.jpg){kind=small}
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.
Local groups and NGOs including Frank Bold, that is very active in the process, welcomed the Czech government’s decision to file a lawsuit at the European Court of Justice against the Polish government for the illegal operation of the Turów lignite coal mine, which has been dug right up to the Czech and German borders, damaging local water supplies for nearby communities. This is the first such legal case for the Czech Republic and the first in EU’s history where one member state sues another for environmental reasons.
Meeting the goal of the European Green Deal to achieve no net GHG emissions by 2050 requires at least half trillion euros of additional investments in the EU every year and will involve significant market and regulatory changes targeting every sector of the economy. This will profoundly change how companies and their directors need to integrate sustainability concerns in their strategies and business decisions.
Frank Bold organised two online events to present the results of the research on the disclosures made by 300 companies on climate and environmental matters providing targeted presentation and insights for companies in Southern Europe and Central and Eastern Europe.
