Design Delight Studio

SFDR 2.0: Progress Made but Challenges Remain – Insights by Rosl Veltmeijer

The European Commission has proposed changes to the Sustainable Finance Disclosure Regulation. These updates, called SFDR 2.0, aim to improve sustainability disclosures for financial products. They refine ESG transparency, cut greenwashing, and better protect investors. Rosl Veltmeijer, Portfolio Manager at Triodos Investment Management, finds that the changes may not go far enough.

Key Changes and Initial Positives

• New Investment Categories: The old Article 6, 8, and 9 labels are now replaced by three new categories: Sustainable, Transition, and ESG Basics.
• Exclusions-Based Requirements: These set a clear, science-based definition of harm.
• Removal of Entity-level PAI Reporting: This change reduces administrative tasks and focuses on key sustainability data.

These updates appear positive at first. They offer a clear scientific base for exclusions and lessen reporting burdens.

Critical Gaps in the Proposal

1. Lack of a Level Playing Field
Funds that fit the Sustainable, Transition, or ESG Basics labels must share detailed information. In contrast, investment products that do not fit these categories may cause harm but report only if they choose to do so. This rule creates an imbalance. It may let risky funds hide their impacts. Veltmeijer stresses that all products should reveal their adverse effects to truly protect investors and the market.

2. Insufficient Clarity and Comparability for Retail Investors
To meet these labels, only 70% of a fund’s portfolio must claim sustainability. Veltmeijer finds this threshold too weak and inconsistent. The vague rules for ESG Basics and the lack of enforced sustainable outcomes increase greenwashing risks. The Transition category focuses mostly on environmental issues and overlooks social changes because these are harder to measure. Also, the difference between SFDR’s 70% rule and ESMA’s 80% rule may confuse investors.

3. Weak Criteria and Loopholes
The policy aligns exclusions with other EU laws, which is a positive step. Still, SFDR 2.0 keeps weak criteria for ESG Basics. This gap allows financing of fossil fuel activities (except coal and lignite). Investors might then believe they support ESG-compliant products while unknowingly backing fossil fuel expansion without clear transition plans.

Conclusion: An Improvement but Not Enough

SFDR 2.0 makes progress over the current framework, yet Veltmeijer argues it does not create a fair field or strong guard against greenwashing. Without broader disclosure rules and tighter criteria, investors could be misled and the full potential of sustainable finance may not be reached.

Author Profile: Rosl Veltmeijer

Rosl Veltmeijer is a seasoned Portfolio Manager at Triodos Investment Management. She works with fixed income impact investments. She has deep skills in sustainability review and contributes to the Dutch Fund and Asset Management Association’s Sustainability Committee. She holds degrees in Business Economics, Social Banking and Social Finance, and Investment Management.

For investors who need clear, trustworthy ESG information and sustainable finance insights, it is essential to watch the evolution of SFDR 2.0. The rules will keep changing as regulators fight greenwashing and work to support truly sustainable investments.

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