COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT REPORT accompanying the Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector (SFDR), Regulation (EU) No 1286/2014 on key information documents for packaged retail and insurance-based investment products (PRIIPs) and repealing Commission Delegated Regulation (EU) 2022/1288
Date: 2025-11-20
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: consumer information, disclosure of information, financial legislation, financial occupation, financial risk, financial services, insurance, regulation of investments, risk management, sustainable finance

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 20.11.2025  SWD(2025) 838 final  COMMISSION STAFF WORKING DOCUMENT  IMPACT ASSESSMENT REPORT  accompanying the Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector (SFDR), Regulation (EU) No 1286/2014 on key information documents for packaged retail and insurance-based investment products (PRIIPs) and repealing Commission Delegated Regulation (EU) 2022/1288  {COM(2025) 841 final} - {SEC(2025) 841 final} - {SWD(2025) 839 final}  
 
 
Table of contents 

INTRODUCTION: POLITICAL AND LEGAL CONTEXT ............................................................... 4 
1. 
PROBLEM DEFINITION .................................................................................................................... 7 
2. 
3.  WHY SHOULD THE EU ACT? ........................................................................................................ 16 
4.  OBJECTIVES: WHAT IS TO BE ACHIEVED? ............................................................................... 17 
5.  WHAT ARE THE AVAILABILITY POLICY OPTIONS? ............................................................... 18 
6.  WHAT  ARE  THE 

IMPACTS  OF  THE  POLICY  OPTIONS  AND  HOW  DO  THEY  

COMPARE?........................................................................................................................................ 39 
PREFERRED COMBINATION OF POLICY OPTIONS .................................................................. 62 
7. 
8.  HOW WILL ACTUAL IMPACTS BE MONITORED AND EVALUATED? .................................. 64 
ANNEX 1: PROCEDURAL INFORMATION ............................................................................................ 66 
ANNEX 2: STAKEHOLDER CONSULTATION (SYNOPSIS REPORT) ................................................ 72 
ANNEX 3: WHO IS AFFECTED AND HOW? .......................................................................................... 83 
ANNEX 4: ANALYTICAL METHODS ................................................................................................... 110 
ANNEX 5: COMPETITIVENESS CHECK .............................................................................................. 111 

ANNEX  6:  INTERACTIONS  BETWEEN  THE  SFDR  AND  THE  SUSTAINABLE  FINANCE  AND 

BROADER CORPORATE SUSTAINABILITY FRAMEWORK .................................................. 113 
ANNEX 7: ADDITIONAL BACKGROUND ON SPECIFIC SECTORS OR INVESTMENTS ............. 120 

ANNEX  8:  ADDITIONAL  INFORMATION  AND  ILLUSTRATIVE  EXAMPLES  OF  POTENTIAL 
CRITERIA AND DISCLOSURES (OPTION 3.1 AND 3.2) AND APPROACH TO ESTIMATION124 

SECTION  1:  UNDERLYING CRITERIA FOR THE CATEGORIES PROPOSED                      UNDER 

OPTION 3.1 AND 3.2 ...................................................................................................................... 125 

SECTION 2: UNDERLYING DISCLOSURES FOR THE CATEGORIES PROPOSED UNDER OPTION 2.2

 .......................................................................................................................................................... 145 
SECTION 3: SUGGESTED APPROACH TO ESTIMATION ................................................................. 149 
ANNEX 9:  

EXAMPLES OF EXISTING ESG LABELLING REGIMES AND ESG RULES BY NCAS 

OR LABEL PROVIDERS ................................................................................................................ 152 
ANNEX 10: FINDINGS FROM CONSUMER TESTING STUDIES ...................................................... 157 
ANNEX 11: EVALUATION ..................................................................................................................... 169 
ANNEX 12: SME CHECK......................................................................................................................... 190 

1 

 
 
 
 
 
 
 
Glossary 

Term or acronym 

Meaning or definition 

AIFMD 

Alternative Investment Fund Manager Directive 

AUM 

CTB 

CSR 

Assets under Management 

EU Climate Transition Benchmarks 

Corporate Social Responsibility 

DG FISMA 

Directorate-General  for  Financial  Stability,  Financial 
Services and Capital Markets Union 

ELTIF 

ESAs 

ESG 

ESMA 

Eurosif 

EuSEF 

European Long-Term Investment Funds 

European Supervisory Authorities 

Environmental, Social and Governance 

European Securities and Markets Authority 

European Sustainable Investment Forum 

European Social Entrepreneurship Funds 

EuVECA 

European Venture Capital Funds 

FCA 

FMP 

FTE 

IBIPs 

IDD 

IORP 

Financial Conduct Authority (UK) 

Financial Market Participant 

Full-Time Equivalent 

Insurance-based Investment Products 

Insurance Distribution Directive 

Institution for Occupational Retirement Provision 

2 

 
 
 
KID 

KPIs 

MiFID 

NCA 

NGOs 

OECD 

OJEU 

PAB 

PAI 

PEF 

PEPP 

PRIIP 

PSF 

RSB 

RTS 

SDG 

TFEU 

UCITS 

Key Information Document 

Key Performance Indicators 

The Markets in Financial Instruments Directive 

National Competent Authority 

Non-Governmental Organizations 

Organization 
Development 

for 

Economic  Cooperation 

and 

Official Journal of the European Union 

EU Paris-aligned Benchmarks 

Principal Adverse Impact 

Product Environmental Footprint 

Pan-European Personal Pension Product 

Packaged retail investment and insurance products 

Platform on Sustainable Finance 

Regulatory Scrutiny Board 

Regulatory Technical Standards 

Sustainable Development Goal 

Treaty on the Functioning of the European Union 

Undertakings 
Transferable Securities 

for 

the  Collective 

Investment  of 

3 

 
 
 
1.  INTRODUCTION: POLITICAL AND LEGAL CONTEXT 

This impact assessment concerns a proposed initiative to review Regulation (EU) 2019/2088 of 27 
November 2019 on sustainability-related disclosures in the financial services sector (SFDR)1.  

1.1. 

Political context 

The European Union is  committed to meet  the needs of the present  without compromising  future 
generations,  with  sustainability  at  the  heart  of  these  efforts.  In  this  vein,  the  European  Union 
established  the  legal  objective  of  becoming  a  climate-neutral  and  climate  resilient  continent  by 
2050 in Regulation (EU) 2021/1119 on the European Climate Law, and it also committed to deliver 
an environmental transition  supported by an innovative and circular economy,  where biodiversity 
and  ecosystems  are  protected  and  restored,  and  where  pollution  and  environment-related  health 
risks  are  reduced  to  the  minimum  as  well  as  to  meet  the  UN  Sustainable  Development  Goals 
(SDGs) by 20302.  

The EU estimates that to meet the objectives of the European Green Deal and RepowerEU alone, 
additional investments of about EUR 620 billion annually between 2023 and 2030 will be needed, 
which amounts to 3.7% of the EU’s 2023 GDP3. The bulk of these will need  to continue to flow 
from  private  sources,  also  building  on  efforts  to  ensure  deeper  and  more  integrated  EU  capital 
markets4.  As  a  response  to  market  demand  and  reflecting  that  achieving  EU  sustainability  goals 
requires  significant  investments,  with  the  bulk  of  it  being  provided  by  private  financing,  the 
European  Commission  introduced  ambitious  sustainability  rules  in  financial  services  in  recent 
years5, building up the Sustainable Finance framework that includes the SFDR. 

Applicable since March 2021, the SFDR was one of the first pieces of the EU Sustainable Finance 
framework. The SFDR is a disclosure framework which sets detailed sustainability disclosures for 
financial  intermediaries  and  financial  products  regarding  Environmental,  Social  and  Governance 
(ESG)  factors.  Its  objective  is  to  increase  transparency,  combat  greenwashing  and  protect  end-
investors by ensuring that financial market participants (FMPs) and financial advisers substantiate 
their  ESG  disclosures.  The  latter  are  required  to  ensure  appropriate  sustainability  information  to 
investors on their websites and in pre-contractual and periodic disclosures for financial products.     

The Regulation rests on two pillars. First, it requires entity-level disclosures, namely for FMPs and 
financial advisers to explain how they integrate ESG considerations into their internal procedures, 
including  their  due  diligence  processes  and  consideration  of  responsible  business  practices.  A 
crucial element is the introduction of the concept of double materiality,  meaning that FMPs must 
not only consider sustainability risks (i.e. risks to their operations) but must also assess the impact 
of their investment decisions on the environment and society. 

Second,  as  regards  product-level  disclosures,  the  SFDR  encompasses  a  broad  range  of  financial 
products  including  investment  funds,  insurance  and  pension  products,  requiring  those  within  its 
scope that promote sustainability characteristics to be substantiated with accompanying disclosures. 
The  SFDR  in  its  Article  8  establishes  that,  for  products  that  promote  environmental  or  social 

1  Regulation  (EU)  2019/2088  of  the  European  Parliament  and  of  the  Council  of  27  November  2019  on 
sustainability‐related disclosures in the financial services sector. 
2 These ambitions were laid out in the Communications on the European Green Deal (COM(2019) 640 final) and on A 
Strong Social Europe for Just Transition (COM(2020) 14 final). 
3  Strategic  Foresight  Report  2023  See  also  the  impact  assessment  accompanying  the  2040  climate  target 
Communication 
4 Savings and investments union - European Commission 
5 Overview of sustainable finance - European Commission 

4 

 
 
 
 
characteristics,  FMPs  must  show  how  the  characteristics  are  promoted  and  met.  Furthermore,  in 
accordance  with  Article  9  of  the  SFDR,  for  products  that  have  sustainable  investment  as  their 
objective,  FMPs  must  explain  the  sustainable  objective  and  show  how  the  objective  is  attained. 
Finally,  for  all  products  in  the  scope  of  the  SFDR,  under  Article  6,  FMPs  must  disclose  how 
sustainability  risks  are  integrated  in  the  investment  decision  process  and  the  results  of  the 
assessment  of  the  likely  impacts  of  sustainability  risks  on  the  returns  of  the  products,  where 
relevant, or explain why this is not the case. Double materiality also applies at product level. The 
responsibility for supervising these disclosures lies with the National Competent Authorities in each 
EU Member State while the European Supervisory Authorities (ESAs) play a coordinating role.  

The SFDR and other pieces of sustainable finance legislation  have had broad-reaching  effects  on 
the market. According to the Platform on Sustainable Finance (PSF)6, a Commission expert group, 
the market development of funds that make claims in regulatory filings to be sustainable has been 
very  sizeable  in  the  EU  since  the  SFDR  was  launched  in  2021,  clearly  outpacing  until  2023  the 
development  of  funds  not  stating  to  be  considered  sustainable7.  Products  disclosing  ESG 
information  under  SFDR  account  for  almost  50%  of  EU  Assets  under  Management,  representing 
more than 60% of EU funds: funds that promote ESG characteristics (in accordance with Article 8) 
accounted for 57.6% as of June 2024, while funds that have sustainability as one of their investment 
objectives  (in  accordance  with  Article  9)  represented  3.4%  of  EU  funds8.  Europe  is  by  far  the 
largest market for such funds, accounting for up to 84% of global sustainable fund assets9. 

The Political Guidelines of the European Commission for 2024-2029 have reaffirmed that the EU 
will  stay  the  course  on  the  goals  set  out  in  the  European  Green  Deal  and  aim  to  further  scale-up 
sustainable finance in support of this as part of deeper more integrated capital markets. The focus is 
now also on simplification: reducing administrative burdens linked e.g. to sustainability reporting, 
with simpler rules, and better enforcement. In this context, it is important to consider whether the 
SFDR can be made more efficient, in line with these political priorities and policy objectives, and 
in the context of overarching efforts to improve the integration of EU financial markets to support 
productive investments10. A review of the SFDR is also foreseen in Article 19 of the Regulation. 

The need for simplification in the field of sustainability reporting and due diligence was highlighted 
as well in the report “The future of European competitiveness” by M. Draghi, which underlined that 
excessive regulatory and administrative burden could hinder the competitiveness of EU companies 
compared to  those from  other blocs.  According to the report,  parts of the  EU sustainable  finance 
framework entail a major compliance cost for companies in the EU. 

The  evidence  gathered  to  date  as  part  of  the  review  under  Article  19  of  the  Regulation  on  the 
implementation of the SFDR signals that, while its objectives remain broadly supported, it is widely 

6 Platform on Sustainable Finance - European Commission 
7 Categorisation of products under the SFDR: Proposal of the Platform on Sustainable Finance According to Goldman 
Sachs Global Investment Research, cumulative flows into ESG equity funds have been 2.7 times higher compared to 
non-ESG  counterparts  from  2019  to  2023.  However,  since  2023,  more  inflows  have  gone  into  non-ESG  (Article  6) 
funds compared to ESG funds (Article 8 and 9). 
8  Data  based on  FISMA  calculations  from  Morningstar.  These  shares  have remained  relatively  stable  in recent  years 
even amid some shifting investor preferences of late, including in the context of geopolitical changes. 
9 Recent quarterly figures show positive net inflows to EU sustainable funds between 2022 and end-2024. While Q1 
2025 saw the first net outflows from EU sustainable funds, these represented only 0.04% of total fund assets. Equity 
funds  continue  to  dominate  the  sector,  but  with  recent growth  into  sustainable  bond  funds  as  the  green bond  market 
continues to expand. In terms of performance, sustainable funds lost 0.7% of their value in Q1 2025, faring better than 
the  wider  market  (1.4%  decline  for  the  Morningstar  Global  Market  index).  Source:  FT  “Making  sense  of  a  rough 
quarter for ESG funds”, 28 April 2025 
10 Savings and investments union - European Commission 

5 

 
 
 
 
seen  as  a  complex  and  costly  regime11.  There  have  been  calls  for  significantly  simplifying  and 
reducing  the  administrative  burdens  linked  to  the  rules12.  The  SFDR  review  has  therefore  been 
included among the simplification initiatives of the European Commission in the Mission Letter to 
the Commissioner for Financial Services and the Savings and Investments Union13 and in the 2025 
Commission Work Programme14.  

1.2.  Legal context 

The SFDR is supplemented by Commission Delegated Regulation (EU) 2022/201815, published in 
April  2022  and  amended  in  February  2023,  with  regulatory  technical  standards  specifying  key 
elements  of  the  disclosure  regime,  notably  in  relation  to  sustainability  indicators  and  adverse 
sustainability  impacts,  and  the  content  and  presentation  of  the  information  in  relation  to  the 
promotion of environmental or social characteristics and sustainable investment objectives in pre-
contractual documents, on websites and in periodic reports. 

It  should  also  be  noted  that  the  SFDR  interacts  with  ESMA’s  Guidelines  on  funds’  names  using 
ESG or sustainability-related terms16. The guidelines stem from the strong demand in recent years 
for  investment  funds  that  incorporate  ESG  factors  and  the  competitive market  pressures  for  asset 
managers to include terminology in their funds’ names to attract investors which caused concern in 
ESMA  over  heightened  greenwashing  risks:  i.e.  that  funds  would  be  named  as  green  or  socially 
sustainable, while commensurate sustainability standards are not met.  

Further,  the  SFDR  interacts  with  the  other  pieces  of  legislation  of  the  sustainable  finance 
framework, including the EU Taxonomy17, EU Benchmark Regulation18, Corporate Sustainability 
Reporting  Directive  (CSRD)19, the Corporate Sustainability Due Diligence  Directive  (CSDDD)20, 

11  A  comprehensive  assessment  of  the  framework  to  assess  potential  shortcomings,  focusing  on  legal  certainty, 
useability of the regulation and its ability to play its part in tackling greenwashing was announced in December 2022. 
Two  public  consultations  (targeted  and  open)  ensued,  running  from  September  to  December  2023.  The  European 
Supervisory  Authorities  (ESAs)  published  a  joint  opinion  on  the  assessment  of  the  SFDR  in  June  2024,  addressing 
recommendations to the Commission. The Platform for Sustainable Finance provided two opinions in December 2023 
and  December  2024  on  key  issues  to  address  and  recommending  setting  up  categories  for  financial  products.  Full 
details are provided in Annex II. 
12 This includes calls expressed by Member States e.g. in the 11 March 2024 Statement of the Eurogroup on the future 
of  the  capital  markets  union  to  improve  usability,  enhance  clarity  and  reduce  burdens  in  the  EU  sustainable  finance 
framework, as well as the July 2024 study prepared for the ECON committee of the European Parliament.   
13 ac06a896-2645-4857-9958-467d2ce6f221_en 
14 Commission work programme 2025 - European Commission 
15 Commission Delegated Regulation (EU) 2022/1288 
16  ESMA34-1592494965-657  Guidelines  on  funds  names  using  ESG  or  sustainability  related  terms.  The  guidelines 
reflected  feedback  to  a  consultation  launched  in  November  2022  and  were  published  in  August  2024  to  address 
greenwashing risk stemming from ESG- or sustainability-related terms used in investment fund names.  They became 
applicable in November 2024 for new funds. For funds existing before this date, there is a transition period extending 
until 21 May 2025. The criteria of the guidelines are detailed in Annex 6. 
17 Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a 
framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 
18  Regulation  (EU)  2016/1011  of  the  European  Parliament  and  of  the  Council  of  8  June  2016  on  indices  used  as 
benchmarks  in  financial  instruments  and  financial  contracts  or  to  measure  the  performance  of  investment  funds  and 
amending Directives 2008/48/EC and 2014/17/EU and Regulation (EU) No 596/2014 
19 Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 amending Regulation 
(EU)  No  537/2014,  Directive  2004/109/EC,  Directive  2006/43/EC  and  Directive  2013/34/EU,  as  regards  corporate 
sustainability reporting 
20 Directive (EU) 2024/1760 of the European Parliament and of the Council of 13 June 2024 on corporate sustainability 
due diligence and amending Directive (EU) 2019/1937 and Regulation (EU) 2023/2859 (to apply from July 2028) 

6 

 
 
 
 
as  well  as  relevant  parts  of  the  Markets  in  Financial  Instruments  Directive  (MiFID  II)21  and 
Insurance Distribution Directive (IDD)22 and links with the Shareholder Rights Directive (SRD)23. 
Together,  they  help  support  companies  and  the  financial  sector  in  directing  private  funding  into 
sustainable  investment  projects  and  technologies.  In  particular,  reporting  obligations  for  FMPs 
under the current SFDR largely depend on the reporting obligations for companies under the CSRD 
and the Taxonomy Regulation. Therefore, the review of the SFDR will duly take into consideration 
the  changes  introduced  by  the  proposed  ‘Omnibus’  simplifications  regarding  sustainability 
information from companies24. Annex 6 describes in detail the interactions between the SFDR and 
the rest of the framework and highlights the special considerations regarding these interactions for 
the review.  

2.  PROBLEM DEFINITION 

The SFDR sets  a series  of entity level disclosure requirements for financial market participants 
and  financial  advisers.  They  must  disclose  how  they  integrate  sustainability  risks  into  their 
investment  decision-making  processes  (Article  3)  and  remuneration  policies  (Article  5).  Large 
firms  (more  than  500  employees)  must  also  disclose  how  they  consider  the  principal  adverse 
impacts of their investment decisions on sustainability factors, while others are subject to a comply 
or explain approach (Article 4). 

The SFDR also sets a series of product level disclosure requirements. All financial products in 
scope25  must  disclose  whether  and  how  they  consider  sustainability  risks  (Article  6).  Financial 
products  promoting environmental or social characteristics (Article  8) or  those with  a sustainable 
investment objective (Article 9) must provide detailed sustainability-related disclosures in their pre-
contractual and periodic reporting (Article 10) as well as on their website (Article 11). 

