentage of taxonomy-aligned investments (turnover, capex, opex) as required under Art. 8 and Art. 9 SFDR
• Whether taxonomy alignment is based on reliable data or estimated/approximated figures
• Consistency between taxonomy alignment disclosures and portfolio composition
• Whether the “Do No Significant Harm” (DNSH) principle is explicitly addressed and verifiable

Risk signal: very low taxonomy alignment ratios (below 5%) combined with strong sustainability marketing claims, or reliance on estimated rather than verified taxonomy data, indicates a

significant gap between regulatory compliance and substantive sustainability.

GRI Composite Assessment

The four dimensions are not weighted equally in all contexts. For Article 9 funds — which carry the highest sustainability ambition under SFDR — stricter thresholds apply across all four dimensions, as these products are explicitly marketed as having sustainable investment as their core objective. For Article 8 funds, the framework focuses primarily on Disclosure Consistency and Portfolio Alignment, given the broader and more flexible nature of their sustainability commitments.

Rather than producing a numerical score, which would introduce false precision into an inherently qualitative assessment, the GRI framework operates through a traffic-light classification system:

• Low risk: claims are consistent, verifiable, and substantiated across all dimensions
• Medium risk: inconsistencies are present but potentially explainable; further due diligence is warranted
• High risk: material discrepancies across multiple dimensions; strong indicators of potential greenwashing

This classification enables financial advisors to make structured, defensible investment recommendations that are both aligned with their MiFID II suitability obligations and informed by a rigorous evaluation of sustainability claims.

5.4 Data Analysis

The empirical material is analyzed using qualitative thematic analysis combined with structured comparison.

Industry statements and professional insights are examined to identify recurring themes related to ESG evaluation practices, perceived limitations of ESG data, approaches to identifying greenwashing, and challenges in applying regulatory requirements.

At the same time, the case studies are analyzed through the application of the GRI framework, allowing for a systematic comparison between different ESG-labelled products.

This dual analytical strategy enables the study to connect advisory practices with product-level characteristics, thereby providing a more comprehensive understanding of how greenwashing risks emerge and are addressed in practice.

5.5 Limitations

The study acknowledges several limitations.

First, the reliance on publicly available sources rather than primary fieldwork limits the ability to directly observe individual advisory practices. However, this limitation is mitigated by the systematic triangulation of regulatory documents, industry reports, and fund-level case studies, which together provide a multi-layered and internally consistent evidence base.

Second, the qualitative nature of the research implies that findings are not statistically generalizable. The objective of the study is instead to provide analytical insights and conceptual clarity.

Third, ESG evaluation remains inherently complex and subject to interpretation. The GRI framework should therefore be understood as an analytical heuristic rather than a definitive measurement tool.

5.6 Methodological Contribution

Beyond its empirical application, this research contributes methodologically by proposing a structured approach to analyzing greenwashing risks at the intersection of regulation, financial products, and advisory practices. By combining qualitative evidence with a systematic evaluation framework, the study provides a replicable method for assessing the credibility of ESG investment products in real-world financial markets.

6. Empirical Analysis: Financial Advisors and the Detection of Greenwashing

This section applies the GRI framework developed in Section 5.3 to examine real-world ESG investment products operating within the European market. Rather than relying exclusively on abstract industry characterizations, the analysis draws on documented evidence from regulatory sources, supervisory investigations, NGO research, and academic studies to assess greenwashing risk patterns across three illustrative cases. The objective is to demonstrate how the GRI framework functions as a practical advisory tool, and to validate its analytical relevance against empirically grounded evidence.

6.1 ESG Information Challenges in Practice: The Structural Context

Before examining specific cases, it is necessary to establish the structural context within which financial advisors operate when evaluating ESG products. This section draws on the three analytical components identified in Section 5.1 to document the informational environment that motivates the gatekeeping framework developed in this study.

A foundational challenge concerns the divergence of ESG ratings across providers. As documented by Berg, Kölbel and Rigobon (2022), correlations between ESG scores assigned by major rating agencies range between 0.38 and 0.71, a level of disagreement that would be considered unacceptable in any other domain of financial analysis. This finding is corroborated by Christensen, Serafeim and Sikochi (2022), who show that greater ESG disclosure does not necessarily reduce rating divergence, and by Gibson Brandon, Krueger and Schmidt (2021), who document that ESG rating disagreement has measurable effects on stock returns and investor decision-making. This structural fragmentation is not merely a technical inconvenience: it fundamentally undermines the ability of financial advisors to rely on ESG ratings as objective, comparable indicators of sustainability quality.

