Design Delight Studio

SFDR 2.0: Progress Made, But Is It Enough?

By Rosl Veltmeijer | November 26, 2025

Overview of SFDR 2.0 Amendments

The European Commission has introduced proposed amendments to the Sustainable Finance Disclosure Regulation (SFDR), aiming to improve transparency around environmental, social, and governance (ESG) factors in financial products. The SFDR framework’s core goals remain combatting greenwashing, protecting investors, and fostering transparent sustainability disclosures.

Key Changes Introduced

• New Fund Classifications: The current SFDR fund categories (Article 6, 8, and 9) are replaced by three new labels: Sustainable, Transition, and ESG Basics.
• Exclusions-Based Requirements: Newly introduced requirements exclude harmful investments based on scientific criteria, marking a positive step toward defining sustainability harms clearly.
• Removal of Entity-Level PAI Reporting: Eliminates principal adverse impact reporting at the entity level, reducing administrative burdens while discarding less relevant sustainability data.

Critical Concerns and Missed Opportunities

• Lack of Level Playing Field: Only categorized funds must disclose sustainability information, whereas non-categorized funds—possibly involving more harm—are exempt from mandatory disclosures. This creates imbalance and allows potentially harmful investments to evade transparency. Veltmeijer argues that all investment products should be required to report on harm, not just those self-identifying as sustainable.
• Insufficient Clarity and Comparability: Although a 70% portfolio alignment threshold is introduced for categorization, flexibility in criteria remains high. This is particularly problematic for the ESG Basics category, which is vulnerable to greenwashing due to vague requirements and absence of clear sustainability outcomes.
• The Transition category primarily targets environmental (green) transitions but lacks mechanisms to address social transitions, which are equally important yet complex to quantify.
• Inconsistency with ESMA fund naming guidelines, which demand an 80% threshold, risks confusing retail investors.

Weak Criteria and Potential Loopholes

Despite aligning exclusions with other EU laws, loopholes persist, especially in the ESG Basics category. For example, fossil fuel activities like oil drilling without a transition plan might still qualify as ESG-compliant, misleading investors and undermining sustainability objectives.

Conclusion: An Improvement, Yet Not Sufficient

Rosl Veltmeijer acknowledges that the SFDR 2.0 proposal marks progress compared to the initial SFDR framework by introducing clearer scientific definitions of harm and reducing administrative load. However, it falls short of establishing equitable disclosure requirements across all investment products and contains gaps that risk perpetuating greenwashing. Addressing these limitations is essential to unlocking the full potential of sustainable finance and ensuring retail investors receive transparent, comparable, and trustworthy information.

About the Author

Rosl Veltmeijer is Portfolio Manager at Triodos Investment Management, specializing in fixed income impact investments and sustainability assessments. With over two decades at Triodos, she is a notable voice in sustainable finance and a member of the Dutch Fund and Asset Management Association’s Sustainability Committee.

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