The  SFDR  also  provides  a  definition  for  the  concept  of  ‘sustainable  investment’  (SI),  which 
underpins the Article 9 disclosures (and the Article 8 disclosures to a lesser extent). It is defined as 
an economic activity that contributes to an environmental or social objective, provided that such 
investments  do  not  significantly  harm  (DNSH)  any  of  those  objectives  and  that  the  investee 
companies  follow  good  governance  practices.  Importantly,  the  DNSH  is  based  on  the 
‘consideration’ of a number of principal adverse impact indicators (PAIs) provided in  Annex I of 
the delegated regulation.  

The assessment carried out for the review of the underlying drivers behind the problems associated 
with  the  SFDR  is  explained  in  detail  in  Annex  11  (Evaluation).  On  this  basis,  four  regulatory 
problem drivers were identified:   

First,  the  Sustainable  Finance  Disclosure  Regulation  (SFDR)  has  faced  widespread  criticism  for 
being  unclear,  complex,  and  difficult  to  implement,  particularly  regarding  sustainability-related 

21 Commission Delegated Regulation (EU) 2021/1253 of 21 April 2021 amending Delegated Regulation (EU) 2017/565 
as  regards  the  integration of sustainability  factors,  risks  and  preferences  into  certain  organisational  requirements  and 
operating conditions for investment firms 
22  Commission  Delegated  Regulation  (EU)  2021/1257  of  21  April  2021  amending  Delegated  Regulations  (EU) 
2017/2358  and  (EU)  2017/2359  as  regards  the  integration  of  sustainability  factors,  risks  and  preferences  into  the 
product oversight and governance requirements for insurance undertakings and insurance distributors and into the rules 
on conduct of business and investment advice for insurance-based investment products 
23 Directive 2007/36/EC of the European Parliament and of the Council of 11 July 2007 on the exercise of certain rights 
of shareholders in listed companies, as amended in 2017, notably Chapter Ib 
24  Commission  proposes  to  cut  red  tape  and  simplify  business  environment  -  European  Commission  The  SFDR  will 
also interact with the  Directive Corporate Sustainability Due Diligence (CSDDD) (Directive (EU) 2024/1760), which 
will start to apply as from July 2028, with amendments also to be introduced by the Omnibus simplifications. 
25 The scope of SFDR includes funds, insurance and pension products.   

7 

 
 
 
 
concepts  and  disclosure  requirements.  A  key  issue  is  the  definition  of  "sustainable  investment," 
which  includes  complex  criteria  and  lacks  clarity,  especially  in  relation  to  the  "do  no  significant 
harm"  principle.  Uncertainty  also  surrounds  what  constitutes  the  "promotion"  of  sustainability 
characteristics and how to apply entity- and product-level disclosures on principal adverse impacts. 
These  challenges  create  ambiguity  for  financial  market  participants  (FMPs),  who  must  navigate 
unclear  requirements  and  undefined  terms.  Additionally,  the  disclosure  obligations  are  often 
lengthy,  overly  technical,  and  lack  comparability,  reducing  their  value  for  end-investors  and 
undermining efforts to combat greenwashing. 

Second, another significant problem stems from legal misalignments between the SFDR and other 
EU  sustainable  finance  legislation,  such  as  the  Corporate  Sustainability  Reporting  Directive 
(CSRD), the EU Taxonomy, and MiFID/IDD. These frameworks are meant to work together, but 
inconsistencies  in  legal  definitions  and  technical  requirements  create  confusion  and  hinder  legal 
certainty.  Notable  discrepancies  exist  in  how  sustainability  is  defined  across  the  SFDR,  the 
Taxonomy  Regulation,  and  the  EU  Climate  Benchmarks,  leading  to  fragmentation  and 
implementation difficulties. 

Third,  the  lack  of  reliable  and  comprehensive  ESG  data  further  hampers  effective  disclosures. 
FMPs and financial advisors rely on sustainability information from issuers, but such data is often 
incomplete or unavailable. This  data gap results  partly from inconsistencies across the legislative 
frameworks  and  from  limited  ESG  disclosure  obligations  for  assets  not  covered  by  EU  rules, 
especially those located outside the EU. 

Finally, the SFDR’s disclosures —Articles 6, 8, and 9—are frequently misused as de facto labels by 
FMPs,  investors,  and  distributors,  despite  the  regulation  not  being  designed  as  a  labelling 
framework  and  lacking  harmonised  standards.  This  leads  to  confusion  and  inconsistency  in  their 
use and interpretation. 

As summarised in the conclusion of Annex 11, there are a number of root causes for these problem 
drivers, for a  framework which has been in  application for only  a relatively  short period of time, 
and which inform the lessons learned for the review. Different dates of application for the Level 1 
and Level 2 implementing measures of the SFDR26 created uncertainty around the key requirements 
and concepts of the SFDR from the outset27. Challenges in accessing ESG data needed to comply 
with  the  new  requirements  were  present  from  the  beginning,  exacerbated  by  the  way  the  SFDR 
began to apply before other parts of the sustainable finance framework, namely the CSRD and EU 
Taxonomy,  which  were  intended  to  increasingly  inform  product  disclosures  under  the  SFDR. 
Throughout,  it  also  became  increasingly  evident  that  investors  were  not  well  served  by  the  new, 
lengthy  and  complicated  disclosures  and  rules,  something  which  contributed  to  markets  adopting 
the main disclosure Articles 6, 8 and 9 as a short-hand, misleading technique to convey a high-level 
sense of diverse products’ key features28.   

26 March 2021 and January 2023, respectively 
27  Extensive  implementation  guidance  from  the  European  Supervisory  Authorities  (ESAs)  and  the  Commission  was 
needed  to  address  the  underlying  complexity  of  the  concepts,  and  entailed  some  adjustments  in  the  composition, 
naming and disclosures of various financial products, adding to the perceived implementation burden. 
28 Additional national rules in place in some Member States to address perceived  shortcomings in the framework also 
added further complexity and fragmented the single market.  

8 

 
 
 
 
 
Box 1: problem tree  

2.1.  What are the problems? 

Against this background, it is useful to make a distinction between problems  which have resulted 
for preparers of the SFDR disclosures (i.e. financial market participants) on the one hand, and users 
of the SFDR disclosures (end-investors and distributors) on the other.  

Problems  for FMPs, from a preparer perspective:  FMPs are facing  difficulties in  coping  with 
the  lengthy  and  complex  disclosure  requirements  detailed  in  the  Level  2  Regulation,  and  in 
navigating  the  uncertainty  surrounding  key  sustainability-related  obligations  and  concepts.  These 
lead to high undue burdens and costs which can negatively affect FMPs’ ability and willingness to 
develop ESG products29 (compared to the absence of such requirements for non-ESG products).  

Problems  for  investors  and  distributors,  from  a  user  perspective:  investors  and  distributors 
cannot easily understand or compare ESG claims made by preparers of financial products as per the 
above, creating misinterpretation and misrepresentation risks, which are being exacerbated by the 
misuse of the disclosure regime as a de facto labelling system despite the lack of common criteria 
that could be fit for this purpose. 

29  The  terms  ‘ESG  products’  and  ‘sustainability-linked  products’  under  the  SFDR  are  used  interchangeably  in  this 
impact assessment 

9 

 
 
 
 
 
 
 
2.1.1.  Specific problems from a preparer perspective  

FMPs  are  struggling  to  cope  with  the  lengthy  and  complex  disclosure  requirements  and  face 
uncertainty about SFDR compliance.  
First,  FMPs  are  facing  difficulties  in  accessing  the  necessary  data  from  underlying 
investments30. They often struggle to collect, measure or quantify certain indicators to comply with 
their reporting  obligations (described in  section 2.2.). 98% of FMPs  who responded to  the public 
consultation (176 out of 180) stated facing difficulties in obtaining good-quality data31.  

This is partly due to misalignments in scope between the SFDR and the other sustainable finance 
rules, and the fact that FMPs invest a large portion of their portfolio in assets that are not subject to 
EU legislation. As explained in the evaluation, Annex 11 (and Annex 6 on the different pieces of 
the  sustainable  finance  framework),  CSRD  and  EU  Taxonomy  Regulation  disclosures  were 
supposed to feed into the SFDR reporting requirements (i.e. ensuring that FMPs are receiving high 
quality and publicly available ESG data from their underlying investments). However, the scope of 
assets included in FMPs’ portfolios is much larger than the respective scopes of the CSRD and the 
EU Taxonomy32. As a result, FMPs are not  getting  public information  for certain  EU assets (e.g. 
small non listed companies) and for their investments outside the EU.   

To  illustrate  this  point,  between  30%  and  50%  of  the  average  holdings  of  EU  asset  managers 
consist  of  entities  not  subject  to  CSRD  reporting  requirements  (and  therefore  do  not  publish 
Taxonomy  or  CSRD  related  sustainability  data)33.  For  example,  the  Platform  for  Sustainable 
Finance  (PSF)  highlights  the  lack  of  Taxonomy  reporting  outside  of  the  European  Union34  and 
shows that PAI data is not universally available, despite several indicators. The evidence showed in 
the  evaluation,  Annex  11,  boxes  12  and  13  shows  that  companies  in  the  sample  (12,000  issuers) 
were  largely  able  to  report  data  for  over  half  of  the  mandatory  PAIs.  However,  no  single  issuer 
reported  data  across  all  indicators.  In  addition,  the  evidence  shows  that  the  data  availability  for 
mandatory  PAIs  varies  widely  depending  on  the  indicators  and  on  the  type  of  companies.  For 
example, the SFDR mandatory environmental PAI coverage for small and medium EU companies 
is close to 0%, and the one of large EU companies is about 30 to 40%. Further, some indicators are 
being reported by less than 10% of issuers, such as the PAI on biodiversity, water, violations of the 
UNGC principles ad OECD Guidelines for SMEs, and gender pay gap.  

As a result, FMPs often source the missing data either internally or commercially from third party 
providers35. The over-reliance on the use of estimates, coupled with the lack of guidance on how to 
produce  such  estimates  and  the  lack  of  regulatory  framework  on  third-party  providers  of  such 
estimates, results in additional operational, regulatory and reputational risk for FMPs.  

30  Associated  problem  drivers:  (1)  misalignments  with  other  sustainable  finance  rules;  (2)  lack  of  ESG  data  and 
insufficient guidance on estimations 
31 European Commission, Summary Report of the open and targeted consultations of the SFDR assessment, published 
May 2024 
32 Current scope and timing for reporting under the CSRD and the EU Taxonomy (for financial year 2024): large EU 
undertakings  within  the  meaning  of  Article  3(4)  of  Directive  2013/34/EU  which  are  public-interest  entities  (listed 
companies, credit institutions, insurance undertakings, others designated as public-interest entities by Member States) 
exceeding on their balance sheet dates the average number of 500 employees during the financial year.  
33 ESMA report on Trends, Risks and Vulnerabilities (TRV), 2023 
34  Platform  for  Sustainable,  Briefing  on  EC  targeted  consultation  regarding  SFDR  implementation,  Annex  A  p.50, 
December  2023.  Only  72  companies  outside  of  the  EU  report  data,  including  43  in  the  US  and  Canada,  5  in  Latin 
America and Caribbean, 5 in Asia/Pacific, and 2 in Africa/Middle East. 
35 EFAMA responses to EC targeted consultation on the implementation of the SFDR, 20 December 2023 

10 

 
 
 
 
In addition, FMPs are facing difficulties in applying the complex and sometimes mis-aligned 
sustainability-related  concepts  underlying  the  disclosure  requirements36.  The  bulk  of  the 
complexities (as described in the evaluation annex 11 section 3.1) comes from the multiple layers 
of  the  sustainability  assessment  introduced  by  the  definition  of  sustainable  investment  (Article 
2(17)  SFDR)  as  well  as  several  misalignments  between  the  SFDR  concepts  and  sustainability-
related  concepts  defined  under  other  pieces  of  the  sustainable  finance  framework  (e.g.  the  EU 
Taxonomy and the EU Climate Benchmarks)37.  

As a result, FMPs pointed to several operational difficulties when applying certain SFDR concepts. 
For example, 80% of FMPs that responded to the public consultation stated facing uncertainty and 
methodological  challenges  with  the  requirement  to  ‘take  into  account  of’  the  principal  adverse 
impact  (PAI)  indicators  established  in  the  Level  2  Regulation  at  entity  level  for  the  ‘do  no 
significant  harm’(DNSH)  test  at  product  level38.  Stakeholders  also  flagged  difficulties  when 
applying the Taxonomy-related concepts or the EU Climate Benchmark due to misalignments and 
legal uncertainties regarding the status of investments in taxonomy aligned economic activities and 
of products tracking EU climate benchmarks under the SFDR.  

The problems mentioned have been notably acute for FMPs active in the  pension and insurance 
sectors. Pension products, schemes and insurance-based investment products are covered the SFDR 
disclosures, yet some of the main assets they invest in (i.e. including sovereign debt), maintained 
for regulatory and diversification purposes, cannot be easily assessed against specific metrics in the 
SFDR and broader ESG framework (i.e. principal adverse impacts, taxonomy-alignment, etc). This, 
coupled with  data availability issues, has  led  to difficulties for them to  align  their portfolios with 
the defined sustainability concepts (i.e. taxonomy-alignment or sustainable investment), hindering 
these FMPs from providing an accurate picture of their ESG profile39.  

FMPs  have  also  reported  barriers  to  implement  strategies  linked  to  transition  finance  due  to  the 
misalignments between the underlying elements of the SFDR sustainable investment definition and 
the features of transitional investments (more details in the evaluation annex 11).  

Finally,  FMPs  are  facing  uncertainty  about  SFDR  compliance  due  to  the  lack  of  clarity 
surrounding  key  sustainability-related  concepts  and  their  interactions40.  As  noted  in  the 
evaluation, Annex 11, different interpretations of the regulatory requirements are possible and have 
led  FMPs  to  adopt  different  approaches.  This  is  particularly  the  case  for  the  calculation  of 
sustainable investment exposure, which led to diverging approaches within the market and yielded 
significantly  different  outcomes/results  (see  box  9,  10  and  11  in  annex  11  illustrative  examples 
and explanation).  

The  ambiguity  of  the  legal  text  poses  difficulties  for  a  uniform  interpretation  and 
implementation  of  the  law.  While  a  certain  level  of  flexibility  is  desirable  and  necessary  for 
product  innovation  and  to  accommodate  different  ESG  strategies  and  assets,  the  important 
differences  in  FMPs’  implementation  approaches  have  raised  doubts  concerning  the  regulatory 

36  Associate  problem  drivers:  (1)  unclear,  lengthy  and  complex  disclosure  requirements  and  ESG  concepts ;  (2) 
misalignments with other sustainable finance rules. 
37 The fact that different parts of the EU sustainable finance framework were developed and entered into application at 
different times, spanning 2018-2025 through a combination of Level 1 and Level 2 texts (and Level 3 guidance/Q&As), 
is a contributing factor to the complexity (see also section 3.1 of Annex 9).  
38 European Commission, Summary Report of the open and targeted consultations of the SFDR assessment, published 
May 2024 
39 Annex 6 gives further background on the challenges for pensions and insurance providers 
40 Associated problem drivers : (1) unclear requirements and ESG concepts ; (2) misalignments with other sustainable 
finance rules ; (3) disclosure articles used as categorisation while not being fit for this purpose. 

11 

 
 
 
 
expectations under the SFDR. In addition, the lack of transparency on the approaches taken and 
underlying  methodologies  has  created  concerns  about  potential  misinterpretation  for  both 
investors and distributors/advisers. (see evaluation, Annex 11) 

The ESAs and Commission  have provided extensive guidance in  the  shape of Q&As to  facilitate 
common interpretations and practical application41. However, this has not prevented some national 
competent  authorities (NCAs)  from  assuming diverging national  supervisory expectations  (e.g. 
what they consider as an acceptable approach to  ‘sustainable investment’) and the emergence of 
additional national requirements (e.g. minimum criteria for communicating on ESG features and 
ESG national labels). A summary of the different national rules and labels is provided in Annex 9. 

As a result, most respondents of the public consultations confirmed that these limitations (i.e. lack 
of  clarity  and  diverging  national  supervisory  expectations  and  rules)  are  currently  creating  high 
levels  of  legal  uncertainty  (79%,  233  out  of  296)42  and  reputation  risks  for  FMPs  and  financial 
advisers (80%, 237 out of 297)43.  

As a result, FMPs are facing excessive compliance costs and burdens  
The  complexities  of  the  SFDR  concepts  and  the  length  of  the  disclosure  obligations  are  creating 
considerable  burdens  on  FMPs.  The  implementation  has  been  reported  as  very  costly,  time 
consuming, and the resources needed have been flagged as disproportionate.  

In  addition,  the  lack  of  clarity  of  the  requirements  and  the  inconsistencies,  as  well  as  some 
overlaps44 with the rest of the sustainable finance framework is  generating additional undue costs 
and  efforts  for  FMPs45.  National  gold  plating  measures  and  diverging  national  expectations  also 
translate  into  additional  burdens,  especially  for  FMPs  marketing  products  in  different  member 
states (need to meet different regulatory expectations).  

Finally, the lack of availability/comparability of ESG information from underlying investments on 
a  geographical/jurisdictional  basis  links  with  increases  in  search  costs  for  investors  (see  next 
section, thereby undermining their ability to scale their investment strategies internationally.  

41 Consolidated Q&As on the SFDR - JC 2023 18 - Consolidated JC SFDR QAs  
42 European Commission, Summary Report of the open and targeted consultations of the SFDR assessment, published 
May 2024 
43 European Commission, Summary Report of the open and targeted consultations of the SFDR assessment, published 
May 2024 
44  Notably,  FMPs  with  more  than  500  employees,  totalling  around  400  entities,  are  subject  both  to  mandatory  PAI 
disclosures under Article 4(3) SFDR and disclosures under the CSRD according to ESRS (Source: ESAs report on PAI 
disclosures 2024). In the consultation, while many FMPs and financial advisers welcomed the alignment between the 
PAI  indicators  of  the  SFDR  and  ESRS,  when  asked  if  the  SFDR  disclosures  are  consistent  with  the  CSRD 
requirements, more respondents disagreed (47%, 134 out of 285) than agreed (15%, 42 out of 285). A large majority of 
respondents  totally  or  mostly  agreed  (76%,  216  out  of  284)  that  there  is  room  to  streamline  entity-level  disclosure 
requirements  under  the  SFDR  and  the  CSRD.  European  Commission,  Summary  Report  of  the  open  and  targeted 
consultations of the SFDR assessment, published May 2024 
45 For example, the European Fund and Asset Management Association (EFAMA) states that ‘some unclear aspects of 
the SFDR have forced our members to (…) seek expensive external legal advice, further increasing the implementation 
costs.’ EFAMA responses to EC targeted consultation on the implementation of the SFDR, 20 December 2023 

12 

 
 
 
 
2.1.2.  Specific problems from a user perspective (investors and distributors) 

Investors (and distributors) cannot easily understand or compare the ESG features and claims of 
financial products  
First, the length and complexity of the SFDR disclosures have not empowered end-investors 
(and  distributors)  to  understand  and  compare  ESG  features46.  The  information  provided  to 
investors  at  the  level  of  product  is  ‘not  easily  comprehensible  and  demands  a  high  level  of 
familiarity  with  environmental  metrics,  performance  data  and  the  regulatory  framework’47.  The 
SFDR concepts (e.g. ‘taxonomy-alignment’, ‘proportion of sustainable investment’, ‘consideration 
of  principal  adverse  impact’)  contrast  starkly  with  the  way  retail  investors  express  their 
sustainability  preferences,  and  many  investors  do  not  possess  the  necessary  understanding  to 
interpret  such  information.  This  affects  their  ability  to  assess  the  sustainability  performance  of 
financial  products.  Findings  from  the  majority  of  the  EU  consumer  studies  conducted  in  recent 
years confirm these statements.  