A second challenge concerns the effectiveness of disclosure-based regulation itself. Recent empirical research by Allcott et al. (2026), drawing on data from funds listed on major European platforms, finds no economically meaningful effect of the SFDR on mutual fund flows. Investors did not reallocate capital toward funds newly labelled as sustainable following the introduction of the SFDR, and subsequent reclassifications from Article 9 to Article 8 in late 2022 also produced little response in investor flows. The same research finds that one key reason for SFDR’s limited influence is that its disclosure requirements are too complex for most retail investors, resulting in limited engagement with the information. These findings are consistent with supervisory evidence from ESMA (2024), whose Final Report on Greenwashing documents an exponential growth in the use of ESG-related terms in fund names, rising from 3% of UCITS in 2013 to 14% in 2023, alongside persistent inconsistencies between sustainability claims and underlying portfolio composition. IOSCO (2021) further highlights that the absence of standardized methodologies among ESG data providers creates structural conditions conducive to greenwashing across jurisdictions.

These findings are highly significant for the present analysis: they confirm that regulatory disclosure alone is insufficient to discipline ESG markets, and that the intermediary role of financial advisors, as information interpreters and gatekeepers, becomes structurally indispensable.

A third challenge concerns the scale of the SFDR reclassification phenomenon. Since June 2022, more than 350 funds on the Morningstar platform were downgraded from Article 9 to Article 8, and in Q1 2023 new inflows to Article 9 funds reached a record low. More precisely, of 1,138 Article 9 funds identified as of August 2022, 278 had changed their status by January 2023, 273 to Article 8 and 5 to Article 6 (Badenhoop et al., 2023). Research by Matter Insights (2023) analyzing the 60 largest SFDR-regulated ETFs confirms that funds downgraded from Article 9 displayed similar sustainability characteristics to those that retained their status, indicating that the classification system failed to capture meaningful differences in long-term investment strategy. This mass reclassification event represents a structural breakdown in the credibility of ESG classifications and illustrates precisely the kind of market signal that financial advisors, acting as gatekeepers, should be equipped to detect and communicate to clients.

6.2 Case Study 1 – DWS Group: Institutional Greenwashing and the Limits of Self-Certification

Background

The DWS Group case represents the most extensively documented instance of institutional greenwashing within the European ESG investment market and provides a critical test case for the GRI framework.

DWS Group, the asset management subsidiary of Deutsche Bank, was one of the largest ESG fund providers in Europe. In its 2020 annual report, DWS claimed to manage ESG assets worth €459 billion. Following regulatory scrutiny and internal whistleblowing by former Chief Sustainability Officer Desiree Fixler, who alleged that ESG criteria were not systematically integrated into investment processes, the reported ESG assets were revised dramatically downward to €115 billion in 2021, representing a reduction of approximately 75%.

On 31 May 2022, German police conducted raids on Deutsche Bank and DWS over suspected greenwashing, following allegations that ESG criteria were not clearly considered for most of its investment products despite being labelled as sustainable in sales prospectuses. The case concluded with DWS paying a $25 million fine to the SEC in September 2023 for overstating how it used ESG factors in its funds, with the SEC finding that DWS advertised that ESG was in its “DNA” while its investment professionals failed to follow the ESG investment processes it had marketed.

GRI Analysis

Dimension 1 — Disclosure Consistency (DC): High Risk The most significant red flag in the DWS case was the fundamental inconsistency between public ESG claims and actual investment practices. External communications systematically overstated the degree to which ESG factors were integrated into portfolio management. Statements such as “ESG is an integral part of our DNA” were found by regulators not to correspond to internal processes.

Dimension 2 — ESG Rating Divergence (ERD): Medium Risk DWS relied heavily on its own proprietary ESG methodology, which lacked independent verification and was not subject to external audit. This self-referential approach to ESG scoring, without triangulation across independent providers, represents a medium-to-high risk indicator under the GRI framework.

