ESG in the EU: Who Is in Scope, Which Rules Apply, and Why It Matters (2026)

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ESG in the EU: Who Is in Scope, Which Rules Apply, and Why It Matters (2026)

March 3, 2026

Environmental, Social and Governance (ESG) obligations in the European Union do not arise from a single regulation, nor do they apply uniformly across all firms. Instead, ESG requirements form a layered regulatory framework, with different obligations applying depending on:

the type of firm,
the activities performed,
whether the firm is regulated, listed, or both, and
whether specific size or turnover thresholds are met.

Understanding which ESG rules apply to which firms is a critical first step in designing proportionate governance, disclosures and control frameworks.

1. Investment Firms under MiFID II – ESG as a Conduct and Suitability Obligation

Under MiFID II, ESG requirements apply to investment firms that provide investment advice and/or portfolio management, and more broadly to firms involved in product distribution where suitability and product governance requirements apply.

Importantly, no size or turnover thresholds apply. ESG obligations under MiFID II apply regardless of firm size.

ESG under MiFID II is treated as a conduct-of-business and governance matter, not as a corporate sustainability reporting obligation. Key requirements include:

collecting clients’ sustainability preferences,
integrating those preferences into suitability assessments,
embedding ESG considerations into product governance (target market and distribution),
ensuring ESG-related disclosures and marketing are clear, fair and not misleading.

Supervisory authorities such as ESMA and CySEC focus on substance and consistency, rather than formal disclosures alone.

MiFID ESG therefore concerns how products are designed, sold and advised — not how emissions are reported.

2. Fund Managers (UCITS / AIFMs) – ESG as Product Disclosure and Classification

For UCITS Management Companies and Alternative Investment Fund Managers, ESG obligations arise primarily through the Sustainable Finance Disclosure Regulation (SFDR) and the delegated acts under UCITS and AIFMD.

Once a firm is authorised as a UCITS ManCo or AIFM, SFDR applies automatically, with no size thresholds.

This regime focuses on product-level ESG, including:

classification of funds (Article 6, Article 8 or Article 9),
integration of sustainability risks,
pre-contractual, website and periodic disclosures,
governance of ESG strategies, methodologies and exclusions.

Managers that choose to offer ESG-labelled products (Article 8 or 9) are subject to enhanced disclosure and governance obligations, but SFDR applies even where a manager offers only non-ESG (Article 6) products.

3. Listed and Large Companies – CSRD / ESRS Corporate ESG Reporting

Corporate ESG reporting obligations arise under the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS). This is the area where size thresholds are most relevant.

All companies listed on an EU regulated market are captured, except listed micro-enterprises. A listed micro-enterprise is exempt if it does not exceed at least two of the following:

€900,000 net turnover,
€450,000 total assets,
10 employees.

In addition, large EU companies (group or solo) whether listed or unlisted, fall within scope if they meet at least two of the following:

€50 million net turnover,
€25 million total assets,
250 employees.

Certain non-EU companies are also captured where they:

generate at least €150 million net turnover in the EU, and
have either a large or listed EU subsidiary, or an EU branch with at least €40 million turnover.

Under CSRD, ESG is addressed as corporate-level sustainability reporting, covering environmental impact, social matters and governance structures.
CSRD does not regulate conduct, suitability or product distribution — it focuses on transparency and reporting.

4. Banks and Credit Institutions – ESG as a Prudential Risk

For banks, credit institutions and Class 1 investment firms prudentially treated as banks, ESG is addressed as a financial and prudential risk under the CRD/CRR framework.

This includes:

integration of ESG risks into ICAAP and risk appetite frameworks,
climate and environmental stress testing,
Pillar 3 ESG disclosures,
application of EBA ESG risk guidelines.

This prudential ESG framework is specific to the banking regime and does not generally apply to investment firms subject to IFR/IFD, unless they are classified as Class 1 institutions.

5. Crypto-Asset Service Providers (CASPs) – Limited ESG Obligations

Under the Markets in Crypto-Assets Regulation (MiCA), ESG obligations for Crypto-Asset Service Providers are currently limited.

They mainly concern:

specific environmental disclosures (such as energy consumption for certain crypto-assets),
with no comprehensive ESG governance or reporting regime equivalent to MiFID or CSRD at this stage.

However, ESG considerations may still arise indirectly where:

CASPs are part of a CSRD-reporting group,
MiFID firms distribute crypto-related products, or
sustainability claims are used in marketing or communications.

6. Why ESG Alignment Across Regimes Matters

Many firms are subject to multiple ESG regimes simultaneously, for example:

a MiFID investment firm that is also listed (MiFID + CSRD),
a UCITS ManCo distributing ESG funds through MiFID advisers (SFDR + MiFID),
a MiFID firm within a large CSRD-reporting group,
a MiFID firm operating alongside a CASP.

In such cases, ESG must be coherent across governance, disclosures and conduct, even though obligations arise from different legal frameworks.

Conclusion

ESG in the EU is not a single rulebook, but a structured regulatory framework that applies differently depending on activity, status and size.