Consumers’ associations also argue that ‘pre-disclosure templates are unnecessarily long and can 
be very confusing and time consuming for retail investors48’ and ‘and not  designed in a way that 
can be easily understood49’. Certain studies also argue that such ‘overflow of complex disclosures 
form  a  barrier  to  understanding  the  ESG  strategy  employed  in  their  investments50’.  The  findings 
are summarised in annex 10. 

This assessment is reflected in the responses to the public consultation, with 84% (249 out of 296) 
of  respondents  stating  that  the  disclosures  required  by  the  SFDR  are  not  sufficiently  useful  to 
investors51.  A  majority  of  stakeholders  also  sees  limited  usefulness  in  the  SFDR  disclosures 
provided at the level of the entities to end-investors, with only 31% (86 out of 281) of respondents 
to the public consultation considering them useful. According to EFAMA, retail investors typically 
focus on disclosures in relation to specific financial products rather than the companies managing 
these  products.  Consequently,  ‘the  demand  for  entity-level  disclosures  is  relatively  low,  as 
(investors’)  primary  concern  lies  with  the  details  of  the  individual  investment  products 
themselves’52.  

In  addition,  the  disclosures  made  under  the  SFDR  often  lack  comparability53.  Different 
interpretations  of  the  regulation  have  led  FMPs  to  adopt  different  approaches  when  applying  key 
SFDR concepts,  especially the calculation of sustainable investment  exposure  (see the illustrative 
example  in  the  evaluation  annex  11  box  11).  As  a  result,  products  with  similar  mandates  and 
portfolios will report divergent exposures to sustainable investments depending on the methodology 
chosen. The lack of transparency regarding the approach taken and the underlying methodologies is 
making  it  impossible  for  end-investors  to  compare  competing  products.  The  discretion  in  how  to 
consider  PAIs  also  does  not  ensure  comparability,  while  reporting  on  products’  Taxonomy-
alignment  is  limited  and  only  gives  a  partial  account  of  their  overall  footprint.  The  reasons 

46 Associated problem driver: unclear, lengthy and complex disclosure requirements and ESG concepts 
47 Platform for Sustainable, Briefing on EC targeted consultation regarding SFDR implementation, December 2023 
48 FSUG response to SFDR consultation, December 2023  
49 Finance Watch response to SFDR consultation, December 2023  
50 EFAMA responses to EC targeted consultation on the implementation of the SFDR, 20 December 2023 
51 European Commission, Summary Report of the open and targeted consultations of the SFDR assessment, published 
May 2024 
52 EFAMA responses to EC targeted consultation on the implementation of the SFDR, 20 December 2023 
53  Associated  problem  drivers :  (1)  unclear,  lengthy  and  complex  disclosure  requirements  and  ESG  concepts ;  (2) 
misalignments and duplications with other sustainable finance rules; (3) lack of ESG data and insufficient guidance on 
estimations. 

13 

 
 
 
 
underlying  the  lack  of  comparability  are  further  described  in  the  evaluation,  Annex  11  under 
section 3.1.1.  

Distributors are facing similar difficulties when having to interpret SFDR disclosures to implement 
the sustainability preferences rules under MiFID and IDD. Distributors have to provide clients that 
expressed  sustainability  preferences  with  suitable  investments  that  reflect  (among  others)  such 
preferences. In doing so, distributors have to assess, for each product they distribute, to what target 
market  a  given  product  will  be  suitable.  Their  assessments  rely,  among  others,  on  information 
disclosed  by  product  manufacturers  under  the  SFDR.  These  disclosures  do  not  enable  them  to 
develop sufficient knowledge of the sustainability profile of the products they distribute, leading to 
reputational  risks  and  operational  costs  (to  implement  additional  due  diligence  processes  and 
checks).  

An  additional  problem  for  distributors  (and  ultimately  for  retail  investors)  is  the  lack  of 
sustainability  disclosure  requirements  comparable  to  SFDR  disclosures  for  several  financial 
instruments  as  defined  under  MiFID  and  PRIIPs  that  may  be  distributed  to  clients  with 
sustainability preferences, such as shares, bonds, and structured notes. This is due to differences in 
objectives and scope between the SFDR and MiFID (and PRIIP), for instance disclosure obligations 
under MiFID cover investor protection more generally than those under SFDR or PRIIPs, and due 
to differences in type of financial product coverage54. Stakeholders have flagged that this issue is 
particularly  problematic  for  structured  notes  which  currently  fall  outside  the  scope  of  the  SFDR 
despite having common features with investment funds, thereby giving rise to a form of regulatory 
arbitrage.  

An additional obstacle to investors’ understanding is that ESG claims in product names and 
marketing materials do not always accurately reflect the products’ actual ESG objectives or 
strategies.  In  fact,  the  SFDR  does  not  include  detailed  rules  on  the  extent  to  which  financial 
products can make references to ESG elements in their names or marketing documentations. These 
claims  are  only  covered  by  the  high-level  requirements  under  the  SFDR  Article  13  (FMPs  must 
‘ensure  that  their  marketing  documentations  do  not  contradict  the  information  disclosures’)  and 
MiFID II and IDD (which also provide that all information, including marketing communications 
shall be fair, clear, and not misleading).  

The lack of minimum ESG transparency or performance requirements for making such claims has 
led  NCAs  to  adopt  different  national  approaches,  adding  complexity  to  the  different  rules  and 
different  levels  of safeguards against greenwashing. The ESMA guidelines55  partly  addresses this 
regulatory gap by introducing minimum criteria for funds using certain ESG terms in their names. 
The  guidelines  aim  to  bring  clarity  for  investors  amid  FMPs’  myriad  sustainability  claims56. 
However, the guidelines do not cover the entirety of financial products in scope of the SFDR and of 
the MiFID/IDD sustainability preferences rules. For example, insurance and pension products are 
not currently subject to similar rules.  

54  Shares,  bonds,  derivatives  and  structured  notes  are  covered  by  MiFID  II  but  not  the  SFDR.  More  information  in 
annex 6. 
55 ESMA guidelines. More details on the guidelines in section 2.2.2. 
56 As highlighted in ESMA analysis, more and more funds include ESG terms in their names in response to high and 
consistent investors’ appetite for funds with ESG-related terms in their names. Morningstar has identified close to 4300 
mutual funds and exchange-traded funds available for sale in the EU that use ESG or sustainability-related names. 

14 

 
 
 
 
 
End-investors are also being misled by the self-categorisation practices57  

As described in evaluation annex 11, the SFDR is ‘de facto’ being used as a categorisation/labelling 
system where products disclosing under Article 8 and Article 9 have been commonly referred to as 
‘light green’ and ‘dark green’ products, respectively. 

The wide, but  unintended, use of SFDR disclosures as  product labels  by  the market  gives  rise to 
some  concerns.  First,  the  Article  8  category  based  on  the  “promotion  of  environmental  or  social 
characteristics”  is  very  broad  and  lacks  minimum  quality  conditions  to  serve  as  a  reliable 
categorisation. Second, the key concepts (e.g. contribution to an environmental or social objective 
or  the  DNSH  for  “sustainable  investment”)  underpinning  Article  9  lack  clear  criteria  leading  to 
divergent interpretations and lack of comparability, linked to the problems above.  

The disclosure regimes under Articles 8 and 9 do not have any harmonised criteria that could allow 
investors  (and  distributors)  to  compare  the  relative  ESG  performance.  This  had  led  to  confusion, 
especially  among  retail  investors,  who  often  assume  that  products  disclosing  under  Article  9  are 
fully sustainable and that products disclosing under Article 8 strongly integrate ESG factors, even 
though this is not necessarily the case58.  

2.1.3.   Consequences  

First,  the  limitations  related  to  the  SFDR  concepts  and  disclosures  lead  to  risks  of 
greenwashing  and  mis-selling  of  investment  products.  The  low  levels  of  comparability  and 
reliability  of  the  disclosures,  the  lack  of  alignment  between  products’  ESG  claims  in  names  and 
marketing documentations, and the misuse of the SFDR as a categorisation system give rise to risks 
for investor protection linked to misrepresentation  and misinterpretation.  This  is  further impacted 
by differing supervisory expectations and lack of criteria underlying key sustainability concepts and 
obligations.  These  findings  are  supported  by  the  responses  to  the  public  consultations,  with  62% 
(181  out  of  292)  of  respondents  claiming  that  the  SFDR  has  not  effectively  strengthened  the 
protection of end investors and 81% (237 out of 297) identifying important risks of greenwashing 
and mis-selling59.  

Second,  these  problems  are  limiting  the  EU  financial  sector’s  ability  to  efficiently  allocate 
capital for Europe’s sustainable prosperity. The lack of clarity and the complexity of the SFDR 
requirements are currently limiting FMPs’ ability to develop ESG products across the single market 
without  incurring  undue  costs  and  burdens.  Solutions  for  investors  to  effectively  channel 
investments towards projects that advance environmental, social and governance objectives are thus 
suboptimal  or  lacking60,  frustrating  the  continuing  demand  on  their  part  for  ESG  investments.  In 
addition, the fact that the SFDR does not define and adequately integrate the concept of transition 
finance  is  hindering  FMPs  from  supporting  companies  while  they  pivot  towards  sustainable 
practices.  

57 Associated problem driver: disclosure articles used a categorisation while not being fit for this purpose.  
58 83% of respondents in the consultation (245 out of 296) agreed that the SFDR is currently not being used solely as a 
disclosure  framework  as  intended  but  is  also  being  used  as  a  labelling  and  marketing  tool.  European  Commission, 
Summary Report of the open and targeted consultations of the SFDR assessment, published May 2024 
59 European Commission, Summary Report of the open and targeted consultations of the SFDR assessment, published 
May 2024 
60  As  observed  for  example  in  the  low  share  of  products  offering  significant  shares  of  sustainable  investments, 
including towards Taxonomy-aligned activities.  

15 

 
 
 
 
 
Finally,  the  current  SFDR  rules  are  impacting  the  international  competitiveness  of  the  EU 
financial  sector.  Undue  costs  and  burdens  associated  with  the  implementation  of  the  complex 
SFDR  disclosure  regime  risk  putting  EU  market  actors  at  a  disadvantage  compared  to  FMPs 
operating in jurisdictions with lighter requirements. In addition, the emergence of various national 
requirements in the EU pose barriers to cross-border distribution of financial products and prevent 
the creating of a true single market for ESG financial products, frustrating the potential of the single 
market to effectively channel savings towards Europe’s sustainable prosperity. 

2.2.  How likely is the problem to persist?  

Without EU-level action, it is highly unlikely that the problems identified for FMPs (preparers) and 
investors  and  distributors  (users)  would  be  tackled  in  an  effective,  efficient  and  coherent  way. 
Difficulties  and  undue  costs  would  persist  for  both  groups  in  navigating  the  complexities  and 
uncertainties  linked  to  the  implementation  of  the  SFDR,  amid  the  need  to  also  observe  differing 
relevant national level requirements as well as the ESMA guidelines for funds. 

3.  WHY SHOULD THE EU ACT? 

3.1.  Legal basis 

The legal basis is the same as for the existing Regulation, namely Article 114 of the Treaty on the 
Functioning of the European Union, with the objective of establishing and ensuring the functioning 
of  the  internal  market,  in  this  case  for  the  sale  and  distribution  of  financial  products  with 
sustainability-related features.  

3.2. 

Subsidiarity: Necessity of EU action 

The  need  for  a  coherent  common  framework  for  sustainability-related  disclosures  for  financial 
products across the EU was established as part of the original SFDR. The objectives remain fully 
valid,  and  enjoy  broad  stakeholder  support61.  Without  effective  Union-level  action,  the  problems 
identified would persist. That is, financial market participants, financial advisers and distributors, as 
well  as  investors  would  continue  to  face  undue  complexity  in  the  application  of  the  rules. 
Excessively  lengthy  disclosure  rules  and  templates  involving  sustainability  characteristics  in  the 
business practices of financial market participants, as well as in the financial products they offer to 
investors,  would  remain  in  place.  A  high  degree  of  confusion,  uncertainty  and  a  lack  of 
comparability  would  continue  to  mark  the  availability  of  financial  products  with  sustainability-
linked features, negatively impacting their credibility and uptake.      

To  overcome  these  problems  and  boost  the  effectiveness  and  efficiency  of  the  single  market  for 
sustainable  finance  products,  the  necessary  simplification  and  adjustment  of  the  existing  SFDR 
framework can only be done in a coherent and effective way at EU level. Addressing the problems 
and  consequences  arising  from  the  lack  of  clarity  and  comparability  in  the  characteristics  of 
sustainability-linked  financial  products  as  well  as  from  the  undue  complexities  posed  for  the 
operations of financial market participants cannot be sufficiently achieved by Member States acting 
independently. To be sure, actions by Member States to address (some of) the identified problems 
could  help  act  on  some  of  the  problem  drivers  e.g.  by  overcoming  a  lack  of  clarity  as  regards 
sustainability-features  of  financial  products  through  the  introduction  of,  or  continued  reliance  on, 
sustainability  labels  at  national  level.  However,  although  Member  States  could  individually  take 
such action to strengthen the reliability and comparability of sustainability-linked financial products 

61 89% of consultation-respondents consider that the objective to strengthen transparency through sustainability-related 
disclosures in the financial services sector is still fully relevant. 

16 

 
 
 
 
in their national markets, there is a high risk that any measures of this kind would differ between 
them.  This  could  give  rise  to  further  diverging  levels  of  transparency  between  national  markets, 
growing  disparities  in  investor  confidence  in  ESG  products  across  Member  States,  risks  of  more 
barriers and challenges for cross-border market participants, and further limits to the comparability 
of  products  across  the  single  market.  Therefore,  such  actions  could,  in  isolation  and  potentially 
conducted in an uncoordinated manner, further fragment the single market for sustainable finance 
products and fail to address the consequences identified in the previous section in an efficient way.   

3.3. 

Subsidiarity: Added value of EU action 

Action  at  EU  level  to  tackle  the  identified  problems  would  be  conducive  to  a  more  harmonised, 
effective,  efficient  and  coherent  outcome  across  the  single  market,  and  in  support  of  the  broader 
strategic objectives of the Union. In contrast to sticking with the status quo and relying on national 
level  actions  together  with  requirements  regarding  the  use  of  fund  names  pursuant  to  the  ESMA 
guidelines, EU level policy measures to address the shortcomings in the current SFDR framework 
would act on the problem drivers in a comprehensive way. Requirements and disclosures could be 
simplified across the board, both for the benefit of financial market participants and investors, in a 
harmonised  way  throughout  the  Union.  Common  solutions  to  transparency-related  challenges 
regarding  access  to  ESG  datapoints  could  be  designed  in  a  way  which  facilitates  the  business  of 
financial  market  participants  in  an  even  way  across  the  EU  and  protects  investors,  and  tackles 
information asymmetries, equally regardless of which Member State they are located in. National 
disparities in available levels of information regarding the sustainability-linked features of financial 
products  could  thus  be  addressed  to  benefit  investors  more  evenly  and  fairly  across  the  EU,  for 
instance  helping  overcome  wide  national  differences  today  in  the  relative  shares  of  products 
disclosing under Articles 8 and 9 of the SFDR62.  

Therefore, effective EU level action to tackle the problems identified in the previous section would 
be  better  to  help  scale  up  private  sustainable  finance  across  the  Union.  In  turn,  this  could  better 
serve the objective of mobilising funds toward the competitive opportunities in the green transition 
and  other  evolving  strategic  priorities  in  line  with  Union  objectives.  As  such,  it  could  ease  the 
pressure  off  public  funds,  which  are  increasingly  stretched  in  terms  of  competing  and  new 
emerging  priorities,  to  finance  and  catalyse  funds  towards  sustainability  objectives.  In  short,  EU 
level action would boost the proper functioning of the single market for sustainable finance and in 
addition  contribute  to  improving  transparency  for  investors  across  the  Union  to  enable  their 
participation  in  EU  capital  markets  in  general,  in  line  with  the  objectives  of  the  Savings  and 
Investments Union63. 

4.  OBJECTIVES: WHAT IS TO BE ACHIEVED? 

In  order  to  tackle  the  consequences  identified  in  section  2,  the  initiative  aims  at  pursuing  two 
general  objectives,  in  line  with  the  political  guidelines  for  the  current  Commission  to  deliver  for 
Europe’s  sustainable  prosperity  and  competitiveness  and  to  unlock  private  financing  and  turbo-
charge  investment  as  part  of  deeper  and  more  liquid  capital  markets64.  These  objectives  in  turn 

62  As  an  illustration,  Article  8 and  9  together  account  for  over  80% of  funds  e.g.  in  SE, NL,  DK  and  FI,  while  they 
represent 0% in CY, EL, PL and LT (Source: DG FISMA calculations based on Morningstar data in Q2 2024) 
63 Savings and Investments Union 
64 https://commission.europa.eu/document/download/e6cd4328-673c-4e7a-8683-f63ffb2cf648_en  

17 

 
 
 
 
support investment toward the following Sustainable Development Goals, namely those related to 
the climate and environment65 and social progress66. 

To  reach  these  general  objectives,  two  specific  objectives  are  identified  in  order  to  tackle  the 
problems identified in section 2, and notably to help financial market participants and investors to 
overcome the complexity of the status quo. These in turn fully respect and support the EU Charter 
of Fundamental Rights.  

4.1.  General objectives 

The  first  general  objective  of  the  initiative  is  to  protect  the  integrity  of  the  EU  single  market  for 
sustainable finance by  ensuring requirements  which mitigate risks of  greenwashing,  and to  better 
help  investors  seize  opportunities  in  sustainability-linked  financial  products.  The  second  general 
objective is to boost the competitiveness of Europe’s financial sector by ensuring conditions which 
make  business  easier  and  help  to  deepen  our  single  market  for  sustainability-linked  financial 
products  and  thus  to  efficiently  allocate  capital  for  Europe’s  sustainable  prosperity.  Overall,  the 
general  objectives  of the review are thus  conceived to  create conditions  on both  the demand-side 
and  the  supply-side  to  ensure  a  better  use  of  the  potential  of  the  European  single  market  for 
sustainable finance to contribute to funding the transition towards Europe’s sustainable prosperity 
and competitiveness. 

4.2. 

Specific objectives 

To reach these objectives, and to tackle the shortcomings observed in the status quo, the measures 
of the review should pursue two specific objectives. The first specific objective is to simplify and 
reduce the sustainability-related administrative requirements of the framework for financial market 
participants, as well as to enhance the coherence of the framework for their operational needs. The 
second  specific  objective  is  to  improve  end-investors’  ability  to  understand  and  compare 
sustainability-linked financial products. The specific objectives of the initiative thus tackle the main 
problems which have been identified both for financial market participants on the one hand, and for 
investors  on  the  other,  which  inhibit  their  ability  to,  respectively,  design  financial  products  and 
deploy  corresponding  investments  in  an  efficient  and  effective  manner  toward  the  EU’s 
sustainability, competitiveness and other strategic policy goals.       