Dimension 3 — Portfolio Alignment (PA): High Risk NGO Finanzwende documented that DWS invested approximately $850 million from its “green” funds into fossil fuel companies in 2022, increasing the fossil fuel share in its portfolio from 3.2% in 2021 to 5.7% the following year, while simultaneously advertising those funds as a gateway to environmental protection.

Dimension 4 — Taxonomy Alignment (TA): High Risk No credible taxonomy alignment disclosures were provided that could substantiate the environmental claims made in marketing materials. The gap between the scale of claimed ESG assets (€459 billion) and the subsequently revised figure (€115 billion) reflects a fundamental failure of taxonomy-aligned reporting.

Advisory Implication The DWS case demonstrates that even well-resourced institutional asset managers may engage in systematic disclosure inconsistency. For a financial advisor applying the GRI framework, the combination of high scores across all four dimensions, particularly the divergence between marketing claims and actual portfolio composition, would warrant immediate escalation and, at minimum, suspension of recommendation pending independent verification.

6.3 Case Study 2 – The SFDR Article 9 Mass Reclassification: Systemic Greenwashing Risk

Background

While the DWS case represents an instance of identifiable institutional misconduct, the mass reclassification of Article 9 funds in 2022–2023 illustrates a more diffuse and systemic form of greenwashing risk, one that is arguably more challenging for financial advisors to detect precisely because it was structurally embedded in regulatory ambiguity.

In terms of assets under management, 40% of Article 9 category funds were downgraded to Article 8 over a period of a few months in late 2022, with reports suggesting further downgrades were expected. A significant driver of this reclassification was the ESAs’ June 2022 clarification that Article 9 products must invest exclusively in sustainable investments, a requirement that many fund managers had not met, despite having classified their products as “dark green.” In late 2022, reports showed that funds classified as Article 9 were invested in fossil fuels and aviation, exposing a fundamental gap between classification and portfolio reality.

GRI Analysis

Dimension 1 — Disclosure Consistency (DC): Medium Risk In many reclassification cases, pre-contractual disclosures were technically compliant with Level 1 SFDR requirements but failed to reflect the stricter interpretation subsequently imposed by the ESAs. This represents a medium risk under the GRI framework: claims were formally disclosed but functionally misleading given the interpretive gap.

Dimension 2 — ESG Rating Divergence (ERD): Medium Risk Analysis of the 60 largest SFDR-regulated ETFs found that although Article 9 funds that were downgraded displayed similar sustainability characteristics to those that retained their status, the existing classification system failed to account for meaningful differences in long-term strategy between ESG and Paris-aligned approaches.

Dimension 3 — Portfolio Alignment (PA): High Risk The core finding from this case study is that ESG classification, even at the highest regulatory tier, did not reliably predict portfolio composition. Extensive NGO research by Urgewald and Facing Finance found that more than one third of over 14,000 ESG funds traded in European markets invested over €123 billion in companies actively pushing fossil fuel expansion projects or lacking a credible Paris-aligned coal phase-out plan.

Dimension 4 — Taxonomy Alignment (TA): Medium Risk Before Level 2 SFDR took effect, fund managers disclosed considerably lower shares of sustainable investments, averaging approximately 40% in 2022, which subsequently increased to 84% in 2023 (Badenhoop et al., 2023). This discontinuity suggests that taxonomy alignment figures were driven more by regulatory pressure than by genuine portfolio transformation.

Advisory Implication This case study illustrates a critical operational challenge for financial advisors: when greenwashing risk is embedded in regulatory ambiguity rather than identifiable misconduct, standard due diligence processes may be insufficient. The GRI framework responds to this challenge by requiring advisors to assess not only formal compliance but substantive portfolio coherence, a distinction that the SFDR classification system alone does not capture.

6.4 Case Study 3 – The ESMA Naming Guidelines: Regulatory Response and Residual Risk

Background

A third empirical dimension concerns the regulatory response to fund naming practices, an area where the gap between sustainability labeling and portfolio content has been most visible to retail investors.

In May 2025, ESMA introduced naming guidelines establishing minimum standards for ESG-related terms in fund names. The regulatory objective was to ensure that funds carrying terms such as “environment,” “sustainable,” or “impact” meet minimum thresholds regarding fossil fuel exposure.

