SFDR 2.0: Progress Made, But Is It Enough?

By Rosl Veltmeijer, 26 November 2025

The European Commission plans changes to the SFDR. They want to boost clarity in sustainability reports. The rules now cover Environmental, Social, and Governance factors in financial products. SFDR 2.0 fights greenwashing and protects investors. Yet, portfolio manager Rosl Veltmeijer points out that key issues endure.

Key Changes Introduced

• New Fund Categories: The old Article 6, 8, and 9 labels are gone. They now use three labels: Sustainable, Transition, and ESG Basics.
• Exclusions-Based Requirements: These rules define harm with clear science. They rule out investments that conflict with sustainability aims.
• Elimination of Entity-Level Principal Adverse Impact (PAI) Reporting: This cut lowers work for firms. It may, however, drop some detailed sustainability data that is of little use.

Areas of Concern

Lack of a Level Playing Field

Transparency rules now cover only categorised funds. The standards rise from ESG Basics to Sustainable funds. Products without a category stay free from disclosure. This gap lets harmful investments hide. Veltmeijer argues that every investment should reveal its harm. This change would let users see full details.

Insufficient Clarity and Comparability

A fund must have 70% of its portfolio match its sustainability claim. However, the rules for ESG Basics stay loose. This flexibility may let subjectivity and greenwashing grow. There is no firm demand for clear outcomes or strict ESG steps.

• The Transition label stresses environmental issues. It leaves the social side weak because measuring social factors is hard.
• The SFDR 70% rule and the ESMA 80% guideline do not match. This gap can confuse investors.

Loopholes in Criteria

The update links exclusions to EU law. Yet, SFDR 2.0 still allows loans for new and ongoing fossil fuel projects (except coal and lignite) under ESG Basics. This gap might mislead investors. They may see these options as truly sustainable. In doing so, the rule risks its own trust.

Conclusion

SFDR 2.0 makes progress in sustainable finance rules. It still leaves gaps when it comes to greenwashing and transparency. This risk hits non-categorised funds and ESG Basics. Until the rule covers all funds and closes all gaps, it may not build a fully trusted sustainable market.

About the Author

Rosl Veltmeijer is Portfolio Manager for the Triodos Sterling Bond Impact Fund and a specialist in fixed income impact investing at Triodos Investment Management. With a background in business economics and social finance, she has led sustainability assessments since 2002. Veltmeijer actively contributes to sustainability policy as a member of the Dutch Fund and Asset Management Association’s Sustainability Committee.

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