5.  WHAT ARE THE AVAILABILITY POLICY OPTIONS? 

The  available  policy  options  for  the  review  are  assessed  against  the  specific  objectives  identified 
above. They are analysed in terms of their relative merits in how well they can simplify and clarify 
the  regulatory  expectations  under  the  SFDR  while  enhancing  investor  protection  and  improving 
their  ability  to  understand  the  ESG  features  of  financial  products.  The  overarching  goals  of  the 
policy options are to support the scale up of sustainable finance towards Europe’s sustainability and 
competitiveness goals in the most effective and efficient fashion. 

This section is structured as follows. Section 5.1 illustrates the baseline scenario of no change to the 
SFDR.  Section  5.2  considers  its  repeal.  Section  5.3  considers  a  first  alternative  area  of  action, 
namely  options  for  alleviating  the  reporting  burdens  through  changes  to  entity-level  and  product 
level  disclosures.  These  changes  include  both  a  reduction  of  data  points  required  as  well  as  a 
simplification of the sustainability-concepts. Section 5.4 considers a second area of action, namely 

65 E.g. Goal 13 “Climate Action”, goal 6 “Clean Water and Sanitation”; goal 7 “Affordable and Clean Energy”; goal 9 
“Industry, Innovation and Infrastructure”  
66 E.g. Goal 3 “Good Health and Well-being”; 5 “Gender Equality” 

18 

 
 
 
 
setting  up  a  clear  product  categorisation  system  to  address  the  current  misuse  of  the  disclosure 
articles. Section 5.5 discusses some options discarded at an early stage. 

The  options  in  Sections  5.3  and  5.4  relate  to  one  another  as  follows.  The  options  under  Section 
5.3.1 to  significantly reduce or delete entity  level  disclosures are distinct. They  concern financial 
market  participants’  disclosures  at  entity-level,  regarding  their  investment  decisions  and  business 
practices. The options under Section 5.3.2 to make either minimal or more significant changes to 
sustainability-related  product-level  disclosures  connect  closely  to  the  options  in  Section  5.4 
regarding whether and how to set up a categorisation system for those products. The options under 
Section 5.3.1 could be pursued more in isolation (but coherent with the rest of the EU sustainable 
finance  framework)  while  those  in  Sections  5.3.2  would  be  more  difficult  to  pursue  without 
considering those in Section 5.4. To illustrate, Box 2 shows how the options relate to the problems 
and specific objectives of previous Sections, while the text below under the options explains further 
how  notably  options  in  Sections  5.3.2  and  5.4  should  be  pursued  more  closely  together,  for  a 
coherent outcome which achieves the objectives effectively and efficiently. 

Box 2: how the policy options in Sections 5.3 and 5.4 interact with the problems of the current SFDR and 
the objectives for the review  

The  policy  options  below  focus  primarily  on  the  necessary  changes  to  the  Level  1  SFDR  text. 
These would need to be complemented by corresponding changes or replacements of the Level 2 
Regulation. The policy options are explored to establish all essential features of the disclosures and 
categories in the Level 1 text, framing the supplementary rules in the Level 2 Regulation (contrary 
to  the  current  SFDR,  which  allowed  for  the  elaboration  of  complex  and  lengthy  level  2  rules, 
leading to increased complexity and burdens).  

19 

 
 
 
 
 
 
Specific considerations for the formulation of policy options arising from the Omnibus proposal67, 
the ESMA fund name guidelines and the principle of proportionality 

One  of  the  key  considerations  is  to  foster  coherence  between  the  SFDR  and  the  rest  of  the 
sustainable  finance  framework,  and  in  particular  with  the  changes  entailed  by  the  Omnibus 
proposals in terms of sustainability disclosures applicable to corporates. The policy options for the 
SFDR  review  need  to  be  coherent  with  this  new  context.  Prior  to  the  Omnibus,  disclosures  from 
corporates/investees  were set  to  expand over time and provide a wider range of the granular data 
needed  by  financial  market  participants  for  their  own  disclosures.  Post-Omnibus68,  the  policy 
options need to  take account  of the future scope of the disclosures for  corporates, which  will not 
improve FMPs’ ability to access ESG data for their underlying investments. Therefore,  the future 
system  should  reflect  the  fact  that  granular  sustainability-related  information  will  not  be  more 
readily available directly from  all investees. Here, it needs to be carefully considered whether  the 
new context under the Omnibus would favour repealing the SFDR and leaving the organisation of 
information on ESG-features of financial products to the market, or whether other options to review 
the SFDR would be more effective, efficient and coherent to deliver on the objectives69.  

Second, in this context,  due consideration should also  be given to  recognising and building  upon 
current market practices. While not a standalone objective, a sufficient degree of continuity/stability 
with  appropriate  criteria  in  the  categorisation  of  products  that  are  already  being  applied  by  the 
markets, namely reflecting the ESMA fund name guidelines70, is considered advisable. These have 
become  a  broadly  accepted  and  useful  source  of  clarity  for  FMPs  and  investors.  Duly  reflecting 
them aims to avoid a ‘re-categorisation’ wave which could be disruptive to the offer of products to 
investors. It could also be unduly costly for FMPs, especially given evolving data constraints, and 
be at odds with the overall objective of simplification and burden reduction. Rather, where existing 
categorisation  practices  are  considered  to  help  support  the  objectives  in  Section  4,  this  should  be 
reflected in the assessment of the relative merits of the options. 

taking 

into  account  other  existing 

Finally,  and  linked  to  this,  following  the  principle  of  proportionality,  the  options  should  further 
seek to work with the grain of market practices and not go beyond what is necessary to reach the 
objectives,  also 
regarding 
‘environmental’  claims71.  While  there  is  no  obligation  in  the  current  SFDR  for  FMPs  to  offer 
sustainability-linked  products,  the  scope  of  its  current  disclosure  requirements  is  not  clearly 
delineated and as a result applies broadly  to the market.  As explained in section 2 and Annex 11 
(evaluation),  the  scope  of  application  of  the  SFDR  Article  8  has  been  subject  to  different 
interpretations (from FMPs and supervisors), i.e. the triggers of the mandatory ESG disclosures are 
not  clear  and  led  to  a  very  large  scope  of  financial  products  falling  under  these  obligations  (for 
example investment funds disclosing under Article 8 accounted for about 51% of the total UCITS 
and AIF fund market at end of 202472).  

requirements 

regulatory 

67 Omnibus I - European Commission 
68 Estimated notably to result in a reduction in the number of undertakings in scope of the CSRD of about 80%  
69 Details on the links between the SFDR review and the Omnibus are presented in Annex 6, Section 5. 
70  ESMA  guidelines  were  largely  an  attempt  to  bring  clarity  for  investors  amid  FMPs’  myriad  sustainability-linked 
claims  through  the  introduction  of  minimum  criteria.  They  constitute  the  latest  regulatory  guidance,  after  notably  a 
prior reclassification of Art. 9 funds in Q4 2022, having resulted in some relabelling and renaming of EU sustainable 
finance funds. 
71  Namely,  changes  introduced  by  Directive  (EU)  2024/825  amending  Directives  2005/29/EC  and  2011/83/EU  as 
regards empowering consumers for the green transition through better protection against unfair practices and through 
better information (see also Annex 6, section 3).   
72 EFAMA, Market Insights, April 2025 

20 

 
 
 
 
In this respect, the options should more clearly focus the obligations under SFDR to cater for FMPs 
which are committed to offering sustainability-linked financial products and for their clients which 
are interested in investing in them. That is, compared to the status quo, it should be ensured more 
clearly  that  the  future  policy  framework  constitutes  a  voluntary  regime  for  FMPs  and  investors 
interested  in  sustainability-linked  products.  It  would  apply  only  in  case  of  explicit  decisions  by 
FMPs to offer ESG-focused products and by investors to seek and select them. A key consideration 
would be that ‘claims’ by FMPs regarding how and the extent to which financial products invest in, 
contribute  to,  or  integrate  sustainability  factors  in  their  investment  strategy,  understood  as  any 
messaging stating or implying environmental or social benefits associated with investments in and 
by those financial products, would trigger the categorisation of products under the revised SFDR. 
Conversely, if products do not meet the criteria required by the voluntary categories, they should be 
restricted from using certain names or be marketed as sustainable or ESG focused.  

5.1.  What is the baseline from which options are assessed? 

The baseline scenario assumes no changes are made to the SFDR and that the Omnibus proposals 
are adopted by co-legislators73. In this scenario, the problems and challenges identified in section 2 
would continue. Namely, the complexity, burdens, confusion and suboptimal outcomes associated 
with  the  current  rules,  both  in  terms  of  disclosures  and  the  misuse  of  Articles  8  and  9  as  labels, 
would  not  be  tackled.  Questions  from  FMPs  how  to  interpret  and  implement  the  rules  would 
continue,  adding  extensively  to  the  corpus  of  Level  3  guidance  which  they  have  to  observe74. 
Certain  duplications  within  the  existing  sustainable  finance  framework  for  financial  market 
participants  would  remain  in  place,  and  new  challenges  arising  for  them  from  the  Omnibus 
proposals would emerge. Rather than receiving increasingly granular data from investees as would 
have  been  the  case  prior  to  the  Omnibus,  FMPs  would  have  to  make  do  with  less  for  their  own 
disclosures75,  and  from  a  smaller  range  of  entities.  In  response  to  a  perpetuated  status  quo,  the 
likelihood of divergent national measures would increase, even more so in case national authorities 
were  to  adjust  national  regimes  for  financial  market  participants  to  reflect  the  evolving  post-
Omnibus landscape. Worsening fragmentation of the single market, contrary to the objectives of the 
Savings and Investments Union, would ensue. The ESMA guidelines could help mitigate this to an 
extent, continuing to apply to govern the use of ESG terms in fund names. However, tensions could 
emerge  amid  a  growing  disconnect  between  the  simple  rules  introduced  by  the  guidelines  on  the 
one hand, and the  complexity of the underlying  SFDR disclosures and concepts (e.g. ‘sustainable 
investment’, which is integrated in the guidelines) amid heightened post-Omnibus data availability 
challenges on the other.         

5.2.  Repeal of the SFDR 

Given  the  emphasis  on  simplification  of  sustainability  reporting  under  the  Omnibus,  a 
straightforward  way  to  simplify  and  reduce  the  sustainability-related  administrative  requirements 

73  At  the  time  of  writing  (until  Q4  2025),  while  aspects  of  the  Commission’s  proposals  on  the  Omnibus  had  been 
adopted (namely the ‘stop-the-clock’ amendments to delay phasing-in the application of the CSRD and CSDDD for a 
range  of  entities),  the  remaining  negotiations  on  the  Omnibus  between  the  co-legislators  were  still  underway,  but 
looked set to confirm the Commission’s proposal for simplifications of the current framework, and even to go beyond 
in certain respects (see namely Council of the EU, Draft directive on certain corporate sustainability reporting and due 
diligence requirements, Council’s negotiating mandate, June 2025, which puts forth a revenue threshold of EUR 450mn 
to  descope  more  companies).  While  not  yet  fully  finalised  and  agreed,  it  was  thus  assumed  highly  unlikely  that  co-
legislators would reverse course toward a pre-Omnibus scenario. 
74 Dated 25 July 2024, the consolidated Q&As on the SFDR exceed 70 pages JC 2023 18 - Consolidated JC SFDR QAs 
75  The  current  ESRS  includes  over  50  datapoints  to  support  the  corresponding  information  provisions  of  financial 
market  participants  related  to  principal  adverse  impacts  set  out  in  the  SFDR  Level  2  (Commission  Delegated 
Regulation (EU) 2022/1288) 

21 

 
 
 
 
for  financial  market  participants  would  be  to  remove  the  rules  to  this  effect  under  the  SFDR 
altogether.  If  the  SFDR  were  repealed,  financial  market  participants  would  be  relieved  of  the 
obligations to provide entity-level and product-level information regarding sustainability involving 
their  practices  and  products.  They  would  be  free  to  provide  this  information  according  to 
parameters and templates of their choosing, based on demand from their investors, and subject to 
the (possible, continued) application of the ESMA fund name guidelines  (which does not include 
reporting obligations) and other horizontal legal requirements76. However, for a complete answer to 
the  problems  identified  in  Section  2,  this  would  need  to  be  weighed  against  how  well  a  repeal 
would help meet the other objectives outlined in Section 4 – e.g. to enhance the coherence of the 
sustainable finance framework for the operational needs of financial market participants, as well as 
to improve end-investors’ ability to understand and compare sustainability-linked financial products 
and fight greenwashing. This is assessed at the start of Section 6. 

5.3. 

Policy options for alleviating burdens and costs of reporting 

The first set of alternative options looks at how best to alleviate the entity-level and product-level 
disclosure requirements applicable to FMPs in the current framework, which constitute one of the 
key problems identified in section 2.1.1. The options focus on the information and datapoints that 
are  most  needed  from  them  by  end-investors  and  on  how  to  clarify  and  simplify  the  concepts 
underlying  these  disclosures.  This  involves  amendments  of  the  Level  1,  to  be  complemented  by 
corresponding Level 2 changes at a later stage. The approach to supervision would remain the same 
(i.e. in the hands of the national competent authorities).  

The options for the disclosures in this Section are independent of those regarding categorisation in 
Section 5.4. However, the specific content of the product disclosures would be closely linked to the 
type of categories that would be created. In fact, disclosures would need to include an indication of 
the categories, and under some options they would also include transparency regarding the criteria. 

5.3.1.   Entity-level disclosures  

The suggested changes focus on the disclosures of principal adverse impacts under Article 4 SFDR, 
which are those most acutely identified as a problem in section 2. Disclosures on sustainability risk 
and  remuneration  policy  under  Article  3  and  577  were  not  identified  as  considerable  burdens.  
Disclosures  under  Article  4  SFDR  are  currently  mandatory  for  FMPs  with  more  than  500 
employees,  while  smaller  FMPs  are  subject  to  a  comply  or  explain  mechanism.  In  terms  of 
coverage of entities, there are currently approximately 400 FMPs78 reporting on a mandatory basis 
(i.e.  more  than  500  employees)  and  120079  doing  so  on  a  voluntary  basis  (i.e.  below  500 
employees)80. 

76  Namely,  changes  introduced  by  Directive  (EU)  2024/825  amending  Directives  2005/29/EC  and  2011/83/EU  as 
regards empowering consumers for the green transition through better protection against unfair practices and through 
better information (see also Annex 6, section 3).   
77  PAI  disclosures  as  per  Article  4  constitute  the  bulk of  entity-level  disclosure  requirements  detailed  in  the  Level 2 
regulation and a major factor in the problems identified in section 2, whereas there are no further Level 2 specifications 
concerning Articles 3 and 5.   
78 Of which 71% are banks, 20% insurance companies, 8% are asset management firms and the rest pension funds and 
investment firms. Data from ESAs report on PAI disclosures 2024.  
79 Of which 40% are asset management firms, 21% insurance companies, 15% pension funds, 13% investment firms 
and 11% banks. Data from ESAs report on PAI disclosures 2024. 
80 While aggregated numbers on what this means in terms of the adverse impacts of investments by covered entities are 
not available, the ESAs provided information on their average adverse impact on key indicators: 26.59m tons for total 
GHG  emissions  (highest  540m),  18  000  tons  for  average  GHG  intensity  of  investee  companies,  and  7000  tons  for 
carbon footprint. 

22 

 
 
 
  
 
Option 1.1: Significant reduction of entity-level disclosures  

Under this option, the Commission would reduce the amount of sustainability KPIs to focus on the 
ones that are the most comparable, measurable and material. These would need to be built on what 
is understandable and important for investors (focus on retail investors)81; as well as on the current 
market practices82 and the future corporate reporting standards under the CSRD83. Work from the 
Platform on Sustainable Finance (PSF)84, the ESAs85, and the responses to the public consultation 
can inform on the usability of the indicators to be retained. The frequency of reporting could also be 
reduced up to 3 years instead of every year.  

In addition, a revised scope could target a meaningful scope of entities by focussing on the size of 
the  FMPs’  asset  under  management  rather  than  the  number  of  employees.  Regardless  of  the 
revision of the scope, this option would involve the SFDR continuing to set entity-level disclosures 
for smaller FMPs that will be out of the scope of the revised CSRD, as per the Omnibus proposal.  

Option 1.2: Deletion of entity-level disclosures  

Under  this  option,  the  SFDR  would  solely  focus  on  product  disclosures  while  the  CSRD  would 
prescribe the entity-level disclosures for FMPs in its future revised scope86. Assuming the adoption 
of  the  Commission’s  Omnibus  proposals,  mandatory  entity-level  reporting  would  thus  no  longer 
apply to FMPs below 1000 employees. 

In  contrast  to  option 1.1, this option fully reflects  the logic of the Omnibus proposal.  The CSRD 
will determine future entity-level sustainability-linked reporting requirements in a comprehensive, 
cross-sectoral and coherent way, without exceptions and without scope for additional requirements 
under other regulatory pieces that would risk duplications or excessive complexity. FMPs outside 
the  CSRD  scope  could  voluntarily  report  entity-level  information  according  to  the  ESRS  or  the 
future  voluntary  sustainability-related  information  standard  to  be  adopted  as  a  delegated  act 
according  to  the  Omnibus  proposal,  and  based  on  the  voluntary  standard  for  SMEs  (VSME) 
developed by EFRAG87.    

5.3.2.  Product-level disclosures 

Despite  the  clear  need  for  simplification  and  streamlining  of  the  current  ESG  disclosures  for 
sustainable  finance  products,  there  is  still  a  clear  demand  for  ESG  information  on  investment 

81 A comprehensive EU consumer testing exercise should be conducted to ensure the indicators that are to be retained 
can be understood and are deemed important by end-investors.  
82 Data from past disclosures by FMPs should be used to determine which KPIs are currently being disclosed, which 
can inform on their level of usability and ease of production. For example, the ESAs annual report on PAI disclosures 
under the SFDR shows that the KPI on total GHG emissions is being widely disclosed across FMPs. 
83  To  reduce  the  data  gaps  and  bring  coherence  between  the  disclosures  from  non-financial  companies  and  financial 
companies. 
84  For  example,  the  PSF  acknowledges  that  certain  indicators  are  only  material  for  companies  involved  in  specific 
economic activities, such as PAI 9 (hazardous and radioactive waste ratio), PAI 5 (non-renewable energy consumption 
and  production,  specifically  for  energy  production),  and  PAI  8  (emissions  to  water),  and  might  not  be  material  and 
comparable across all companies 
85  The  information  needed  might  also  be  available  under  the  annual  joint  ESAs  reports  on  disclosures  of  principal 
adverse impacts under the SFDR. See here the 2024 version for a state of play of the reporting based on FY 2023. If the 
information available in these reports are not enough, a market study should be conducted to take stock of disclosures 
made under Article 4 SFDR.  
86 Together with the provisions of Chapter Ib of Directive 2007/36/EC (shareholder rights), as amended 
87  Omnibus  proposal  COM  (2025)81  final;  Commission  presents  voluntary  sustainability  reporting  standard  to  ease 
burden on SMEs - European Commission 

23 

 
 
 
 
 
 
 
products88  (summary  of  the  existing  consumer  studies  included  in  Annex  10).  This  trend  was 
confirmed in  the responses to  the public consultations (described in  Annex 2) which showed that 
89% of respondents (272 out of 304) consider that the objective to strengthen transparency through 
sustainability-related  disclosures  for  financial  products  is  still  relevant  today.  In  addition,  a 
Eurobarometer survey of October 2022 shows that more than six in ten Europeans find it important 
that their savings and investments do not  find economic activities that have a negative impact on 
the  planet.  However,  only  34%  know  whether  their  private  savings  and  investments  are  invested 
into  sustainable  economic  activities,  and  29%  receive  information  on  the  sustainability  impact  of 
financial products or services89.  