Research by Finanzwende and Urgewald assessing the impact of these guidelines found a measurably positive effect: funds subject to the naming rules reduced their fossil fuel holdings. However, many providers responded by strategically renaming their funds, which allowed them to retain fossil investments worth €11.4 billion, more than 60% of the investments originally affected.

GRI Analysis

Dimension 1 — Disclosure Consistency (DC): Medium Risk The strategic renaming of funds in response to the ESMA guidelines represents a sophisticated form of disclosure manipulation: formally compliant with the letter of the regulation, but designed to circumvent its spirit. Under the GRI framework, this behavior constitutes a medium-to-high risk signal, as it reflects a deliberate strategy to preserve sustainability marketing while avoiding substantive portfolio adjustment.

Dimension 2 — ESG Rating Divergence (ERD): Medium Risk Renamed funds typically retain the same underlying portfolio composition and ESG methodology, meaning that divergences in third-party ratings, which were present under the original fund name, persist under the new designation.

Dimension 3 — Portfolio Alignment (PA): Medium Risk The evidence confirms that portfolio alignment improved for funds subject to the naming guidelines, but residual misalignment remains significant for a large proportion of the market. The continued presence of fossil fuel investments in funds no longer carrying ESG-related names, but still marketed through sustainability narratives, represents an ongoing advisory challenge.

Dimension 4 — Taxonomy Alignment (TA): Medium Risk Research indicates that under proposed SFDR 2.0 categories, funds likely to classify under the “ESG basics” category risk becoming a new greenwashing trap, as over €100 billions of fossil holdings in current ESG funds could remain invested in companies pursuing fossil fuel expansion or lacking a Paris-aligned coal exit date.

Advisory Implication This case study illustrates that regulatory developments, even when well-designed, may generate adaptive responses from asset managers that partially neutralize their intended effect. Financial advisors, as front-line gatekeepers, must therefore maintain a dynamic and forward-looking assessment of greenwashing risks, updating their evaluation as both regulation and market practices evolve.

6.5 Financial Advisors as Conditional Gatekeepers: Synthesis of Findings

The three case studies, analyzed through the GRI framework, converge on a common set of findings that directly inform the central argument of this paper.

First, greenwashing risk in European ESG markets is both structurally embedded and empirically documented. It manifests across different institutional contexts, from identifiable misconduct (DWS) to systemic regulatory ambiguity (SFDR reclassification) to adaptive regulatory arbitrage (naming guidelines).

Second, the GRI framework successfully identifies meaningful patterns of risk differentiation across the four analytical dimensions. Portfolio alignment consistently emerges as the most diagnostically powerful indicator, as it most directly reveals the gap between sustainability claims and actual investment behavior.

Third, the findings confirm that financial advisors occupy a strategically critical but structurally constrained position. They have access to publicly available information, SFDR disclosures, prospectuses, third-party ESG ratings, that is sufficient to identify obvious inconsistencies. However, their ability to detect more sophisticated forms of greenwashing, particularly those involving strategic regulatory compliance without substantive portfolio transformation, is limited by the absence of standardized tools and insufficient portfolio-level transparency.

This leads to the conclusion that financial advisors function as conditional gatekeepers: capable of performing meaningful screening under favorable informational conditions, but systematically constrained when greenwashing risk is embedded in regulatory complexity or deliberately obscured through formal compliance. Strengthening this gatekeeping role therefore requires not only improved advisor competencies, but also systemic regulatory reforms aimed at reducing the structural conditions that enable greenwashing to persist.

7. Discussion: Financial Advisors as Conditional Gatekeepers of Sustainable Finance

The empirical findings of this study, examined through the lens of the GRI framework, provide strong and multi-dimensional support for the central argument that financial advisors play a critical role in shaping the credibility and functioning of sustainable finance markets. Crucially, however, the analysis also reveals that this role is neither automatic nor structurally guaranteed, but rather conditional, and increasingly consequential in light of recent regulatory developments.

7.1 From Financial Intermediaries to ESG Gatekeepers

The findings confirm that financial advisors cannot be adequately understood as passive intermediaries. Instead, they perform a more complex function that aligns closely with the concept of institutional gatekeeping as theorized in the governance literature.

