Revision of SFDR Is Underway by the EU Commission: Call for Evidence

Recollecting: The essence of SFDR

The official announcement of SFDR came in March 2021 as one of the key measures introduced by the EU Commission under the Green Deal agenda. From the very beginning, the SFDR aimed to ensure that investors receive clear, consistent, and relevant information about the sustainability objectives and characteristics of financial products, allowing them to make well-informed decisions about where to put their money. In that sense, the Regulation was set out as a common and coherent framework for sustainability-related disclosures, prepared by Financial Market Participants (FMP), with the purpose of driving financial support towards a more sustainable economy and enabling EU companies to benefit from these investment flows.

Next step in the review of SFDR by the EU Commission

The EU Commission has opened a Call for Evidence from 2 May until 30 May 2025 to gather feedback from FMPs in the banking and financial services sector within the EU. This marks a new step in their ongoing initiative to refine EU rules on sustainable finance disclosures, making them simpler, more user-friendly, and better at preventing greenwashing. The revision of SFDR is one of the goals within the Commission Work Programme 2025 with an adoption of any changes currently planned for Q4 2025.

Why is a revision actually needed?

Since 2023 the EU Commission has launched a comprehensive assessment on the Regulation and has been gathering feedback from stakeholders on how useful they find it and what would be their suggestions for improving its application and criteria. To date, the majority of the EU market participants express their support for two main aspects of SFDR, and more precisely:

• Its broader objectives for enhancing transparency in sustainable finance, helping investors to make informed decisions, and battling greenwashing.

• Serving as a common sustainability disclosure framework and standardising how sustainability-related information is disclosed across financial markets.

At the same time, in their comments stakeholders outline their observations on a variety of shortcomings which they believe are heavily impacting the practical application of SFDR, which can be summarised in four main areas:

1. Absence of legal definitions of key aspects

2. Sustainability information is not aligned with the actual needs of investors

3. Discrepancies and overlaps with other existing sustainability finance regulations

4. ESG data inconsistency and scarcity

What could you expect from the upcoming reassessment of SFDR?

Taking the above into consideration, the current aim of the EU Commission is to improve the functionality of SFDR and “to promote the development and transparent categorisation of financial products and services with sustainability features”, as stated by the President of the European Commission Ursula von der Leyen in her Mission Letter for Commissioner Albuquerque. We have already seen changes taking place for the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD) as part of the EU Commission’s Omnibus Package for simplified ESG reporting and the logical next step is to address the observed limitations of SFDR. Some potential changes, mentioned in the Call for Evidence suggest:

• Either targeted updates to clarify existing disclosures,

• or broader reforms that introduce defined categories based on financial products’ sustainability goals, as supported by common criteria (e.g., contributions to sustainability objectives, transition efforts, or other ESG strategies).

Last but not least, it should be clearly noted that all proposed changes must maintain coherence with EU Regulations on how financial products are distributed to investors.

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