This  shows  the  need  for  more  user-friendly  information  for  investors  to  make  informed  choices. 
The two options below therefore look at how to best ensure that investors receive the information 
that they need while limiting the burdens on data preparers.  

The  specific  content  of  product  disclosures  is  intrinsically  linked  to  the  choice  made  for  the 
categorisation  system  (section  5.4).  Accordingly,  option  2.1  would  cater  more  for  categories  that 
rely on the existing SFDR concepts while option 2.2 would better reflect categories relying on new 
criteria (which would be simpler than the existing concepts).  

Option 2.1: Minimal changes to product-level disclosures 

This  option  would  retain  the  bulk  of  the  disclosures  set  out  in  the  SFDR  level  2  delegated 
regulation in place.   

The  reporting  templates  would  remain  largely  similar  to  how  they  are  today,  i.e.  requiring 
transparency around a wide range of ESG related concepts in the current SFDR for all products in 
scope90.  Depending on the choice made regarding categories, the specific content of the disclosures 
would  only  slightly  vary.  If  categories  were  introduced,  disclosures  would  need  to  include  a 
reference  to  the  category  and  an  explanation  of  the  criteria,  but  all  categorised  products  would 
continue to disclose against the wide range of ESG concepts, independently of the category under 
which they fall.  

Option 2.2: Significantly reduce product-level disclosures 

This option would imply a significant change from the current approach and would result in much 
shorter  and  simpler  consumer-facing  disclosures  (Level  2).  This  option  would  move  away  from 
relying on standardised questions for all ESG financial products but instead would be coherent with 
the creation of categories, with disclosures tailored to the categories under which products fall (i.e. 
specific disclosures would depend on whether a product is largely composed of sustainable assets, 
or  transitioning  assets,  or  if  the  product  implements  other  ESG  processes).  Accordingly,  detailed 

88  For  example,  the  Morgan  Stanley  study  (2024)  finds  that  85%  individual  investors  are  interested  in  sustainable 
investing  and  the  Schroders  Study  (2019)  shows  that  the  interest  for  sustainable  investing  has  grown  for  77%  of 
respondents between 2015 and 2019.  
89  Retail Financial Services and Products - October 2022 - - Eurobarometer survey 
90 Such as the sustainable investment objective and the proportion of sustainable investment, the environmental and/or 
social  characteristics,  the  investments  in  Taxonomy-aligned  economic  activities,  the  do  no  significant  harm  test,  the 
consideration  of  principal  adverse  impacts  on  sustainability  factors,  the  asset  allocation,  the  use  of  derivatives  in 
attaining the ESG characteristics/objectives, the use of a specific index as reference benchmark 

24 

 
 
 
 
 
 
 
 
disclosures would be required only for categorised products and the number of data points to report 
would be significantly reduced from the 25 currently standardised questions91.  

To  strike  a  balance  between  providing  the  necessary  and  relevant  information  for  investors  and 
reducing the burdens for FMPs, the following measures would be taken:  

-  Refocussing  the  templates  on  fewer  indicators  and  sustainability  topics  which  are 
relevant  for  investors’  decisions.  A  limit  on  the  number  of  mandatory  indicators  for 
categorised products could also be defined (e.g. 5 indicators covering investors’ interest in 
climate,  environmental  and  social  issues).  The  format  of  the  templates  would  be 
standardised and its size (which would also  include a description of the categories  and its 
criteria)  could  also  be  limited  to  for  example  2  pages.  A  shorter,  standardised  template 
focused  on  fewer  indicators  would  also  have  the  benefit  of  enhancing  product 
comparability.    

-  Such disclosures should rely on clear, measurable and usable concepts  rather than the 
currently  high-level  concepts  which  have  proven  complex  to  apply  (such  as  sustainable 
investment).  FMPs’  experience  with  sustainability  concepts  and  measures  has  increased 
significantly  since  the  SFDR  was  introduced.  Market  observations  can  now  inform  on 
which indicators can be comparable across products92 and which concepts can be properly 
implemented in a harmonised way. More information on how the criteria would be changed 
is provided under section 5.4.  

-  Relying  on  concepts/KPIs  for  which  information  is  either  available  from  investee 
companies  or  possible  to  estimate  by  FMPs/data  providers  when  the  information  is 
missing. Two elements should be considered:  

o  The  SFDR  requirements  should  be  aligned  with  the  future  corporate  reporting 
standards under the CSRD to ensure that at least EU companies subject to these rules 
report the necessary information. The revised ESRS standards should be adopted in 
2026.  

o  The information needed to implement the SFDR should be possible to estimate when 
the information is not available. A market study would be conducted to understand 
what type of sustainability data is feasibly possible to reliably estimate 93. Annex 8 
includes background information on the current estimation practices. This is key to 
avoid  that  the  initiative  inadvertently  contributes  to  greenwashing  due  to  an 
unreliable use of estimates. 

Therefore,  subject  to  the  decision  taken  on  the  creation  of  categories  under  section  5.4,  the 
disclosures could be tailored to each category and focus on: (1) compliance by the product with the 
criteria of the  category;  (2) the  approach to  sustainability  chosen by the  FMP;  (3) the underlying 
methodology used and; (4) a requirement to disclose how the product meets a specified short set of 
ESG KPIs tailored to each category .  

91 Commission Delegated Regulation (EU) 2022/1288, reporting templates from Annex II to V.  
92 
Data from past disclosures by FMPs should be used to determine which KPIs are currently being disclosed, 
which  can  inform  on  their  level  of  usability  and  ease  of  production.  For  example,  the  ESAs’  annual  report  on  PAI 
disclosures under the SFDR shows that the KPI on total GHG emissions is being widely disclosed across FMPs. 
93 For example, the  PSF report already highlights which sustainability indicators lack publicly available or estimated 
data, such as biodiversity and water. The ESAs annual report mentioned above also gives a useful state of play of the 
reporting based on FY 2023. In addition, box 12 of annex 11 shows that ESG data is widely available on topics such as 
GHG emissions, exposure to fossil fuel sectors and exposure to controversial weapons. If the information available in 
these  reports  are  not  enough,  a  market  study  should  be  conducted  to  take  stock  of  disclosures  made  under  Article 4 
SFDR. 

25 

 
 
 
 
Annex 8 provides for an illustrative example of what the new template would look like. Because 
this  option  would  introduce  considerable  changes,  the  proposed  changes  should  be  tested  on  EU 
investors once the above essential contours and elements are agreed by co-legislators, before being 
finalised in the level 2 rules.  

5.4. 

Policy  options  for  setting  up  a  clear  and  coherent  sustainability-linked  product 
categorisation system 

To address the problem of poor comparability of ESG products and misuse of the current Articles 8 
and 9, three different options can be considered on how to set up sustainability-related categories 
for  financial  products.  The  options  discussed  in  this  section  reflect  those  which  emerge  as  the 
preferred ones from stakeholder feedback, namely different combinations of distinct categories for 
‘sustainable’,  ‘transition’,  and  ‘other  ESG’  products94.  Option  3.1  would  set  3  new  categories 
(sustainable, transition, other ESG), option 3.2 would set 2 new categories (sustainable, transition), 
and  option  3.3  would  convert  the  existing  disclosure  Articles  8  and  9  into  formal  categories 
(sustainable and other ESG). Based on this stakeholder feedback, other options to either not create 
categories  at  all,  or  to  create  more  than  two  or  three  categories  are  dismissed  at  the  outset  (as 
explained in section 5.5), also given that such approaches are assessed to be suboptimal in meeting 
the objectives defined in section 4.  

Like the current use of the SFDR as a categorisation system, these categories would be voluntary. 
As  explained  at  the  start  of  section  595,  in  line  with  the  principle  of  proportionality,  the 
categorisation  caters  for  FMPs  which  are  committed  to  offering  sustainability-linked  financial 
products  and  for  their  clients  which  are  interested  in  investing  in  them.  However,  some  of  the 
policy  options  presented  limit  the  ability  of  non-categorised  products  to  make  ESG  claims  in 
marketing  documentations  and  names.  Also,  the  specific  content  of  the  disclosures  builds  on  the 
information  provided in  Option  2.2 and  would be largely  defined by the  type of  category chosen 
and their underlying criteria. 

Under the three options, the categories would be designed in a way that is easily understandable 
by retail investors and usable by distributors by (1) relying on terms that are understandable to 
non-experts;  (2)  reflecting  different  levels  of  ambitions/type  of  sustainability  objectives  that  can 
easily be explained. The categories would not regulate every feature of products which would fall 
within  them,  but  rather  create  certain  high  level  requirements  which  categorised  products  would 
have to meet. They would aim at enabling investors and advisors to easily identify the products that 
can  match  certain  sustainability  preferences,  supported  by  short  mandatory  disclosures  (as  per 
option 2.2 above). This implies that the names of the categories, as well as a short explanation of 
what the categories are (part of the product disclosures), must be enough for investors to get a clear 
idea  of  the  (minimum)  ESG  standards  followed  by  categorised  products96.  In  contrast  to  today, 
where products can fall under either Article 8 or 9 depending on how FMPs decide to implement 
the SFDR concepts97, the categories would cluster products into distinct groups based on their main 
claims (‘sustainable’, ‘transition’, ‘other ESG’) and how they meet clear predefined criteria.     

94  See  Annex  2,  Section  3,  sub-section  3  ‘Categorisation  for  financial  products’.  Note  that  the  names  used  for  the 
categories  throughout  this  document  are  only  indicative  (see  also  below  under  ‘Elements  to  be  defined  at  level  1  vs 
elements to be defined at level 2.’) 
95 See section ‘Specific considerations for the formulation of policy options arising from  the Omnibus proposal95, the 
ESMA fund name guidelines and the principle of proportionality’ 
96 The categories would be on top of requirements for FMPs’ e.g. in Chapter Ib of  Directive 2007/36/EC (shareholder 
rights),  requiring  institutional  investors  and  asset  managers  to  be  more  transparent  about  their  investment  strategies, 
their engagement policies and the implementation thereof. 
97 See Annex 11, section 3.1.1 

26 

 
 
 
 
There is of course a trade-off between making the categories simple for FMPs and investors on the 
one  hand,  and  heightened  concerns  of  greenwashing  on  the  other.  To  achieve  the  former,  the 
categories  should  rely  on  a  few  key  datapoints  to  cluster  products  and  convey  their  main  ESG 
features. However, there is a risk that this effort to simplify the framework will not rely on the right 
data,  that  is  both  available  and  of  most  interest  to  investors,  or  will  omit  some  important 
environmental  or  social  decision-useful  data.  In  assessing  the  impacts,  it  should  therefore  be 
ensured that the data that is relied on for the categories is both available to a large degree, possible 
to  estimate  without  excessive  effort  in  case  it  cannot  be  derived  directly  from  investees,  and  is 
proven to  be the most decision-useful for investors, based on their preferences when investing in 
sustainability-related  financial  products.  The  descriptions  of  the  options  in  this  section  and  the 
analysis  of  section  6.3  (and  Annex  8)  weigh  the  impacts  in  terms  of  the  balance  between  the 
expected benefits on the one hand and the costs/risks on the other. The analysis reflects how to best 
ensure the criteria for the categories support the objectives of the review in section 4 and strike a 
balance in terms of e.g. competitiveness and simplification objectives, ESG ambition, and issues of 
data availability and usefulness for investors.  

The  approach  to  supervision  would  remain  the  same,  i.e.  NCAs  would  remain  in  charge  of 
supervising  the  disclosures  and  would  check  whether  categorised  products  comply  with  the 
underlying criteria of the categories. The ESAs would continue to have a coordinating role and 
would  be  in  charge  of  harmonising  the  supervisory  practices/expectations  of  NCAs  to  avoid 
diverging rules or gold plating as much as possible.  

Description of the three options  

➢  Options 3.1 and 3.2 

Option 3.1 and 3.2 both suggest creating categories which would rely on detailed criteria that are 
different  from  the  current  broader  disclosure  sustainability  concepts  of  Article  8  and  Article  9. 
These new categories would build on existing criteria under the ESMA Guidelines for funds names 
and current market practices. They would therefore reflect what FMPs have already adapted to and 
would  be  simpler,  clearer  and  less  data  intensive  than  the  current  concepts  of  the  SFDR  (more 
details in box 3 below).  The only difference between these two options is the number of categories, 
and  therefore  the  potential  coverage  of  the  categorisation  system.  Both  options  are  based  on  a 
voluntary  regime,  meaning  that  it  applies  only  in  case  of  explicit  decisions  by  FMPs  to  offer 
sustainable, transition (and other ESG) products and by investors to seek and select them. There are 
restrictions  however  for  products  that  are  outside  the  categories  on  how  they  can  be  marketed  to 
retail investors or use any relevant terms in the names.  

Option 3.1: Three new categories – sustainable, transition, other ESG  

To bring clarity to end investors as to which products have a level of sustainability-related ambition 
which  would  match  their  sustainability  preferences,  this  option  would  establish  three  categories 
focusing on commonly encountered ESG/sustainability-related investment features and preferences 
from consumers (see Annex 10). These would be:  

- 

- 

‘Sustainable’ category: investments that contribute to sustainability goals (such as climate, 
environment, or social goals) such as investments in companies or projects that are already 
largely sustainable meeting specific sustainability standards. 
‘Transition’ category: investments in companies and/or projects which are not sustainable 
yet,  but  are on a credible transition  path,  or investments  that contribute to transition  goals 
(such as climate, environment or social goals).  

27 

 
 
 
- 

‘Other  ESG’  category:  investments  which  do  not  meet  the  criteria  of  the  sustainable  or 
transition  investment  categories  but  however  apply  credible  environmental  or  social 
investment  approaches  (e.g.  process-based  strategies,  such  as  the  use  of  ESG  ratings  or 
outperforming the investment universe on a specific ESG indicator). Minimum safeguards 
would also apply to this third category. 

Special considerations for the transition category  

In contrast to the ‘sustainable’ and ‘other ESG’ categories, which would build on the approaches of 
Articles  9  and  8  of  the  current  SFDR,  an  official  ‘transition’  category  would  finally  clarify  the 
distinct characteristics of this type of strategies.98 The concepts and criteria that would underpin 
this  category  would  reflect  current  market  practices  and  build  on  the  existing  legislative 
framework for transition products  (ESMA guidelines), including  existing  practices on national 
supervision of transition plans. This category would not create a parallel definition of transition but 
would  align  with  criteria  developed  under  the  Commission  2023  Recommendation  on  transition 
finance99 and the criteria already mandatory for funds using transition-related terms in their names 
under  the  ESMA  guidelines100.  The  criteria  would  also  ensure  coherence  with  the  EU  Climate 
Benchmarks  and  potential  future  regulatory  development  (e.g.  CSRD  and  the  Corporate 
Sustainability  Due  Diligence  Directive)  and  would  aim  at  striking  a  balance  to  ensure  sufficient 
ambition and comparability on the one hand, as well as inclusiveness and flexibility on the other, 
allowing funding to flow to a transitioning real economy.  

The  evaluation  annex  highlights  the  challenges  arising  from  the  lack  of  recognition  of  transition 
finance  under  the  SFDR  despite  the  existence  of  many  products  with  transition  objectives 
disclosing under Article 8 and 9. This creates challenges for FMPs wanting to pursue a transition 
strategy while having to comply with the SFDR underlying concepts 101, hindering the possibility to 
conduct  and  disclose  diverse  transition-related  investment  strategies.  This  leads  to  confusion  and 
lack  of  appropriate  disclosures  for  investors  interested  in  investing  in  products  with  transitional 
objectives. The consultation confirmed a large degree of support (72% of respondents) for creating 
a specific category for transition products, including as an inclusive strategy to focus on efforts to 
improve companies’ performance regardless of their starting points and to help operationalise the 
concept  of  ‘transition  finance’,  developed  under  the  Commission  2023  Recommendation  on 
transition finance. 

Potential  role  for  the  categories:  Option  3.1  would  create  a  categorisation  system  that  could 
potentially scope-in a large majority of ESG financial products (due to the third category). Due to 
this large scope, the categories would play an important role in limiting which products are allowed 
to  make  ESG  claims  in  their  marketing  documentation  and  in  their  names.  For  example,  only 
categorised  products  could  be  allowed  to  use  ESG  related  terms  in  their  names  and  add  ESG 
elements in their marketing documentations. Categories could also determine which SFDR products 
could be distributed to  retail investors with sustainability preferences aligned with the categories’ 
criteria  (under  MiFID  and  IDD).  The  third  category  would  ensure  that  all  products  making  ESG 

98 Different FMPs have follow different approaches, as it is not clear whether such strategies should be reported under 
Article 8 or 9 of the current SFDR. 
99 Commission Recommendation (EU) 2023/1425 on facilitating finance for the transition to a sustainable economy 
100 From the guidelines: “Transition”-related terms encompass any terms derived from the base word “transition”, e.g. 
“transitioning”, “transitional” etc. and those terms deriving from “improve”, “progress”, “evolution”, “transformation”, 
“net-zero”, etc. 
101 This is mainly due to the SFDR DNSH test (which can be seen at odds with the strategy of transition finance as it 
does not allow for the inclusion of assets that cannot be considered as sustainable at the time of the investment) and the 
technical  misalignments  between  the  sustainable  investment  definition  and  the  underlying  criteria of  the  EU  Climate 
Transition Benchmark (defined under the Benchmark Regulation).  

28 

 
 
 
 
claims  (marketing  documentations,  names,  or  be  distributed  as  products  with  ESG  features)  are 
regulated and comply with minimum safeguards102.  

Option 3.2: Two new categories – sustainable, transition 

This option would be the same as option 3.1, but without a third category. Option 3.2 would set up 
two categories: ‘sustainable’ category and ‘transition’ category. These categories would be the 
same as the ones suggested under option 3.1. 

Potential  role  for  the  categories:  Option  3.2  would  create  a  narrower  categorisation  system  that 
would  only  cover  the  most  ambitious  ESG  products103.  Instead  of  dividing  the  market  of  ESG 
products into three clear clusters and ensuring common criteria for all ESG products, the categories 
would bring visibility to the most ambitious ESG products. Due to the narrow scope, it would not 
be feasible to link the categories to the marketing communications, naming and distribution rules to 
the  same  extent  as  under  option  3.1  (not  enough  products  would  be  covered).  Uncategorised 
products making ESG claims in marketing communications and names would therefore continue to 
exist and be available to investors.   

Elements to be defined at level 1 vs elements to be defined at level 2  

The below describes the general division between level 1 and level 2, and box 3 below provides 
concrete examples of what specific elements would be defined at level 1 and at level 2. 

Unlike  the  current  SFDR  level  1  text,  which  has  allowed  for  unduly  complex  and 
disproportionate  rules  in  the  level  2104,  the  revised  level  1  text  would  concretely  define  the 
categories and their delineation by setting their essential features, i.e. main elements of the 
criteria,  administrative procedures  and supervisory framework. These include for example 
the  key  principles  and  requirements  both  for  the  positive  criteria  (sustainability  objective 
measured  by  credible  indicators  and  covering  a  mandatory  threshold  of  the  product)  and  the 
negative criteria (list of exclusions). The below section provides for a detailed description of the 
essential features of the categories (see also box 3 and annex 8).  

