The Parliament proposal shows that many of the concerns raised through Frank Bold’s research and engagement with policymakers are now entering the legislative mainstream. But the negotiations ahead will determine whether the final framework is capable of addressing the structural weaknesses that continue to undermine trust in the sustainable investment market.
The European Parliament’s draft report on the review of the Sustainable Finance Disclosure Regulation (SFDR), proposed by the European Commission last November, reflects a growing recognition that the EU sustainable finance framework has been suffering from a fundamental credibility problem.
Too many investment products continue to market themselves as “sustainable” or “transition-focused” without clearly demonstrating what they actually deliver.
Frank Bold’s 2024 research into forty-three Article 8 and 9 investment products identified a market characterised by vague sustainability methodologies, heavy reliance on proprietary ESG scoring, weak or non-existent transition targets, and with only limited connection to real-world impact. In practice, many products marketed as contributing to sustainability or transition objectives still provide little evidence that they are genuinely helping finance the transition of the real economy. At the same time, highly heterogeneous market practices across financial market participants continue to undermine comparability and informed investor decision-making.
Over the past years, Frank Bold has actively engaged with the European Commission, Members of the European Parliament and other policymakers on the future of the SFDR framework. Several concerns and recommendations published in our official position (particularly on transition credibility, methodology transparency, mandatory sustainability indicators and anti-greenwashing safeguards) are now reflected in the Parliament’s proposal.
However, while the draft strengthens product-level disclosures in several important areas, the simultaneous removal of entity-level reporting obligations under SFDR, combined with proposed exemptions for asset managers under the ongoing ESRS review, risks leaving large parts of the investment sector outside meaningful sustainability reporting obligations altogether, a risk pointed out in our analysis last week.
The clearest message emerging from both the market evidence and the political debate is that climate transition remains the weakest part of the sustainable investment market.
Our research found that products explicitly marketed as supporting “transition” rarely included meaningful decarbonisation pathways, fossil fuel phase-out approaches or targets aligned with the Paris Agreement. Instead, products often relied on broad ESG language, exclusions or opaque scoring methodologies with very limited transparency on actual transition performance.
The Commission proposal partially recognised this challenge by introducing a dedicated “Transition” product category alongside relevant mandatory exclusions. However, it also introduced major loopholes by allowing products following EU Climate Transition or Paris-aligned Benchmarks to bypass key SFDR requirements.
Frank Bold warned that this would significantly weaken the framework. The Parliament proposal now removes these benchmark-related safe harbours, representing one of the most significant improvements in the draft and a major step towards restoring consistency and credibility to transition-related products.
Another major weakness identified by Frank Bold’s research was the lack of comparable sustainability information across products.
While our analysis found that methodologies were often vague or proprietary and products frequently failed to explain how sustainability performance was measured, ESMA separately found that 95% of analysed Article 8 and 9 products did not disclose meaningful Principal Adverse Impact (PAI) indicators.
In response to the Commission proposal, Frank Bold called for:
The Parliament proposal now incorporates several of these recommendations. Crucially, it introduces mandatory core PAI indicators across product categories, strengthens transparency around use of data, and adds further, albeit still limited, specification for investment approaches relying on open-ended positive-screening criteria.
These changes would significantly improve comparability, accountability and investor understanding across the market.
Frank Bold’s research also identified widespread confusion around sustainability-related product claims and weak differentiation between genuinely sustainable products and products relying primarily on marketing language.
In response, Frank Bold advocated for investor-facing disclaimers and stronger safeguards for non-categorised products using sustainability-related terminology.
The Parliament proposal now introduces a requirement for non-categorised products to include an explicit disclaimer stating that such products do not meet EU standards for sustainable financial products. This marks a vital shift towards linking sustainability-related marketing claims to minimum standards and disclosure obligations.
Despite these improvements, several important weaknesses remain unresolved.
The Parliament draft does not align human rights safeguards with broader EU due diligence standards and leaves the definition of topics covered by mandatory PAI disclosures to Level 2 negotiations, creating a risk that essential sustainability topics may be excluded.
Furthermore, the draft report follows the Commission proposal in completely removing entity-level disclosures from the SFDR framework. This becomes particularly problematic in light of the latest ESRS Draft Delegated Act negotiations, which introduced a possible exemption for asset managers from CSRD/ESRS reporting obligations, a major loophole highlighted in Frank Bold’s recent analysis.
Combined, these changes could leave asset managers entirely outside the scope of any sustainability reporting obligations.
The SFDR review is increasingly becoming a test of whether the EU sustainable finance framework can move beyond broad sustainability marketing towards a system grounded in measurable performance, transparent methodologies and credible transition outcomes.
The Parliament proposal shows that many of the concerns raised through Frank Bold’s research and engagement with policymakers are now entering the legislative mainstream. But the negotiations ahead will determine whether the final framework is capable of addressing the structural weaknesses that continue to undermine trust in the sustainable investment market.
Ultimately, the credibility of sustainable finance will depend less on labels and categories and far more on whether products can demonstrate, through transparent and measurable disclosures, that they are genuinely contributing to the transition of the real economy.
As the EU navigates a critical period for its economic and environmental future, recent developments expose a troubling disconnect between political promises and policy action. What should we expect from our elected leaders when the foundations of sustainable competitiveness are being dismantled?
This legal briefing provides a detailed overview of the purpose, requirements, timeline, and most importantly, key interactions between different sustainability laws that will apply to companies operating in the European Union.
Speech by Filip Gregor at the public hearing on Reporting Obligations, held by the European Parliament's Committee on Legal Affairs on 13th May 2025
