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The EU Sustainable Finance Disclosure Regulation (SFDR) is a cornerstone of the EU’s sustainable finance framework, but the Commission’s proposed amendments risk weakening comparability, ambition and product differentiation if key loopholes remain unaddressed.
In November 2025, the European Commission proposed targeted amendments to the Sustainable Finance Disclosure Regulation (SFDR), which has been in force since 2021 and is a cornerstone of the EU sustainable finance framework.
The suggested changes are designed to address shortcomings identified in the regulation, which requires financial market participants to disclose how sustainability risks and impacts are integrated into investment decisions and to classify financial products according to their sustainability ambition.
The reform introduces three new product categories — ESG Basics, Transition and Sustainable — and aims to simplify disclosures while reducing compliance burdens.
We assessed the Commission’s draft proposal and identified positive changes as well as critical gaps, for which we provide specific recommendations building on data from our 2024 research on the implementation of the SFDR by 15 financial market participants and 43 financial products.
While clearer product categories are a step forward, the proposal risks maintaining loopholes in three critical areas:
The manner in which financial market participants select and assess the positive contribution of a determined product remains highly open and vague, relying on their own subjective criteria.
> The SFDR should require stronger disclosure requirements, including information on how compliance is measured.
At the same time, providing specific information on the potential negative effects that an investment product can have on the environment and society (known as Principal Adverse Impacts or PAI) remains fully voluntary, and can be based on qualitative information.
> The SFDR should require a minimum level of mandatory standardised information that should later be defined by the Commission (as part of their upcoming work on the Level 2 RTS), covering a core set of indicators on climate change, biodiversity and human rights for financial products across all categories (ESG Basics, Transition and Sustainable).
The above recommendations are necessary to ensure comparability and level the playing field by preventing cases of greenwashing. Our research proved the need for better, clearer and verifiable screening criteria.
Financial products may be presented under the Transition or Sustainable categories solely by tracking EU climate benchmarks, bypassing other requirements from the respective category — including exclusion of fossil fuel expansion and PAI disclosures.
> The regulation should make sure that benchmark-based products remain subject to these two requirements.
In addition, exclusions related to human rights impacts rely on the UN Global Compact, which is not aligned with the broader EU framework referencing the UN Guiding Principles on Business and Human Rights.
> The SFDR should ensure legal coherence and alignment with prevailing international market standards for responsible business conduct and human rights due diligence.
The proposal is for categorised products to ensure that 70% of the portfolio supports a selected sustainability strategy or, alternatively, align 15% of the portfolio with the EU Taxonomy. However, this already falls below current market practice. Our research shows that investors allocated on average at least 90% of investments to environmental or social characteristics or to sustainable investment objectives.
> The SFDR should increase these thresholds to 80% (ESG Basics category) and 90% (Transition and Sustainable categories) and increase the Taxonomy alternative to 25%.
Moreover, the 10% cap on sustainability-related marketing for non-categorised products — combined with the absence of a clear disclaimer — risks blurring the distinction between regulated and non-regulated products.
> The regulation should reduce this percentage to 5% and introduce a clear non-compliance disclaimer to avoid misleading investors.
The SFDR should provide simple, comparable and decision-useful information for investors. Without stronger safeguards, the revised regulation risks maintaining a fragmented framework, which is prone to greenwashing.
The upcoming negotiations offer a crucial opportunity to ensure that the SFDR delivers on its original objective: empowering investors, curbing greenwashing and mobilising capital for the net-zero transition.
The European Parliament and Council will now develop their positions before finalising negotiations with the Commission. Once the Level 1 framework is agreed, detailed rules will follow through Level 2 Regulatory Technical Standards. The process is expected to continue until at least 2028.
Dear Members of the European Parliament, In the next couple of weeks, various committees in the European Parliament will vote on their proposals to reform the EU Corporate Sustainability Reporting Directive (CSRD). In view of that, the co-signing organisations are calling for broadening the scope of the companies to be covered by the new rules by including all listed SMEs, as well as non-listed SMEs operating in high-risk sectors, subject to proportional rules.
In response to demands from investors and companies, the European Commission presented a proposal for a Corporate Sustainability Due Diligence Directive (CSDDD) in February 2022. The Directive is also a response to France, Germany and Norway adopting legislation on due diligence and attempts to harmonize and introduce one European standard of responsible business conduct.
After several months of delay, today, the European Commission presented its proposal for a Corporate Sustainability Due Diligence Directive in Brussels. The main objective of this new legislation is to integrate into European law international standards such as the UN Guiding Principles on Business and Human Rights - adopted globally over a decade ago - and standards developed and approved by the OECD.