Already setting these elements at the level 1 allows for the assessment of the categories’ scope 
and impact against the objectives identified in Section 4 in terms of their effectiveness, efficiency 
and  coherence.  Building  on  these,  section  6  analyses  the  categories’  potential  to  simplify  the 
implementation  of  the  SFDR  and  reduce  the  costs  for  FMPs  as  well  as  to  increase  investors’ 
protection and enhance the comparability of ESG products.  

The  level  1  text  will  set  out  an  empowerment  for  the  Commission  to  develop  a  limited  set  of 
level 2 implementing rules to supplement these key elements with more technical requirements 

102 Uncategorised products would still be allowed to include ESG elements in their regulatory documentation 
103 The alternative of creating broader ‘sustainable’ and ‘transition’ categories to capture a broader share of the market 
does not emerge as an option with significant support, based on stakeholder feedback (Annex 2) and consumer studies 
(Annex 10). 
104 See Annex 11, Section 3.1.1  

29 

 
 
 
 
 
linked to the criteria. For example, level 2 rules could involve setting specific KPIs for measuring 
and  comparing  the  positive  contributions  of  different  types  of  products  depending  on  the  ESG 
objective (see box 3 below), specifying how the contribution of various assets/investees are to be 
calculated for meeting the positive criteria105, and any permitted deviations from the exclusions at 
portfolio  level  e.g.  for  hedging  purposes106,  as  well  as  setting  the  names  of  the  categories 
following  market  testing.  The  level  1  will  impose  strict  limits  on  the  future  level  2  to  ensure 
proportionality  between  ESG  and  non-ESG  products  to  avoid  disincentivising  FMPs  from 
offering the former.   

Similarly to the disclosures, defining well-specified technical elements at the level 2 would allow 
for:  

-  Conducting additional market studies ensuring that the final technical requirements 
linked to the categories (criteria and disclosures) are usable by FMPs. This should be 
done  after  the  essential  contours  and  elements  of  the  categories  are  agreed  by  co-
legislators.  Such  market  studies  could  be  conducted  by  the  ESAs  and  should  test  the 
criteria  on  the  existing  ESG  market  to  ensure  that  the  categories  would  capture  a 
sufficient  portion  of  the  existing  market  and  confirm  that  they  rely  on  reliable  and 
available ESG information. For example, criteria would not rely on indicators for which 
the  information  is  neither  available  from  companies  (public  reporting)  nor  possible  to 
estimate. More information on the criteria and the estimation  considerations/practices is 
in  box  3  and  Annex  8.  Conducting  regular  market  studies  will  also  have  the  benefit  of 
monitoring  how  the  framework  is  evolving,  also  in  light  of  market  innovation, 
development of new products and data, and changes in investors’ preferences, and ensure 
comparability is maintained over time.   

-  Conducting  additional  consumer  testing  studies  ensuring  that  the  names  of  the 
categories  are  understood  by  retail  investors  in  all  EU  languages.  The  existing 
consumer studies (described in annex 10) and engagement activities (described in annex 
2)  already  identified  certain  sustainability  topics  and  information  that  are  deemed 
important by EU investors and confirmed the need to establish EU categories. However, 
there  has  not  yet  been  an  EU-wide  consumer  study  looking  at  how  to  name  such 
categories for them to be easily understandable in different EU languages and to convey 
the correct message to EU retail investors. Once their essential contours and elements are 
agreed  by  co-legislators,  the  names  of  the  categories  would  need  to  be  tested  in  all  EU 
countries,  which  could  be  done  by  the  ESAs,  with  the  help  of  NCAs.  Setting  the  name 
after the political decision on the categories’ main features would allow the Commission 
to reflect any changes from the co-decision process, ensuring form follows function, and 
avoiding pre-establishing category-names which, in the end, could be at odds with the key 
features of the categories and mislead investors. It would also be important to ensure the 
names are coherent with other EU policy measures107. The names used for the categories 
throughout this document are thus only indicative. 

105 For example, to determine rules regarding shares of portfolios to which chosen key performance indicators would 
apply etc.   
106  Some  suggestions  are  made  that  e.g.  derivatives  routinely  used  for  hedging  purposes  could  reference  companies 
otherwise covered by the exclusions. 
107 As flagged in the evaluation annex, the use of similar terms under the SFDR and the EU Taxonomy Regulation led 
to confusion and complexities for investors (i.e. the two different DNSH tests, the two approaches to contribution, the 
similar terms under ‘good governance’ and ‘minimum safeguards’). The names of the categories will need to ensure 
coherence with other EU related measures and avoid replicating existing terms if the meaning is different.  

30 

 
 
 
 
-  Aligning  with  the  future  EU  corporate  reporting  under  the  CSRD,  which  will  be 
revised once the Omnibus proposal  will be  adopted (indicative timing:  2026). This  will 
ensure  coherence  in  the  data  provided  under  ESRS  and  the  indicators  and  disclosures 
under the future SFDR level 2.   

In addition, the date of effect of new level 1 rules would be sufficiently deferred to make sure 
that  they  enter  into  application  together  with  level  2,  after  a  sufficient  implementation 
period. At this stage it is too early to anticipate details on the content of the level 2 measures, as 
they will be impacted by the negotiations with the co-legislators. However, they will be subject 
to considerations on the cost-benefit analysis and follow the better regulation guidelines.       

Description of the proposed criteria under options 3.1 and 3.2 (to be read in conjunction with 
box 3 below and Annex 8) 

The  central  SFDR  concept,  i.e.  the  ‘sustainable  investment’  definition  in  Article  2(17),  builds  on 
three principles: (1) contributing to an environmental or social objective; (2) causing no significant 
harm to other environmental and social objectives (based on the consideration of principal adverse 
impacts),  and  (3)  investing  in  companies  with  good  governance  practices.  The  revised  criteria 
would  retain  the  concept  and  build  on  this  while  improving  these  core  principles  by 
underpinning them with a set of clear minimum requirements.  

The  evaluation  (annex  11)  and  problem  definition  (section  2)  has  identified  the  lack  of  clarity 
linked to the concept of ‘sustainable investment’, which has led to widely different interpretations 
and implementation approaches amongst FMPs. As shown in box 10 of annex 11, the exposure to 
sustainable investments of products tracking a similar benchmark can range from 1% to 80%.  

The evaluation also finds that the ‘DNSH test’, which is done through the high-level principle of 
‘consideration  of  principal  adverse  impacts’,  has  not  led  to  harmonised  implementation  practices 
and  has  not  prevented  harmful  investments.  This  is  mainly  because  the  current  SFDR  leaves 
considerable discretion to FMPs in choosing how they consider these impacts.  

To remedy this, two criteria for ESG categories are suggested:  

➢  Positive  contribution:  Setting  a  minimum  portion  of  investment  to  contribute  to  the 

sustainability objective (70/80% of the product)108 –  

➢  Exclusions:  Setting  clear  exclusions  of  harmful  industries  and  activities  in  which 
products  cannot  invest  in  –  these  exclusions  would  be  aligned  with  the  ones  of  the  EU 
Climate Benchmarks, as introduced by the ESMA guidelines on funds’ names 

The changes would aim at simplifying the current framework and:  

➢  Formalise  the  categorisation  of  products  and  clearly  delineate  between  the  different 

categories, bringing legal clarity to both FMPs and end-investors.  

➢  Introduce some common elements to underpin FMPs’ diverse approaches for ESG products, 
based  on  data  that  is  available,  measurable  and  possible  to  estimate,  and  minimising 
fragmentation in supervisory practices amongst NCAs. 

108 For reference, ESMA guidelines refer to 80%, while the UK FCA labelling rules refer to 70%. 

31 

 
 
 
 
 
➢  Protect  end-investors  against  misleading  claims  and  increasing  the  comparability  of  ESG 

products.  

The main positive impacts of the suggested criteria compared to today’s situation are described in 
table 1 of annex 8. 

High level principles to be reflected in the criteria:  

To  deliver  against  the  specific  objectives  of  the  review,  the  criteria  should  reflect  the  following 
principles:  

➢  First, the criteria should draw on reliable and comparable sustainability information and 
take account of the data availability considerations outlined above109. The criteria should 
be designed in a way  to mitigate as much as  possible the data availability issues and 
the  related  greenwashing  risks.  This  can  be  done  by  focusing  the  concepts  on 
information  that  is  available  from  investee  companies  in  scope  of  the  CSRD  (i.e. 
aligning with the upcoming streamlined ESRS), on information included in widely used or 
endorsed international frameworks such as the ISSB and the GRI, other emerging voluntary 
sustainability-related information standards such as the one to be adopted as a delegated act 
according to the Omnibus proposal, and based on the voluntary standard for SMEs (VSME) 
developed  by  EFRAG110,  and  information  that  is  possible  to  estimate  (see  below  the 
special considerations for estimates).  

➢  Second,  the  criteria  should  take  into  account  existing  market  practices  to  ensure 
continuity  (especially  regarding  the  criteria  introduced  by  ESMA  guidelines  on  funds’ 
names). This would allow to lower the one-off implementation costs and ensure regulatory 
stability111.  

➢  Third, the criteria should ensure sufficiently high environmental/sustainability ambition, 
and  focus  on  information  shown  to  be  most  useful  to  investors,  in  order  to  meet  their 
expectations,  mitigate  greenwashing  risks  and  respect  the  precautionary  principle.  At  the 
same time, the criteria should be achievable by a reasonable portion of current products 
making  quality  ESG  claims  to  make  sure  that  the  categories  do  not  unduly  disrupt 
practices as explained above112.  

➢  Finally,  the  criteria  would  need  to  enhance  the  comparability  of  products  and  bring 
sufficient legal clarity in order to harmonise implementation and supervisory practices 
to the extent possible. At the same time, the criteria would also need to allow for sufficient 
flexibility for FMPs to fit diverse investment strategies and asset classes  (e.g. equities, 
bonds, indices, etc.).  

109 ‘Specific considerations for the formulation of policy options arising from the Omnibus proposals, the ESMA fund 
names guidelines and the principle of proportionality’ 
110  Omnibus  proposal  COM  (2025)81  final;  Commission  presents  voluntary  sustainability  reporting  standard  to  ease 
burden on SMEs - European Commission 
111 There are currently 4,220 open-ended funds and exchange-traded funds with ESG-or sustainability related terms in 
their names, i.e. in scope of the ESMA guidelines. Source: Morningstar, ESMA Guidelines on ESG funds naming rules, 
May 2025 
112 ‘Specific considerations for the formulation of policy options arising from the Omnibus proposals, the ESMA fund 
name guidelines and the principle of proportionality’ 

32 

 
 
 
 
 
Box 3: Description of the proposed criteria under option 3.1 and 3.2 (see Annex 8 for more 
information) 

Description  of  main  elements  of  the  criteria  and  their  benefits  (see  Annex  8  for  more 
information) 

(1) Positive contribution – setting a minimum portion of investment to the contribution 

leg of the current definition to boost comparability:  

Starting  from  the  assumption  that  the  categories  are  voluntary,  FMPs  would  still  be  free  to 
choose their own sustainability objective(s) and how they plan to achieve them (subject to proper 
transparency).  However,  aligned  with  the  ESMA  guidelines  on  fund  names,  a  certain 
percentage  of  the  product’s  portfolio  would  need  to  follow  an  ESG  strategy  that  matches 
the  ESG  claims  they  make113.  Products  falling  under  the  sustainable  and  transition  categories 
would  need  to  show  how  a  specific  percentage  of  their  investments  contribute  to  a  clear 
sustainability  objective  and  explain  how  they  measure  that.  Products  falling  under  the  ‘other 
ESG’ category would need to demonstrate that a specific percentage of their portfolio aligns with 
the chosen ESG claims or processes.  

In  addition,  the  assessment  of  performance  against  the  objective  should  be  monitored  and 
disclosed and should be based on credible and where possible science-based indicators chosen by 
the FMPs. The SFDR (level 2) could provide a non-exhaustive list of ESG indicators on certain 
sustainability topics for FMPs’ use114.  

(2) Exclusions – a negative screening test replacing the DNSH and good governance legs 

in the current sustainable investment definition. 

This would take the form of a clear list of industries or activities that products should not be able 
to  invest  in  (e.g.  based  on  the  ESMA  guidelines  and  reflecting  a  wide  consensus  of  harmful 
industries  or  those  with  high  carbon  footprints)115.  Such  exclusions  would  make  rules  more 
consistent  across  the  EU,  harmonise  the  NCAs’  supervisory  expectations  and  enhance 
comparability between products. Also, by focusing on fewer sustainability topics than the current 
do no significant harm provision, this approach would reduce the amount of data that FMPs need 
to collect. Given these new minimum safeguards would not cover all the ESG aspects previously 
covered by the PAIs (e.g. biodiversity and water), FMPs could continue to identify and consider 
material negative outcomes on these topics on a best-efforts basis. As data availability develops 
around e.g. water, biodiversity, circular economy etc, the scope of the exclusions could also be 
reviewed.  

113  The  ESMA  guidelines  requires  funds  to  meet  an  80%  threshold  for  the  “proportion  of  investments  used  to  meet 
environmental or social characteristic or sustainable investment objectives in accordance with the binding elements of 
the investment strategy” 
114  The  level  2  rules  could  provide  a  non-exhaustive  list  of  ESG  indicators  that  FMPs  can  use  to  monitor  their 
performance against certain sustainability objectives (e.g. climate, water, biodiversity etc). These indicators would be 
voluntary and aim at supporting FMPs in the implementation and boosting comparability. However, FMPs would be 
free to use other indicators if the ones provided in the level 2 rules do not fit their objectives, assets or strategies (e.g. 
impact strategies which call for more specific and targeted KPIs).  
115  The  ESMA  guidelines  require  funds  to  exclude  certain  companies  referred  to  in  the  EU  climate  benchmark 
exclusions. 

33 

 
 
 
 
Concretely, this could translate into the following criteria (illustrative purposes only):  

-  Sustainable  category:  (1)  exclusion  of  investments  into  companies  excluded  from  the 
EU  Paris-Aligned  Benchmarks  (PAB)116;  (2)  70/80%  of  the  portfolio  to  align  with  the 
strategy  of  the  product  for  positive  contribution  to  sustainability.  The  assessment  of 
performance against the objective should be monitored and disclosed and should be based 
on credible and where possible science-based indicators chosen by the FMPs. The SFDR 
(level  2)  could  provide  a non-exhaustive list  of  ESG indicators on certain sustainability 
topics for FMPs’ use. For example, investments in a certain amount of Taxonomy-aligned 
activities  could  be  one  possible  way  to  demonstrate  contribution  to  climate  and 
environmental objectives. 

-  Transition  category:  (1)  exclusion  of  companies  excluded  from  the  EU  Climate 
Transition Benchmarks (CTB)117; (2) 70/80% of the portfolio to align with the strategy of 
the product to demonstrate positive contribution to transition or be covered by a portfolio 
level  strategy  (e.g.  relative/absolute  GHG  emission  reduction  of  the  portfolio  per  year). 
The assessment of performance against the objective should be monitored and disclosed 
and should be based on credible and where possible science-based indicators chosen by 
the  FMPs.  The  FMP  could  use  the  following  non  exhaustive  approaches  for  measuring 
the  performance  of  the  product  :  (a)  investments  in  undertakings  or  economic  activities 
with  a  credible  transition  plan  at  the  level  of  the  undertaking  or  activity,  including 
science-based  targets;  (b)  investments  in  portfolios  tracking  EU  climate  transition 
benchmarks  (PAB/CTB);  (c)  engagement  with  investee  companies  demonstrating 
measurable  change;  and  (d)  investment  in  Taxonomy-eligible  economic  activities 
becoming  Taxonomy-aligned118  and  partially  aligned  Taxonomy  assets119.  The  level  2 
could specify limited details of how to measure performance in relation to the indicators.  

-  Other ESG category: (1) the same CTB exclusions as for the transition category above; 
(2)  70/80%  of  the  portfolio  to  align  with  the  overall  strategy.  The  assessment  of 
performance  against  the  objective  should  be  monitored  and  disclosed  based  on  relevant 
indicators chosen by the FMPs. The level  2 could  set  out  voluntary indicators based on 
further market study.   

How these criteria could be spelled out in Level 1 and Level 2 (illustrative purposes only): 

Level  1  –  (1)  list  of  exclusions  per  category,  (2)  70/80%  requirement  for  the  investments  to 
support the positive contribution objective and strategy of the product, (3) non-exhaustive list of 

116  Companies  involved  in  (1)  any  activities  related  to  controversial  weapons;  (2)  the  cultivation  and  production  of 
tobacco;  (3)  in  violation  of  the  UN  Global  Compact  (UN  GC)  principles  or  the  OECD  Guidelines  for  Multinational 
Enterprises; (4) companies that derive 1 % or more of their revenues from exploration, mining, extraction, distribution 
or refining of hard coal and lignite; (5) 10 % or more of their revenues from the exploration, extraction, distribution or 
refining of oil fuels; (6) 50 % or more of their revenues from the exploration, extraction, manufacturing or distribution 
of gaseous fuels; (7) 50 % or more of their revenues from electricity generation with a GHG intensity of more than 100 
g CO2 e/kWh. In addition, the exclusion would specify that investees could not be engaged in activities involving fossil 
fuel expansion. 
117  Companies  involved  in  (1)  any  activities  related  to  controversial  weapons;  (2)  the  cultivation  and  production  of 
tobacco;  (3)  in  violation  of  the  UN  Global  Compact  (UN  GC)  principles  or  the  OECD  Guidelines  for  Multinational 
Enterprises. In addition, the exclusion would specify that investees could not be engaged in activities involving fossil 
fuel expansion. 
118 In accordance with Article 1(2) of Commission Delegated Regulation (EU) 2021/2178 over a period of maximum 5 
(exceptionally 10) years, in other words where investee companies have related CapEx plans.  
119 Based on the concept proposed and to be developed under the Omnibus – namely new provisions in Articles 19a(5) 
and 29aa(5) of Directive 2013/34/EU 

34 

 
 
 
 
approaches for measuring performance in relation to the objective and strategy depending on the 
category. 

Level  2  –  (1)  names  of  categories,  (2)  possible  common  indicators  to  assess  and  monitor  the 
performance  against  the  objective  for  voluntary  use  by  FMPs  (based  on  available  and  reliable 
ESG data), and (3) short disclosure templates per category120.      

How  these  criteria  would  help  achieve  the  specific  objectives  of  enhancing  comparability 
and reducing the burdens for FMPs 

The main impacts of the suggested criteria (compared to today’s situation) are described in table 
1 of annex 8. 

Impacts of the exclusions:  

-  Enhancing comparability of financial products: Such exclusions would make rules more 
consistent  across  the  EU,  harmonise  the  NCAs’  supervisory  expectations  about  what 
categorised  products  cannot  invest  in,  and  therefore  enhance  the  comparability  between 
such  products,  in  line  with  investors’  broadly  signalled  preferences  regarding  which 
sectors should be excluded (Annex 10).  

-  Limiting  implementation  costs  and  aligning  with  existing  market  practices:  First,  these 
exclusions  have  already  been  introduced  under  the  ESMA  guidelines  for  ESG  funds 
names,  which  started  applying  in  May  2025.  The  number  of  funds  currently  applying 
these requirements has been estimated at 4.570. Second, market analyses121 show that the 
implementation  of  sectoral  exclusions  are  the  key  elements  of  comparability 
identified  in  funds  with  ESG  characteristics  or  objectives,  demonstrating  the  well-
established market practices around exclusions. Finally, market studies have showed that 
estimation  practices  on  PAB  exclusions  are  very  well  developed122  which  minimises 
costs  for  FMPs  and  the  divergent  approaches  across  data  vendors  in  estimating  PAB 
exclusions. 