Consistent with financial intermediation theory (Allen & Santomero, 2001), advisors contribute to reducing informational asymmetries by filtering and interpreting complex ESG data. However, the empirical evidence developed in Section 6 demonstrates that their function extends substantially beyond traditional intermediation. The three case studies, DWS, the SFDR Article 9 mass reclassification, and the ESMA naming guidelines, each illustrate a distinct mechanism through which greenwashing risks emerge and through which advisors, equipped with the GRI framework, can detect and respond to them.

In the DWS case, greenwashing took the form of institutional misrepresentation: a systematic divergence between public sustainability claims and actual investment practices. In the SFDR reclassification case, risk was embedded in regulatory ambiguity: the Article 8/9 classification system generated false signals of sustainability quality that misled both investors and advisors. In the naming guidelines case, risk manifested as regulatory arbitrage: asset managers adapted strategically to new rules while preserving the substance of their original portfolio behavior. Each of these mechanisms requires a qualitatively different advisory response and demonstrates that effective gatekeeping is not a single competency but a dynamic, multi-layered function.

7.2 The Limits of Regulation: The SFDR 2.0 Turning Point

A central implication of the analysis, and one that acquires particular urgency in light of the most recent regulatory developments, concerns the structural limitations of disclosure-based governance.

The European Commission’s proposal of 20 November 2025 for a comprehensive overhaul of the SFDR framework (SFDR 2.0) represents a decisive turning point for the argument advanced in this paper. The Commission has itself acknowledged that the current SFDR is being used by some market participants as a de facto labelling regime in practice, which can contribute to greenwashing and mis-selling risks, and that the framework has been characterized by complexity, legal uncertainties, and interpretation issues.

Two features of the SFDR 2.0 proposal are particularly significant for the present analysis. First, the proposal removes financial advisors and portfolio managers from the scope of the SFDR entirely, a change that formally liberates advisors from SFDR disclosure obligations but simultaneously increases their discretionary responsibility in evaluating sustainability claims without a standardized regulatory anchor. Second, SFDR 2.0 replaces the existing disclosure-based structure with three new product categories, Transition (proposed Article 7), ESG Basics (proposed Article 8), and Sustainable (proposed Article 9), each requiring at least 70% of investments to meet clearly defined sustainability criteria.

The transition from a disclosure regime to a categorisation regime is a structural reform of fundamental importance. Under SFDR 1.0, the Article 8/9 system generated ambiguity that enabled greenwashing through strategic classification. Under SFDR 2.0, mandatory 70% thresholds and explicit exclusion criteria should reduce, though not eliminate, the scope for portfolio misalignment. However, the removal of advisors from SFDR scope means that their gatekeeping function is no longer anchored in regulatory obligation but must instead be grounded in professional competence, institutional culture, and voluntary adoption of analytical tools such as the GRI framework.

This paradox, that regulatory simplification simultaneously reduces formal advisor obligations and increases the informal importance of their gatekeeping role, constitutes a central governance challenge for the post-SFDR 2.0 landscape.

7.3 Greenwashing as a Structural Market Outcome

The analysis also confirms that greenwashing should not be interpreted solely as intentional misconduct by identifiable bad actors, but rather as a structural outcome of the broader ESG information ecosystem.

The DWS case involved deliberate misrepresentation. The SFDR reclassification wave, by contrast, reflected a systemic failure of regulatory design rather than individual misconduct, as even well-intentioned asset managers operated within a classification system that produced misleading signals. The naming guidelines case illustrated how rational regulatory compliance behavior can generate outcomes that contradict the spirit of the underlying rule.

This typology of greenwashing, ranging from intentional fraud to structural ambiguity to regulatory arbitrage, has important implications for financial advisors. It means that effective gatekeeping requires not only the ability to identify obvious misconduct, but also the analytical capacity to recognize systemic risk patterns and adapt to evolving regulatory landscapes. The GRI framework is designed precisely to address this multi-dimensional challenge.

7.4 The Conditional Nature of Gatekeeping

A key theoretical contribution of this study is the concept of the financial advisor as a conditional gatekeeper, an actor with genuine potential to improve market integrity, but whose effectiveness is contingent on the surrounding informational and regulatory environment.

The empirical findings suggest that advisors are most effective as gatekeepers when ESG disclosures are clear and comparable, portfolio-level data is accessible, and sufficient analytical tools and training are available. Conversely, their effectiveness is systematically constrained when ESG ratings diverge substantially across providers, sustainability claims rely on vague or strategically constructed narratives, and portfolio transparency is limited.

