European Commission Simplifies Transparency Rules for Sustainable Financial Products

The European Commission has introduced proposed amendments to the Sustainable Finance Disclosure Regulation (SFDR), aiming to simplify and enhance transparency rules for financial products with environmental or social objectives. These revisions seek to make disclosures clearer, more efficient, and aligned with real market conditions, ultimately benefiting investors and providers alike while reinforcing the EU’s leadership in sustainable finance.

Background on SFDR

• Adopted: November 2019
• In effect since: March 2021
• Complemented by: Delegated regulation detailing technical requirements (from April 2022, effective January 2023)

The SFDR provides a transparency framework obliging financial market participants to disclose sustainability-related information when offering products with environmental, social, or governance (ESG) aims.

Key Challenges Addressed

• Excessive length and complexity of current disclosures discourage investor understanding and comparability.
• SFDR’s de facto labeling role has caused confusion among retail investors.
• Risk of greenwashing and mis-selling has increased.
• Overlaps and duplications with other EU sustainability reporting rules (notably the Corporate Sustainability Reporting Directive, CSRD) have heightened reporting burdens.

Main Features of the Proposed Amendments

1. Simplified Disclosures

• Entity-level changes: Deletion of principal adverse impact disclosures by Financial Market Participants (FMPs) under SFDR to reduce duplication with CSRD reporting.
  • Only largest FMPs under CSRD thresholds will disclose broader environmental and social impacts.
• Product-level disclosures: Streamlined to focus on comparable, meaningful data relevant to product sustainability characteristics or objectives.
• Benefits: Reduced implementation costs and clearer, more accessible information for investors, particularly retail clients.

2. Clear Categorisation System for ESG Financial Products

The Commission proposes a straightforward, three-tier categorisation to classify sustainable financial products, enhancing transparency and facilitating informed investment decisions:

• Sustainable Category: Investments actively contributing to established sustainability goals (e.g., climate, social impact) and involving companies/projects meeting high sustainability standards.
• Transition Category: Investments in entities progressing towards sustainability but not fully there, supporting credible transition pathways for environmental or social improvements.
• ESG Basics Category: Products integrating varying ESG approaches that do not qualify as sustainable or transition investments (e.g., best-in-class in ESG metrics or exclusion of worst performers).

Criteria: Each category must allocate at least 70% of the portfolio to support its sustainability strategy and exclude investments in harmful sectors (e.g., tobacco, prohibited weapons, fossil fuels beyond set limits, human rights violations).

Impact: ESG claims will be exclusively permitted on categorized products’ names and marketing, boosting investor trust and combating greenwashing.

Expected Impact and Next Steps

• Enhanced usability of sustainability information will empower investors to make better-informed choices.
• Reduced disclosure burdens lower costs for financial product providers.
• Encourages greater retail investor participation in sustainable finance, supporting the EU’s Savings and Investments Union (SIU) objectives.
• Reinforces the EU financial sector’s competitiveness and the continent’s global leadership in sustainable investments.

The proposal will now proceed to the European Parliament and Council for deliberation and potential adoption.

Source

European Commission, November 20, 2025
PubAffairs Bruxelles — EU Debates, News & Opinions
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