-  Usability  challenges:  certain  usability  challenges  are  noted  with  specific  data  points 
among the exclusions and how they are used in particular regarding whether violations of 
UN  Global  Compact  (UN  GC)  principles  or  the  OECD  Guidelines  for  Multinational 
Enterprises are ‘reported’ or ‘committed’. It is also unclear when a company is no longer 
considered in violation if it happened a long time ago. The future regime should cater for 
bringing clarity in this regard in level 2.  

Impacts of the positive criteria:  

-  Enhancing  comparability  of  financial  products:  The  levels  of  sustainable  investment 
would  be  harmonised  across  all  categorised  products,  ensuring  common  levels  of 

120 As well as the details mentioned above under ‘Elements to be defined at level 1 vs elements to be defined at level 2’ 
on  e.g.  how  the  contribution  of  various  assets/investees  is  calculated  for  meeting  the  positive  criteria,  rules  for 
indicators’ coverage of portfolios, and any permitted deviations from the exclusions at portfolio level e.g. for hedging. 
121  Studies  include  Frank  Bold,  SFDR  review :  analysis  of  current  practices  and  future  directions  for  investors, 
December 2024, and Morningstar: SFDR_Article_8_and_Article_9_Funds_Q4_2022.pdf 

122 See section 1.4 Annex 8. EU Platform on Sustainable Finance, Data Vendor Survey 2024, March 2025. The survey 
concluded  that  high  levels  of  consistency  were  found  in  the  estimations  of  exclusion  across  vendors,  with  80%  of 
issuers showing 0% divergence in their estimations of PAB exclusions 

35 

 
 
 
 
contribution.  In  addition,  the  reinforced  transparency  around  the  measurement  of  the 
performance  would  allow  investors  to  get  more  granular  information  on  the  type  of 
contribution. Finally, setting voluntary common indicators for the measurement (at level 
2) could boost the comparability of the disclosures on contribution.  

-  Limiting  implementation  costs  and  aligning  with  existing  market  practices:  Like  the 
exclusions, a 80% threshold for contribution has already been established by the ESMA 
guidelines for ESG funds names.  In addition,  FMPs would remain free  to  set  their own 
objectives,  therefore  choosing  the  sustainability  topics  for  which  they  believe  they  can 
access comparable data from their underlying investments.  

Practical limitations to reach perfect comparability on contribution (positive criteria) 

There  are  certain  practical  limitations  to  the  levels  of  comparability  which  can  be 
reached/required from products. Findings from the evaluation123 show that there is no ‘one size 
fits  all’  on  how  to  granularly  define  what  a  positive  contribution  to  a  sustainability  objective 
should  be.  This  is  mainly  due  to  the  wide  variety  of  assets,  strategies,  sustainability  objectives 
that  exists  in  the  current  market.  If  a  very  granular  and  common  (mandatory)  approach  to 
contribution  was  to  be  applied  to  all  products  regardless  of  their  sustainability  objective  (e.g. 
minimum  alignment  with  the  EU  Taxonomy),  the  investment  universe  would  be  too  restricted, 
and  the  categories  would  not  be  usable  (i.e.  only  a  handful  of  products  could  be  categorised). 
Further, this would not align with the specific and general objectives of this initiative124.  

In  fact,  the  potential  of  categories  to  simplify  the  framework  for  FMPs  and  to  enhance  the 
comparability  of  products  and  fight  greenwashing  would  be  significantly  lowered  if  they  left 
most prospective ESG products out of scope and only a handful of EU products are categorised. 
Therefore,  the  suggested  criteria  focus  on  ensuring  harmonised  levels  of  contribution,  to  be 
defined  by  FMPs,  rather  than  granularly  defining  the  nature  of  the  contribution  for  them.  This 
would  also  ensure  continuity  with  what  investment  funds  had  to  implement  under  the  ESMA 
guidelines on funds’ names (in application since May 2025).  

Possible additional measures which could be explored  

In  addition  to  the  measures  described  above,  the  Commission  could  be  empowered  to  define  a 
minimum ESG performance for certain sustainability objectives. In order to set this comparable 
minimum  quantitative  criterion  on  performance,  two  elements  would  be  needed:  (1)  widely 
available  data  from  underlying  investments  or  otherwise  estimable  datapoints;  (2)  a  politically 
agreed  science-based  target  (e.g.  minimum  performance  on  GHG  emissions  for  climate-related 
objectives) so that the law can set that minimum threshold unequivocally.  

123 For example, the different approaches to contribution described in  Frank Bold,  SFDR review : analysis of current 
practices and future directions for investors, December 2024 
124  E.g.  to  illustrate  the  point,  limiting  ESG  products  to  those  for  which  granular  publicly available  data  is  available 
under  the  (post-omnibus)  CSRD,  would  represent  a  considerable  change  and  challenge  for  FMPs  in  terms  of 
administrative requirements and continuity (vs. specific objective 1), give investors a very narrow ESG product range 
for any meaningful comparison to serve their demonstrated interest in ESG investing (vs. specific objective 2; Annexes 
2 and 10), and would rather diminish the scope of the EU single market for sustainable finance rather than boost its 
integrity  (vs.  general  objective  1)  and  potential  to  efficiently  allocate  capital  for  Europe’s  competitiveness  and 
sustainable prosperity (vs. general objective 2).  

36 

 
 
 
 
 
 
Additional considerations linked to estimations 

Due  to  data  availability  issues  the  use  of  estimates  will  be  inevitable  and  is  already  part  of 
current market practices given that the investable universe for financial products always extended 
beyond  listed  and  larger  EU  companies,  including  non-EU  companies  and  assets  that  are  not 
covered by EU reporting rules125.   

The  evaluation  (Annex  11)  identified  two  shortcomings  linked  to  estimations  in  the  SFDR 
implementation: (1) the use of estimates  is  currently unregulated and lacks harmonised guidance; 
(2)  the  data  required  is  sometimes  not  possible  to  estimate  when  not  disclosed  by  the  company 
(either due to  the nature of the topic/indicator, e.g. board composition,   or due to  usability issues 
linked to the specific definition, e.g. emissions to water126. These limitations led to greenwashing 
concerns  and  lack  of  legal  clarity  for  FMPs.  In  contrast,  the  proposed  criteria  and  exclusions  are 
based  on  existing  market  practices,  would  acknowledge  the  continued  use  of  estimates,  build  on 
findings  from  market  analysis  on  which  indicators  are  mostly  disclosed  by  companies  and  of 
interest to investors, and rely on common metrics which are possible to  estimate in a harmonised 
way.  On  the  other  hand,  the  evaluation  does  not  strongly  identify  the  lack  of  regulation  of  data 
providers themselves as a major shortcoming, nor one which would cohere with the objectives of 
the targeted review of the SFDR (including in the context of overall simplification127).     

The level 1 should thus allow the use of estimates and introduce principles and guidance for this 
purpose, to mitigate greenwashing concerns and provide certainty for FMPs. Examples of such 
principles and guidance are provided in Annex 8. Once agreed by co-legislators, together with the 
main elements and requirements linked to the categories and criteria, the ESAs could be tasked to 
test  and  confirm  what  type  of  sustainability  data  is  feasible  to  reliably  obtain  and  estimate  (see 
above ‘Elements to be defined at level 1 vs elements to be defined at level 2’)128.  

➢  Option 3.3: Converting Article 8 and 9 into categories – sustainable, other ESG 

As an alternative to options 1 and 2, this option would involve a less far-reaching amendment of the 
SFDR  by  transforming  Article  8  into  an  ‘other  ESG’  category  and  Article  9  into  a  ‘sustainable’ 
category. There would therefore be  no standalone category for transition  finance products. Given 
the option would seek to make minimal changes, the underlying requirements and concepts would 
remain largely like the ones of the current Article 8 and 9 (with some possible targeted amendments 
to improve their clarify and usability).  

This  option  would  largely  affirm  the  current  market  practice  of  treating  these  two  Articles  as  de 
facto  categories,  underpinned  by  current  sustainability  concepts  (e.g.  sustainable  investment, 

125Between  30%  and  50%  of  the  average  holdings  of  EU  asset  managers  consist  of  entities  not  subject  to  CSRD 
reporting requirements (and therefore do not publish Taxonomy or CSRD sustainability data).  As a result, FMPs are 
already  forced  to  source  the  missing  data  either  internally  or  commercially  from  third-party  providers.  See  ESMA 
report on Trends, Risks and Vulnerabilities (TRV), 2023 
126 See box 12, Annex 11 
127 See Annex 8, section 3 
128 For example, the PSF report already highlights which sustainability indicators lack publicly available or estimated 
data, such as biodiversity and water. The ESAs annual report mentioned above also gives a useful state of play of the 
reporting based on FY 2023. In addition, box 12 of annex 11 shows that ESG data is widely available on topics such as 
GHG emissions, exposure to fossil fuel sectors and exposure to controversial weapons. An analysis by EFRAG of the 
first  reporting  in  2025  under  CSRD/ESRS  for  a  sample  of  656  companies  also  confirms  that,  while  topics  such  as 
climate change mitigation and social topics such as business conduct and own workforce are considered material and 
reported on by over 80-90% of companies, topics such as biodiversity and water are considered material and reported 
on by 30-40% of companies. (EFRAG_State of Play 2025 Report_0.pdf)   

37 

 
 
 
 
 
DNSH,  promotion  of  environmental  and  social  characteristics  etc.).  Crucially,  there  would  be  no 
sectoral exclusions like in options 3.1 and 3.2, notably for the ‘other ESG’ category.  

Potential role for the categories: Option 3.3 would create a categorisation system that could play a 
similar  role  as  the  one  under  option  3.1.  The  difference  would  be  the  absence  of  recognition  for 
transition finance products and the limited changes in the current unclear underlying requirements.   

5.5.  Options discarded at an early stage 

Non-regulatory  measures.  Further  guidance  and  other  soft  tools  e.g.  Q&As  are  considered 
insufficient to effectively address the problems identified in section 2, to comprehensively meet the 
objectives specified in section 4.2 and to respond to stakeholder feedback calling for the creation of 
clear product categories. Rather, the risks noted in sections 3.1 and 5.1 with the baseline scenario 
would  likely  increase  (emergence  of  new  national  measures  to  tackle  the  problems,  further 
fragmentation etc). In this context, effectively prolonging the status quo yet attempting to introduce 
further  guidance  to  address  the  identified  problems,  as  well  as  new  ones  emerging  from  the 
implementation  of  the  Omnibus,  would  add  to  the  extensive  Level  3  guidance  already  in  place. 
Some  guidance  could  be  effectively  impossible  to  provide,  in  case  of  new  inconsistencies  or 
contradictions between the SFDR and revised CSRD/Taxonomy. As mentioned in section 5.1, the 
ESMA  guidelines  could  help  to  an  extent  in  governing  the  use  of  ESG  terms  in  fund  names  and 
providing stability and continuity to markets. However, tensions could emerge between the (simple, 
but  non-binding  and  non-comprehensive)  guidelines  and  further  additional  complexities  in 
underlying  SFDR  disclosures,  going  against  better  regulation  principles  of  ensuring  coherence 
between different  policy instruments129. This  could add to  further confusion and compromise any 
anticipated benefits in terms of meeting the objectives in section 4.2 (i.e. simplify and improve the 
coherence  of  the  framework  for  financial  market  participants  as  well  as  improve  end-investors’ 
ability  to  understand  and  compare  ESG  products).  It  could  also  generate  disengagement  among 
some FMPs, who could potentially withdraw from offering sustainability-linked products.  

No category. Proposing that ESG financial products should not be categorised at all could be seen 
as  a  simplification  on  paper,  and  in  some  ways  a  coherent  step  following  the  Omnibus.  An 
argument  could  be  made  that  less  ESG  data  from  investees  means  less  scope  for  creating  a 
meaningful  product  categorisation  under  SFDR.  However,  this  conflates  the  objectives  of  the 
Omnibus  on  the  one  hand  (simplifying  excessive  sustainability  reporting  requirements  for 
corporates) and the SFDR on the other (meeting investors’ demand for ESG information regarding 
financial  products),  effectively  denying  the  validity  of  the  latter  in  a  post-Omnibus  scenario.  As 
explained  previously,  ESG  data  for  financial  products  was  never  only  to  be  derived  from  (pre-
Omnibus)  European  corporate  disclosures.  Moreover,  the  demand  among  EU  investors  for  ESG 
information regarding financial products remains strong130. Thus, creating categories is arguably a 
necessary and coherent step following the Omnibus, to  convey a high-level message of products’ 
key features according to a simpler set of key measurable parameters, to compensate for a decrease 
in detailed constituent ESG data from investees. Providing for no category would also represent a 
departure from (i) the revealed preference of markets today (in the treatment of Articles 8 and 9 as 
de facto categories) to distinguish between ESG products, (ii) the preferences expressed by a wide 
range of stakeholders in the consultation to introduce a proper, clear(er) categorisation131, and (iii) 
the changes which markets  have adopted in  applying the ESMA fund name guidelines.  It  would 
effectively  amount  to  removing  any  distinction  between  ESG  products  (implying  amendments  to 
Articles 8 and 9), constitute a major change, and would thus be contrary to the aim of not forcing 

129 E.g. tool #17 Choice of policy instruments 
130 See Annex 10 
131 See Annex 2, Section 3, sub-section 3 ‘Categorisation for financial products’ 

38 

 
 
 
 
undue changes on markets which have adapted to the current rules132. It could also necessitate yet 
more extensive ESG disclosures to distinguish between products and to compensate for the lack of 
a high-level clustering of products according to their key objectives and features. The option is thus 
dismissed from the outset as an effective, efficient and coherent way of meeting the objectives in 
section  4.2  (i.e.  simplify  and  improve  the  coherence  of  the  framework  for  financial  market 
participants as well as improve end-investors’ ability to understand and compare ESG products). 

One category. Alternatively, creating a single category for all products making ESG claims would 
also  represent  a  further  complication  and  reordering  of  the  market  for  FMPs  and  less  clarity  for 
investors. To accommodate all potential  products, it would run the  risk of having  to rely on new 
(broad)  concepts,  with  potentially  heavily  watered-down  criteria  and  safeguards.  As  above,  the 
changes  from  the  Omnibus  do  not  in  themselves  annul  investors’  continued  interest  in  receiving 
more comparable information on the different ESG features of products. Product disclosures could 
also potentially need to increase to cater for this. Legal certainty would be unlikely to improve, with 
continued  need  for  further  guidance,  going  against  the  aim  of  simplifying  and  improving  the 
coherence  of  the  framework  for  financial  market  participants.  Transparency  for  investors  and  the 
quality of products on offer would likely suffer, impairing end-investors’ ability to understand and 
compare ESG products. 

More  than  three  categories.  Finally,  going  beyond  three  categories  could  also  entail  an  unduly 
significant – and unnecessary – reorganisation of the market for FMPs, of questionable added-value 
for  investors.  As  the  number  of  categories  increases,  the  criteria  needed  to  distinguish  between 
them  could  become  excessively  intricate,  adding  further  complexity  in  a  way  that  would  be 
incongruent with the Omnibus and the added data challenges it brings. There could be a risk that 
only  a  few  products  would  ever  populate  a  given  category.  The  Platform  proposals  confirm  the 
broad  stakeholder  feedback  in  favour  of  a  more  limited  number  of  categories  and  find  that  this 
would  achieve  a  balance  in  terms  of  capturing  different  products  within  simple,  high-level 
categories,  while  allowing  for  product  innovation  and  diversity  targeting  different  investment 
strategies  and  asset  classes,  as  well  as  ensuring  sufficient  investor  protection133.  The  additional 
intricacies  and  drawbacks  associated  with  going  beyond  three  categories  are  thus  considered 
suboptimal in meeting the objectives of simplification and usability for end-investors.   

6.  WHAT  ARE  THE  IMPACTS  OF  THE  POLICY  OPTIONS  AND  HOW  DO  THEY 

COMPARE? 

6.1.  Option 0: Repeal of the SFDR134 

❖  Expected benefits and potential drawbacks for data preparers (FMPs)  

This  option  would  effectively  remove  the  implementation  costs  associated  with  the  SFDR  by 
deleting  all  entity-level  and  product-level  disclosures.  FMPs  would  be  free  to  choose  what  ESG-

132 See above under ‘Specific considerations for the formulation of policy options arising from the Omnibus proposal, 
and the ESMA fund name guidelines and the principle of proportionality’ 
133  Categorisation  of  products  under  SFDR  -  Report,  Annexes  B  and  H.  This  is  anecdotally  also  confirmed  by  the 
experience  of  the  UK  in  testing  their  voluntary  labelling  system  for  funds  (see  Annex  6  section  C),  where  investors 
were found to prefer a limited number of clear and discrete  labels that convey the main sustainability outcomes of a 
fund  rather  than  more  extensive  categorisations  based  e.g.  on  complex  gradations  or  ratings  based  on  numerical 
systems, or reliance on unintuitive concepts. 
134 This option is recapped in the comparative tables below under sections 6.2.1 and 6.2.2 against the options to adjust 
entity and product level disclosures in the current framework, which is what would be repealed by this option. It is not 
repeated  in  the  comparative  table  in  section  6.3  against  the  options  for product  categories,  which  are  not  part  of  the 
current framework, and a comparison against which would therefore be less meaningful and informative.   

39 

 
 
 
 
related  disclosures,  if  any,  to  make  to  investors  and  the  wider  market.  There  would  be  no 
mandatory  sustainability-linked  product  disclosures  (those  for  in-scope  companies,  including 
financial  entities,  would  continue  under  the  post-omnibus  CSRD)  and  the  field  would  become 
unregulated, apart from the use of names as per the ESMA fund name guidelines which only cover 
a limited number of products135 (unless these were repealed by ESMA as well  – see below under 
‘coherence’) and other horizontal rules governing environmental claims136. 

The  main  drawback  would  be  that  the  investments  made,  and  client-bases  established,  under  the 
SFDR would be cast into doubt. FMPs would no longer have a common regulatory framework for 
sustainability-linked  claims  involving  financial  products.  FMPs  that  have  built  a  competitive 
position  out  of  ESG-investing  and  the  implementation  of  the  SFDR  would  face  a  degree  of 
commercial uncertainty.   

❖  Expected  benefits  and  potential  drawbacks  for  data  users  (mainly  investors  and 

supervisors)  

Repealing the SFDR would remove the existing ESG transparency for financial products required 
under SFDR and would leave markets to design the scope and details of ESG-information involving 
financial products. Some market-based solutions could potentially constitute viable alternatives to 
corresponding SFDR provisions, but  without certainty that these would happen. Repealing would 
also  go  against  the  current  demand  for  ESG  information,  as  described  in  section  5.3.2  and 
elaborated in Annex 10.  

