SFDR review takes steps forward, but greenwashing risks remain

The Sustainable Finance Disclosure Regulation (SFDR), since it started applying in 2021, improved financial products’ transparency over their integration of sustainability risks and the consideration of their adverse impacts on the environment and society. The SFDR was initially conceived as a disclosure regime. However, the misuse of its Articles 6, 8 and 9 as a classification system and the lack of clarity over some core definitions led to diverging interpretations, market fragmentation, and greenwashing concerns. The SFDR review, in preparation by the European Commission since 2023, is aiming to resolve these issues.

The SFDR review takes important steps forward by introducing three sustainability-related product categories with requirements to set objectives and track progress, as well as the clear expectation that any ESG or sustainability-related claims by financial products must be backed by compliance with SFDR criteria.

However, basic criteria and limited exclusions risk leaving room for greenwashing. While the new “impact” transparency layer is a welcome addition, the deletion of key entity-level disclosures and rollback in product-level disclosures could further reduce comparability for investors. Excluding portfolio managers from the scope may also create operational gaps.

In the coming weeks, Eurosif will publish detailed recommendations for EU co-legislators to help ensure that the SFDR review delivers on its objectives of clarity, credibility, and investor confidence.

Contact:

Pierre Garrault, Senior Policy Adviser - pierre.garrault@eurosif.org

You can find the full press release here.