SFDR review: ECON report brings improvements, but trilogues must address remaining gaps

Eurosif, the leading pan-European sustainable finance association, acknowledges the improvements made by the European Parliament’s Economic and Monetary Affairs Committee (ECON) to the European Commission’s proposal for the review of the Sustainable Finance Disclosure Regulation (SFDR). However, significant gaps remain that will need to be addressed during the upcoming trilogue negotiations.

The ECON report improves on the Commission’s proposal in several areas, notably by strengthening product-level Principal Adverse Impact indicators, reinforcing disclaimers for non-categorised products including ESG information, and restoring targeted entity-level disclosures. However, its inclusion of an opt-out for professional investors and changes to the criteria for the “transition” category, although both differing in important respects from the Council’s position, could weaken the framework unless adequate safeguards are secured in the final text.

Moreover, neither the ECON nor the Council position adequately address several important outstanding issues. These include the lack of dedicated criteria for products pursuing social objectives, the need to tailor product criteria to different asset classes, including private and real assets, and the absence of Do No Significant Harm principle from the “sustainable” category.

Opt-out for professional investors requires strong safeguards

The ECON report proposes allowing Alternative Investment Funds marketed exclusively to professional investors to opt out of the SFDR, echoing the Council’s position. Eurosif regrets this decision, which risks fragmenting the market and leaving professional investors without important sustainability-related disclosures. If the opt-out is retained, ECON’s proposed safeguard preventing exempted products from using sustainability-related terms in their names and marketing materials must be preserved to protect professional investors from misleading claims.

The transition category must be based on credible company-level transition

Under the ECON report, companies with fossil-fuel expansion plans could remain eligible for the “transition” category if at least 20% of their capital expenditure is Taxonomy-aligned and they have a plan to reduce Scope 1 and 2 greenhouse-gas emissions.

Compared with the Council’s position, ECON introduces additional safeguards: companies would have to invest more in Taxonomy-aligned activities than in fossil-fuel expansion and, where they use coal for power generation, phase out those activities. While welcome, these safeguards result in a complex eligibility test that may not provide sufficient assurance that a company is genuinely transitioning.

Aleksandra Palinska, Executive Director of Eurosif, said:

“The transition category must enable investors to identify companies genuinely transforming their business models – not those making isolated green investments while continuing to expand fossil-fuel activities. Eligibility should be based on a company’s overall strategy and capital allocation, underpinned by a credible transition plan that is being implemented. Otherwise, the criteria risk weakening the category’s credibility while adding unnecessary complexity.”

Criteria must reflect different asset classes and social objectives, and preserve DNSH

Like the Council, the ECON report proposes neither dedicated criteria for products pursuing social objectives nor criteria adapted to the specific characteristics of different asset classes, including private and real assets. The final framework should explicitly empower the European Supervisory Authorities to develop tailored criteria through technical provisions.

The omission of the Do No Significant Harm (DNSH) principle from the “sustainable” category also remains a major concern. The co-legislators should restore an appropriate and proportionate DNSH safeguard to prevent investments from being presented as sustainable while significantly harming other environmental or social objectives.

Nathalie Dogniez, Chair of Eurosif, said:

“SFDR 2.0 needs clear technical provisions explaining how its criteria apply across different asset classes, including private and real assets. It must also give social objectives a proper place, reflecting their essential role in financing a just transition. At the same time, omitting the Do No Significant Harm principle from the ‘sustainable’ category would remove a key safeguard underpinning the credibility of sustainability claims. These gaps must be addressed before the revised framework takes effect.”

 

Notes to Editors

Next steps

• October: the European Parliament is expected to adopt the ECON report in a plenary session.
• Early November: expected start of trilogue discussions between the European Parliament, Council of the EU, and European Commission.

Contact:

Anne Risse, Policy and Communications Officer: anne.risse@eurosif.org

 

Read the press release in PDF format here.