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SFDR Simplified: European Commission’s Revised Sustainable Finance Disclosure Regulation Proposal

Date: November 20, 2025
Authors: Douglas Bryden, Elisabeth Overland, Theresa Kreft, Léa Bareil, Charlotte Aspin, Emily Strand, Eden Elder, Leila Symonds

Background and Need for Reform

The Commission revises the SFDR. It governs how funds share ESG facts. The SFDR started in 2021. Many issues then came up.

• The rule made fund labels seem like green marks.
• The rule grew too complex.
• The rule and CSRD overlapped and mixed ESG ideas.
• Data on ESG stayed hard to get.
• Costs went high while gains stayed low.

The Commission wants simpler rules. This change aims to boost EU strength and growth.

Key Objectives of the Revised SFDR

1. The rule will be simpler. It cuts paperwork and fits market needs.
2. The rule will protect investors. It makes ESG claims clear and alike.

Major Proposed Changes

1. Principal Adverse Impact (PAI) Disclosures
    • The rule drops PAI reports at the entity level.
    • Instead, it looks at product details for both Transition and Sustainable products.
    • This step saves about 25% in annual costs.

2. Streamlined Disclosure Requirements
    • The rule offers short, clear templates for three product types.
    • Fewer sustainability indicators will be shown.
    • This helps retail investors read and compare.

3. Narrowed Regulatory Scope
    • The rule removes financial advisers and portfolio managers.
    • It sets clear product-level duties.

4. Removal of "Sustainable Investments" Concept
    • The rule drops tests like “do no significant harm” and “good governance”.
    • This change removes tough, vague tests.

5. Revised Product Categories & Labels
   The Commission makes three product types with clear marks:

• Transition Category (Article 7)
  – The rule supports funds that help companies shift to green paths.
  – It cuts funds in tobacco, controversial weapons, and similar areas.

• ESG Basics Category (Article 8)
  – The rule covers funds that use many ESG ideas.
  – It does not promise full transition or deep sustainability.

• Sustainable Category (Article 9)
  – The rule saves funds that fully meet green goals.
  – Each fund must have at least 70% meeting the rule’s criteria.

Conclusion

The Commission changes the SFDR to simplify rules. It keeps ESG claims clear and the data close. This rule cuts industry burdens and shields investors from false green claims. The change sets up a neater, more efficient market for sustainable finance in Europe.

For professionals and investors, experts can explain these SFDR reforms in detail.

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