On 2 May 2025, the European Commission launched a call for evidence to assess the impact of revising the Sustainable Finance Disclosure Regulation (SFDR)1. This call for evidence is addressed to the public and stakeholders and seeks to gather feedback on the Commission's understanding of problems in relation to SFDR and possible solutions.
The Commission indicates that it is examining any changes to SFDR in line with the objectives of the Commission's proposals to simplify sustainability reporting for companies (please see our Newsflash on the Commission's proposed changes to the CSRD2 and the EU Taxonomy).
Why Now?
The Commission launched a comprehensive SFDR assessment in 2023, which included a targeted and a public consultation on SFDR and well as technical workshops. The feedback received from the industry was that, while there was general support for the broad aims of SFDR, i.e. increasing transparency and giving investors access to detailed ESG information, stakeholders reported various challenges in relation to SFDR: (i) a lack of legal clarity on key concepts, (ii) the limited relevance of certain disclosure requirements, (iii) overlaps and inconsistencies with other parts of the sustainable finance framework and (iv) issues linked to data availability. The failure to appropriately include transition finance in the SFDR framework has also been of significant concern.
In its December 2024 report on product categorisation, the EU Platform on Sustainable Finance (following a mandate from the Commission to enhance the effectiveness of SFDR) indicated its strong preference for a retail investor focused and voluntary product categorization system consisting of three categories (sustainable, transition and ESG collection) and notably including minimum criteria.
What is the EU Commission proposing?
The Commission is of the view that the functioning of SFDR needs to be improved and that the framework for financial market participants (which includes UCITS management companies and AIFMs) and end investors needs to be clarified by: (i) simplifying key concepts, (ii) streamlining and reducing disclosure and reporting requirements focusing on the most essential information for investors and (iii) exploring the case for categorising financial products that make sustainability-related claims.
It follows that the possible options, that the Commission is looking at for a revised SFDR, include the following:
- Targeted changes and clarifications to the existing SFDR regime.
- More far-reaching changes involving a number of product categories based on the sustainability objectives of the relevant financial products (e.g. sustainable, transition or broader ESG strategies).
The Commission's SFDR review is timely. It is encouraging that the Commission recognises that the above options (whichever one the Commission decides to choose) need to take into account its proposed simplification changes to the CSRD and the EU Taxonomy as well as the need to act coherently with the MiFID rules on distribution.
Next Steps
The feedback window is open until 30 May 2025. A formal legislative proposal from the Commission is expected in the last quarter of 2025. While no further consultations are planned, the Commission indicates that it may carry out further targeted outreach with stakeholder representatives.
Footnotes
1. Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector, as amended
2. Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU, as regards corporate sustainability reporting
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