ESG: Commission calls for views on revising the SFDR

On 2 May 2025, the European Commission published a Call for Evidence (CfE) on revisions to the SFDR.

Key points

The Commission has identified a number of limitations in the existing SFDR framework, including a lack of clarity around key concepts; overlaps and inconsistencies with other part of the sustainable finance framework; limited relevance of some disclosure requirements; and issues with data availability.The CfE indicates that SFDR 2.0 could adopt the following measures to help address these issues:

• Simplify key concepts. There is generally strong support in the private funds industry to simplify the SFDR's concepts and allow more flexibility in interpreting such concepts. In particular, there have been calls to refine the scope and content of the Principal Adverse Impact (PAI) indicators, and to revise the definition of "sustainable investment" with the potential removal of the "do no significant harm" (DNSH) test from this concept.

• Streamline and reduce disclosure requirements. The Commission is aiming to streamline and reduce the disclosure requirements by focusing on giving investor's the most important information only, which may result in targeted changes and clarifications to the existing SFDR disclosures. There is considerable support within the private fund industry to simplify the SFDR disclosures as well as to allow sponsors more leeway in how they disclose the required information, rather than having to disclose in line with a mandatory template.

• Introduce categories of financial products that make sustainability-related claims. The Commission is considering the introduction of product categories which are easily understandable by retail investors, accommodate different sustainability objectives and take into account current market practices in terms of available data and financial products. The product categories would reflect different sustainability objectives of financial products, supported by common criteria (e.g. products contributing to a sustainability objective, to the transition, or to other ESG strategies). There is some opposition within the private funds industry to such a product categorisation regime and support for the existing disclosure-based approach to be preserved. If introduced, it is considered that a product categorisation regime should not be extended to products marketed to professional investors who are more likely to scrutinise detailed product-level disclosures on the fund's strategy, objectives and sustainability characteristics, rather than rely on categorisations.

What's the context for the CfE?

The Level 1 text of the SFDR contains a provision for its application to be evaluated by the Commission.

To this end, in December 2022, the Commission launched a comprehensive assessment of the SFDR.

This included a targeted and a public consultation,  technical workshops with industry and engagement with 3 Member States and supervisors. (For a summary of the consultations, see here and here. For our client note, ""SFDR 2" - significant new policy direction revealed", see here.)

Feedback received made it clear to the Commission that, although there was widespread support for the broad objectives of the SFDR, it can be complex and costly to implement.

Adjustments have been suggested to help improve the framework's effectiveness by ensuring that it

• caters for different investor groups and types of financial products;

• makes it easier for retail investors to understand investment products;

• takes better account of the international reach and exposures of investments; and

• helps direct investment towards diverse sustainability-oriented aims but, at the same time, avoids greenwashing.

Possible options for revising the SFDR include

• targeted changes and clarifications to the existing disclosures or

• more far-reaching changes involving the establishment of a number of categories reflecting different sustainability objectives of financial products, underpinned by common criteria.

What is the CfE looking at?

The review of the SFDR is intended to clarify the framework for both financial market participants and end-investors by (among other things)

• simplifying key concepts

• streamlining and reducing disclosure requirements focusing on the most essential information for investors and

• exploring the case for categorising financial products that make sustainability-related claims.

The CfE notes that potential product categories should  

• be easily understandable by retail investors

• accommodate different sustainability objectives reflecting EU goals and

• take into consideration, in an appropriate way, current market practices in terms of available data and sustainability-oriented financial products on offer.

The CfE makes clear that the Commission is not anticipating conducting any further public consultations before it finalises its impact assessment. It also flags that any future revisions to the SFDR would need to interact coherently with EU rules for the distribution of financial products to investors.

Next steps

Responses to the CfE can be submitted until 30 May 2025.

In line with its work programme for Q4 2025, it is expected that the Commission will adopt a proposal for a regulation towards the end of this year, aligning with its Omnibus proposals to simplify sustainability reporting for companies. For our client note on the Commission's Omnibus packages, see here.