This conditional model extends and refines classical gatekeeping theory (Kraakman, 1986), which posits that gatekeepers are effective when they have both the incentive and the capacity to monitor and certify market participants’ behavior. In the ESG context, incentives exist, advisors bear reputational and legal liability for unsuitable recommendations under MiFID II, but capacity constraints remain significant. The GRI framework addresses the capacity dimension directly, by providing a structured methodology applicable with publicly available information.

7.5 Implications for the Governance of Sustainable Finance

Taken together, the findings challenge the implicit assumption, embedded in both SFDR 1.0 and, partially, in the SFDR 2.0 proposal, that sustainable finance can be effectively governed through product-level regulation alone.

Instead, the analysis highlights the indispensable role of financial intermediation as a governance mechanism. Regulation establishes the formal architecture of sustainable finance; but the credibility and integrity of that architecture depend on how sustainability information is interpreted, evaluated, and communicated at the point of investor contact. Financial advisors occupy precisely that point.

The post-SFDR 2.0 landscape reinforces this conclusion: as formal regulatory obligations for advisors are reduced, their informal gatekeeping function becomes more, not less, important. This creates a governance gap that voluntary frameworks, professional standards, and tools such as the GRI framework must help to fill.

8. Policy and Industry Implications: Strengthening the Gatekeeping Role of Financial Advisors in the Post-SFDR 2.0 Landscape

The findings of this study carry important and timely implications for policymakers, regulatory authorities, and financial advisory networks. The transition to SFDR 2.0 represents both an opportunity and a risk: an opportunity to correct the structural ambiguities that enabled greenwashing under SFDR 1.0, and a risk that the removal of financial advisors from the regulatory scope will create a governance gap at the most critical point of investor contact.

8.1 Recognizing Advisors as Governance Actors, Not Merely Compliance Subjects

The most fundamental policy implication of this study is conceptual: financial advisors should be recognized by policymakers not merely as subjects of regulatory compliance obligations, but as active governance actors in sustainable finance markets.

This recognition has concrete regulatory consequences. Under the current MiFID II framework, advisors bear formal suitability obligations that require them to align investment recommendations with clients’ sustainability preferences. However, these obligations are framed primarily in terms of investor protection rather than market governance. The findings of this study suggest that advisors’ governance function, their capacity to discipline asset managers through capital allocation decisions, deserves explicit recognition in regulatory design.

8.2 Mandatory ESG Competency Standards for Financial Advisors

The empirical evidence consistently shows that ESG evaluation by financial advisors is experience-based and informal rather than structured and systematic. This is not primarily a reflection of individual inadequacy, but of the absence of standardized competency requirements specific to sustainable finance.

Regulatory authorities, including ESMA, national competent authorities, and professional bodies, should introduce mandatory ESG competency standards for financial advisors, covering ESG rating methodologies, regulatory disclosure frameworks (including the transition to SFDR 2.0), greenwashing detection techniques, and the application of structured evaluation tools such as the GRI framework. These standards should be integrated into existing professional qualification frameworks and subject to periodic review as the regulatory landscape evolves.

8.3 Institutionalizing the GRI Framework as an Advisory Tool

The GRI framework developed in this study represents a practical and replicable methodology for ESG product evaluation. Its adoption, whether through voluntary industry guidelines, professional association standards, or regulatory guidance, would address the most significant operational gap identified in the empirical analysis: the absence of a structured tool for greenwashing detection in everyday advisory practice.

Industry associations and professional networks are well-positioned to promote the adoption of such frameworks as part of professional practice standards, contributing to the elevation of advisory quality across the sector.

8.4 Improving ESG Data Infrastructure

The GRI framework, while designed to be actionable with publicly available information, would be significantly more powerful if supported by improved ESG data infrastructure. Specific measures should include the development of a centralized European ESG data platform providing comparable, machine-readable sustainability disclosures across fund products, mandatory cross-provider reconciliation requirements for ESG ratings assigned to the same product, and enhanced portfolio transparency obligations requiring asset managers to publish holding-level ESG data in standardized formats.

These measures would directly address the ESG rating divergence and portfolio alignment challenges identified in the empirical analysis, enabling financial advisors to perform more rigorous and reliable gatekeeping functions.

8.5 Addressing the SFDR 2.0 Governance Gap

The decision to remove financial advisors from the scope of SFDR 2.0 must be accompanied by compensating measures that preserve the integrity of the advisory gatekeeping function. In the absence of formal SFDR obligations, the risk is that advisors’ engagement with sustainability information becomes less rigorous and less standardized, precisely the opposite of what sustainable finance governance requires.

Compensating measures should include explicit guidance from ESMA on how advisors should evaluate SFDR 2.0 product categories within the MiFID II suitability framework, integration of SFDR 2.0 category assessment into MiFID II suitability questionnaire standards, and development of supervisory expectations for advisory firms regarding their ESG evaluation processes.

8.6 Toward an Intermediation-Based Model of Sustainable Finance Governance

Taken together, these policy recommendations point toward a fundamental shift in the governance philosophy of sustainable finance: from a disclosure-centric model, in which transparency alone is expected to discipline markets, toward an intermediation-based model, in which financial advisors play a recognized and institutionalized role in ensuring market integrity.

This shift does not require abandoning disclosure-based regulation. Rather, it requires recognizing that disclosure is a necessary but insufficient condition for credible ESG markets, and that the effectiveness of regulation depends critically on the capacity of financial intermediaries to interpret, evaluate, and act on sustainability information on behalf of investors.

The intermediation-based model positions financial advisors as the last line of governance between regulatory intent and market outcome. Strengthening their capacity to perform this role, through competency standards, analytical tools, and improved data infrastructure, is therefore not merely a professional development priority, but a structural governance imperative.

9. Conclusion

Sustainable finance represents one of the most significant transformations in contemporary financial markets, reflecting a broader shift toward integrating environmental and social considerations into economic decision-making. However, as this study has demonstrated, the credibility and effectiveness of ESG investing depend not only on the design of regulatory frameworks, but also on how sustainability information is interpreted and applied in practice.

This paper has argued that financial advisors play a critical and underappreciated role in this process. Moving beyond traditional conceptions of financial intermediation, the analysis has conceptualized advisors as institutional gatekeepers of sustainable finance, positioned at the intersection of regulation, financial markets, and investor behavior.

The findings highlight that financial advisors contribute to mitigating greenwashing risks by filtering complex ESG information, translating sustainability preferences into investment decisions, and identifying inconsistencies between sustainability claims and underlying portfolio structures. At the same time, the study has shown that this gatekeeping role remains conditional and structurally constrained, depending on the quality of ESG data, the clarity of regulatory frameworks, and the analytical capabilities of advisors.

These results carry important implications for the governance of sustainable finance. While European regulatory initiatives—such as the Sustainable Finance Disclosure Regulation, the EU Taxonomy, and the integration of sustainability preferences under MiFID II—have significantly improved transparency, they do not, on their own, eliminate informational asymmetries or fully prevent greenwashing. Instead, regulation must be complemented by effective intermediation.

This conclusion is further reinforced by the most recent regulatory developments. The European Commission’s November 2025 proposal for SFDR 2.0 (COM/2025/841 final) paradoxically increases rather than diminishes the importance of voluntary gatekeeping. As formal regulatory obligations recede, the capacity of advisors to independently evaluate sustainability claims becomes the last line of governance between regulatory intent and market outcome. This development confirms that the future of sustainable finance governance cannot rest on disclosure alone, but depends critically on the professional competence, analytical tools, and institutional culture of those who translate regulation into investment decisions.

By introducing the ESG Gatekeeping Framework and the Greenwashing Risk Indicators, this study has contributed both conceptually and methodologically to the literature, providing tools to better understand and evaluate the role of financial advisors in sustainable investment markets.

Ultimately, the paper suggests that the future of sustainable finance governance lies in recognizing financial advisors not merely as conduits of information, but as active agents of market integrity. Strengthening their capacity to perform this role is essential for ensuring that sustainable finance fulfills its core objective: directing capital toward genuinely sustainable economic activities rather than merely rebranding conventional investments.

In this sense, the effectiveness of sustainable finance will depend not only on what is disclosed, but on how it is interpreted, challenged, and acted upon. Financial advisors, as gatekeepers of this process, are therefore central to the credibility and long-term success of ESG investing.

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