The  drawback  would  be  that  it  would  create  a  regulatory  void  in  terms  of  the  availability  of 
structured  ESG  information  regarding  financial  products.  Distributors  and  investors  would  no 
longer  have  a  common  regulatory  framework  for  this  purpose.  If  only  the  ESMA  guidelines 
remained,  there  would  be  a  significant  unlevel  playing  field  across  financial  products  given  the 
limited, and non-binding scope, of such guidelines, to the detriment of investor protection. Product 
comparability beyond the name would deteriorate and search costs involving more in-depth features 
of  financial  products  for  investors  with  sustainability  preferences  would  increase.  Apart  from  the 
name, these investors would need to make sense of other ESG claims made by products themselves. 
These claims, such as claims in marketing documentations, would be unregulated, raising risks of 
greenwashing. The Directive on unfair commercial practices, including the recent amendments and 
Commission  guidance137,  would  remain  applicable  horizontally  to  all  business-to-consumers 
transactions,  but  repealing  the  SFDR  would  not  be  coherent  with  its  recognition  that  financial 
services warrant specific regulation (Article 3.9; 3.4), given higher levels of information asymmetry 
between  financial  market  participants  and  investors138.  FMPs  could  choose  different  ways  of 

135  The  obligations  in  the  ESMA  fund  name  guidelines  are  relevant  to  all  fund  documentation  and  marketing 
communications addressed to investors or potential investors for UCITS and AIFs, including when they are set up as 
EuVECAs, EuSEFs, ELTIFs and MMF. 
136  Namely,  changes  introduced  by  Directive  (EU)  2024/825  amending  Directives  2005/29/EC  and  2011/83/EU  as 
regards empowering consumers for the green transition through better protection against unfair practices and through 
better information (see also Annex 6, section 3).   
137  Commission  Notice  –  Guidance  on  the  interpretation  and  application  of  Directive  2005/29/EC  of  the  European 
Parliament and of the Council concerning unfair business-to-consumer commercial practices in the internal market 
138  Negotiations  on  the  proposed  Green  Claims  Directive,  still  underway  in  Q4  2025,  would  likewise  defer  to  EU 
financial  services  rules  including  in  the  areas  governed  by  the  SFDR  and  not  apply  additional  requirements  to 
mandatory or voluntary sustainability information required thereunder.  

40 

 
 
 
 
showcasing their ESG claims as there would be no common framework requiring FMPs to provide 
any information, and in a structured manner (i.e. against common criteria)139.  

Overall assessment: effectiveness, efficiency and coherence  

Effectiveness in addressing the specific problems  

This option partly addresses the difficulties faced by FMPs in coping with the lengthy requirements 
and the costs associated with the lack of publicly available ESG data (problem drivers 1 and 3). It 
would  primarily  serve  the  specific  objective  of  simplifying  and  reducing  administrative  burdens. 
However, the effects would be negative regarding the objectives of ensuring overall coherence with 
the rest  of the sustainable finance framework (see below) and improving  end-investors’ ability to 
understand  and  compare  ESG  products.  Horizontally  applicable  consumer  protection  rules 
traditionally  rely  on  specific  provisions  in  financial  services  to  ensure  investor  protection  and 
would be highly unlikely to function effectively to serve this purpose.   

Efficiency (costs) 

This option would cancel out the costs associated with the SFDR compared to the baseline scenario, 
estimated to represent an annual total of EUR 246 million in recurring costs (see Annex 3, section 
3.10),  but  investments  in  commercial  opportunities  pursued  through  SFDR  compliance  would  be 
subject to new uncertainty.  

Coherence 

A  repeal  would  mean  that  the  field  for  sustainability-linked  disclosures  by  FMPs  would  become 
unregulated,  apart  from  the  use  of  names  as  per  the  ESMA  fund  name  guidelines.  These  have 
become,  after some initial  pushback140, a broadly  accepted and useful source of  clarity  for  FMPs 
and  investors.  Indeed,  the  options  further  below  build  on  key  elements  of  the  guidelines  to  help 
achieve some of the objectives above. However, in a scenario in which the SFDR were repealed, 
there would be some drawbacks in relying on the guidelines alone (in conjunction with horizontal 
consumer  protection  rules)  to  govern,  and  sustain,  the  EU  single  market  for  sustainability-linked 
financial  products.  For  one,  the  guidelines  do  not  apply  to  all  products  under  the  scope  of  the 
SFDR, namely pensions and insurance products, for which FMPs signal a continued preference to 
be covered under common EU rules. Second, they do not constitute strict legal requirements141, and 
inform  only  the  use  of  ESG  terms  in  fund  names,  not  touching  upon  other  disclosures  made  to 
investors under the SFDR.   

National solutions might emerge to address the resulting information gaps and risks, which could 
fragment  the  single  market  (and  thereby  revive  one  of  the  original  problem  drivers  behind  the 
creation of the SFDR in the first place142) and go against overarching objectives under the Savings 
and Investments Union. Tensions between potential measures in national law could emerge with the 
ESMA guidelines, which might even force them to be withdrawn, denying the single market of any 
common EU rulebook in the area.  

139 Technically, as the ESMA guidelines also hinge on some SFDR concepts and templates for their effect (definition of 
“sustainable investment”, disclosures of compliance with the guidelines to be done in SFDR level 2 templates), these 
elements in the guidelines would also be rendered moot/weakened by a repeal.  
140 See Section 3.2 of Annex 11  
141 Financial market participants are required to “make every effort to comply” with the guidelines as per Article 16(3) 
of  Regulation  (EU) No 1095/2010  establishing ESMA. One Member State (CZ) has also signalled that they will  not 
apply the guidelines. 
142 See SWD(2018) 264 final, impact assessment accompanying the original SFDR, e.g. sections 2.2.2; 2.3; 3.1; 3.2; 5.1 

41 

 
 
 
 
Regarding  coherence  with  the  Omnibus,  as  mentioned  above  under  the  discarded  ‘no  category’ 
option, the argument that the Omnibus revokes the need for the SFDR does not stand up. For one, 
stakeholders  are  not  requesting  it143.  In  fact,  the  Omnibus  invokes  the  need  for  a  coherent  and 
commensurate  revision  of  the  SFDR,  both  to  ensure  consistency  in  the  ESG  data  requirements 
between the various parts of the overall framework, as well as to allow for better serving the needs 
of  end-investors  through  shorter  and  more  focused  ESG  information,  something  which  product 
categories could better convey (see section 6.3).144  

Finally, without commensurate changes in other linked parts of the sustainable finance framework, 
a repeal of the SFDR would render some provisions in these other areas meaningless (e.g. links to 
SFDR-specific  terms  in  sustainability  preferences  under  MiFID/IDD  or  in  the  consideration  of 
sustainability risks and factors under UCITS/AIFMD).  

Therefore,  a  repeal  of  the  SFDR  would  not  be  a  coherent  step  in  light  of  the  results  of  the 
evaluation  which  shows,  at  once,  continued  wide  support  for  its  objectives  and  a  clear  need  to 
overhaul its technical concepts and requirements, which have led to the problems in Section 2. Nor 
would  it  be  coherent  and  consistent  with  the  President’s  mission  letter  to  Commissioner 
Albuquerque  calling  to  explore  ways  to  “scale  up  sustainable  finance,  in  particular  transition 
finance and climate resilience (…),  to  promote the development  and transparent  categorisation of 
financial  products  and  services  with  sustainability  features  (…  and)  to  ensure  the  EU  remains  a 
global leader in sustainable finance”.145 

6.2.  Measures for alleviating burdens and costs of reporting  

6.2.1.  Changes to entity-level disclosures  

Option 1.1: significant reduction of principal adverse impact disclosures at entity-level  

❖  Expected benefits and potential drawbacks for data preparers (FMPs)  

Significantly reducing the entity-level disclosures for FMPs and advisers, as outlined in option 1.1, 
would lower the costs imposed by the current disclosures. As set out in Article 6(1) of the SFDR 
Delegated  Regulation,  all  indicators  in  Table  1  of  Annex  I,  and  at  least  two  additional  ones,  one 
from table 2 and one from table 3, must be filled out in each PAI statement when an FMP is either 
required (mandatory) to prepare a PAI statement or if the FMP decides (voluntarily) to prepare a 
PAI  statement.  This  amounts  to  16  indicators.  These  disclosures  were  cited  by  FMPs  in  the 
responses  to  the  public  consultations  as  one  of  the  drivers  of  the  costs  imposed  by  the  SFDR146, 
especially for FMPs subject to both the CSRD and the SFDR (i.e. subject to duplicative costs). This 
could also partially reduce the complexity by removing indicators that are the most complicated to 
report against, as described in section 5. 

143 See e.g. relevant results of the call for evidence carried out in May 2025, after adoption of the Omnibus in February 
2025,  which  confirmed  a  large  degree  of  support  for  reviewing  the  SFDR  and  creating  categories,  summarised  in 
Annex 2, section 3. 
144 See also Annex 6, section 5 on the interaction between the Omnibus and the SFDR and why a revision, not repeal, of 
the SFDR is a necessary and coherent step after the Omnibus.  
145 ac06a896-2645-4857-9958-467d2ce6f221_en 
146  Summary  Report  of  the  Open  and  Targeted  Consultations  on  the  SFDR  assessment,  European  Commission,  May 
2024 

42 

 
 
 
 
 
 
However,  this  option  only  partially  reduces  the  costs  associated  with  entity-level  disclosures, 
estimated  to  constitute  around  25%  of  the  overall  recurring  costs  linked  to  disclosures  and  to 
represent an annual total of EUR 56 million in the baseline scenario147 (see Annex 3, section 3.10).  

❖  Expected benefits and potential drawbacks for data users (mainly investors and supervisors)  

While  this  option  reduces  the  amount  of  information  available  to  investors,  it  would  continue  to 
allow  for  end-investors,  civil  society  and  supervisors  to  receive  information  to  assess  the 
sustainability  ambition  of  an  FMPs.  Such  information  would  allow  data  users  to  discern  key 
sustainability  related information  on the direction of their overall investment  policy (e.g. whether 
they  intend  to  divest  from  fossil  fuels)  to  inform  their  choices.  This  can  allow  tracking 
improvements  by  FMPs  in  reducing  negative  externalities  in  their  investments  over  time  and  the 
alignment of the financial products they offer with their entity-level commitments and claims.  

While reducing the number of disclosures would mean that data users lose some ESG information, 
it  also  means  that  the  investor-facing  disclosures  would  focus  on  KPIs  that  are  comparable  and 
understandable. This could boost investors’ ability to understand and compare the ESG ambitions 
and policies of FMPs and contribute to fighting greenwashing.  

However,  there  is  little  evidence  that  these  disclosures  are  being  used  by  end-investors.  The 
majority of FMPs148  have  questioned the practicality  of entity-level  PAI disclosures for informed 
investment decision-making and argued that end-investors focus only on disclosures from specific 
financial  products  they  might  buy.  That  said,  a  majority  of  NGOs  expressed  support  for  having 
such  disclosures  in  the  SFDR149  and  NCAs’  responses  are  split150.  In  addition,  some  research 
suggests  that  entity-level  disclosures  can  have  a  positive  impact  on  how  FMPs  manage  their 
decarbonisation efforts151. 

❖  Overall assessment: effectiveness, efficiency and coherence  

Effectiveness in addressing the specific problems  

Reducing  the  entity-level  disclosures  would  partly  help  address  the  difficulties  faced  by  data 
preparers in implementing the complex rules (problem driver 1) and would slightly reduce the cost 
(although the impact on cost cannot be assessed precisely as it will largely depend on the number of 
indicators that would be retained).  

However, option 1.1 would only partially fulfil the specific objective of simplifying and reducing 
administrative burdens as the bulk of the costs and implementation challenges reported by FMPs in 
implementing the entity-level disclosures is expected to stay the same. While the amount of ESG 
issues to track would be reduced, FMPs would still need to have processes in place to monitor the 

147 I.e. c.25% of the estimated EUR 246 million in total annual recurring costs  
148 When asked whether the SFDR should set entity-level disclosures, 52% (94 out of 182) responded ‘not at all’ or ‘not 
really’  and  21%  (39  out  of  182)  responded  ‘mostly’  or  ‘totally’.  The  rest  responded  ‘partially’  or  ‘don’t  know’, 
European Commission, Summary Report of the Open and Targeted Consultations on the SFDR assessment, May 2024 
149 When asked whether the SFDR should set entity-level disclosures, 19% (6 out of 32) responded ‘not at all’ or ‘not 
really’ and 59% (19 out of 32) responded ‘mostly’ or ‘totally’. The rest responded ‘partially’ or ‘don’t know’. Summary 
Report of the Open and Targeted Consultations on the SFDR assessment, May 2024 
150  29%  (4  out  of  14)  responded  ‘not  at  all’  or  ‘not  really’  and  36%  (5  out  of  14)  responded  ‘mostly’.  The  rest 
responded ‘partially’ or ‘don’t know’ 
151 The research ‘Can SFDR entity level reporting enhance sustainability performance?’ from  Andreas G. F. Hoepner, 
Tushar Saini & Fabiola I. Schneider presents the following findings: “disclosure appears to indeed result in noteworthy 
improvements in some key indicators such as corporate Scope 1 greenhouse gas (GHG) emissions or sovereign GHG 
emissions intensity (median -5% and -6%, respectively)” 

43 

 
 
 
 
 
 
possible adverse impact of all their assets under management. In addition, the cost of reporting on 
the possible adverse impacts of all assets is expected to increase as a result of the omnibus proposal, 
as  FMPs  are  likely  to  have  access  to  less  publicly  available  data  and  will  need  to  use  estimates. 
These estimates are either generated internally or bought from third-party data providers, imposing 
additional costs in  both  cases152.  These estimates are typically derived from  information  obtained 
directly  from  investee  companies,  supplemented  by  additional  research,  collaboration  with  third-
party data providers or external experts, or the use of reasonable assumptions.  

Option  1.1.  is  not  expected  to  impact  the  end-investors’  ability  to  understand  and  compare  ESG 
products.  However,  option  1.1.  does  allow  for  higher  levels  of  protection  against  greenwashing 
compared  to  option  1.2.  as  it  allows  data  used  to  assess  the  alignment  of  the  financial  products 
offered by FMPs with their entity-level commitments and claims.  

Efficiency (costs) 

As noted above, this option only partially reduces the costs associated with entity-level disclosures. 
These  are  estimated  to  constitute  around  25%  of  the  overall  costs  linked  to  disclosures  and  to 
represent an annual total of EUR 56 million in the baseline scenario (see Annex 3, section 3.10). 
Therefore, this option could be estimated to save less than half of this amount, i.e. less than EUR 28 
million.   

Coherence  

Changes to entity level disclosures do not have a direct impact on the coherence between the SFDR 
and  the  rest  of  the  sustainable  finance  framework  (problem  driver  2).  In  fact,  the  interactions 
between the SFDR and other sustainability-related financial regulation mainly related to the SFDR 
product level disclosures which interacts with other disclosures, labels and the distribution rules.  

The  only  relevant  interaction  is  with  the  CSRD  reporting  obligations  which  duplicate  the  SFDR 
entity-level  disclosures  for  certain  actors  (i.e.  the  roughly  400  FMPs  that  are  subject  to  both  the 
CSRD  and  the  SFDR  today).  Without  a  reduction  in  the  personal  scope  of  the  entity  level 
requirement under SFDR to match the future CSRD and a full operational alignment between the 
(future, post-omnibus) ESRS and reduced SFDR PAIs, Option 1.1 would not address the existing 
duplications.  

Option 1.2: deletion of principal adverse impact disclosures at entity-level  

❖  Expected benefits and potential drawbacks for data preparers (FMPs)  

Option  1.2.  would  considerably  reduce  the  implementation  costs  associated  with  the  SFDR  by 
deleting  all  entity-level  disclosures  (i.e.  16  mandatory  indicators).  FMPs  would  only  be  asked  to 
generate detailed product  level  disclosures  for their ESG products, and not  to  assess and disclose 
the potential adverse impacts of all their assets. Removing disclosures linked to the 16 mandatory 
indicators would reduce the implementation costs associated with the SFDR. Only FMPs subject to 
the CSRD would need to assess the ESG impact of all their assets under management.  

152  Market  practices  in  generating  estimates  vary.  The  ESAs  provided  guidance  on  how  to  generate  these  for  PAIs 
(Article 7 of SFDR delegated regulation) and for Taxonomy reporting (Q&A VII.1.1). These estimates are usually built 
from information either directly obtained from investee companies or by carrying out additional research, cooperating 
with third party data providers or external experts or making reasonable assumptions.  

44 

 
 
 
 
 
No  potential  drawbacks  for  data  preparers  were  identified.  FMPs  outside  the  CSRD  scope  who 
wish to  continue to report entity-level  information would still have the option to  do so under the 
future voluntary sustainability-information standards under the revised CSRD.  

❖  Expected benefits and potential drawbacks for data users (mainly investors and supervisors)  

Deleting  entity-level  disclosures  on  adverse  impacts  could  risk  creating  a  gap  in  terms  of  ESG 
information from economically relevant FMPs that often innovate or pursue long-term investment 
strategies,  and  which  can  inform  supervisory  oversight  of  transition  risks.  This  could  hinder  e.g. 
tracking (i) improvements in reducing negative externalities of FMP investments over time, and (ii) 
alignment of financial products  with  FMPs’ commitments  and claims. Based on reporting figures 
from 2024, roughly 1650 FMPs (around 160 investment firms, 430 banks, 200 pension funds, 330 
insurance  and  530  asset  management)  provide  entity-level  disclosures.  430  are  doing  it  on  a 
mandatory basis153. Under option 1.2., the majority of these FMPs would be exempted from such 
disclosures  under  option  1.2.  However,  the  largest  FMPs  (and  therefore  arguably  the  most 
impactful ones) would continue to disclose sustainability information under the CSRD and FMPs 
outside the CSRD scope could continue to report on a voluntary basis.  

❖  Overall assessment: effectiveness, efficiency and coherence  

Effectiveness in addressing the specific problems  

Option  1.2.  addresses  many  of  the  difficulties  faced  by  FMPs  in  coping  with  the  lengthy 
requirements and the costs associated with the lack of publicly available ESG data (problem drivers 
1  and  3).  FMPs  would  not  need  to  assess  the  potential  adverse  impact  of  all  their  assets  under 
management  anymore,  as  the  SFDR  would  focus  on  the  ESG  assessments  and  disclosures  for 
products making ESG claims. Option 1.2 would therefore fulfil the specific objective of simplifying 
and  reducing  administrative  burdens.  The  largest  FMPs  would  still  need  to  disclose  ESG  entity 
level  disclosures  under  the  CSRD  but  would  not  be  subject  to  duplicative  obligations  anymore 
which would lower the burden. The upcoming reduction of the number of indicators to be disclosed 
under the CSRD would further reduce the burdens for these entities.   

In addition, this option is not expected to impact end-investors’ ability to understand and compare 
ESG  products.  There  is  a  trade-off  whereby  end-investors  and  distributors  would  be  less  able  to 
track the alignment of financial products offered by FMPs with their entity-level commitments and 
claims which might lower investors’ protection against greenwashing regarding FMPs’ ESG claims 
made  at  the  entity  level.  However,  as  stated  before,  there  is  little  evidence  that  end-investors  or 
distributors make use of entity-level SFDR information in this way.  

Efficiency (costs) 

This option would largely cancel out the costs associated with entity-level disclosures compared to 
the baseline scenario, estimated to constitute around 25% of the overall costs linked to disclosures 
and  to  represent  an  annual  total  of  EUR  56  million  (see  Annex  3,  section  3.10).  Based  on  the 
analysis in Annex 3, the bulk of the cost reduction is estimated to benefit SMEs (in aggregate, EUR 
43 million) while the rest (EUR 13 million) would benefit larger FMPs. 

153According to the ESAs Annual Report to the Commission under Article 18 of Regulation (EU) 2019/2088:  JC 2024 
68 Report on the Principal Adverse Impact disclosures under the Sustainable Finance Disclosure Regulation 

45 

 
 
 
 
 
 
Coherence 

Option 1.2. would remove the duplications between the SFDR and the CSRD. This option ensures 
that  future  entity-level  sustainability-linked  reporting  requirements  are  set  in  a  comprehensive, 
cross-sectoral  and  coherent  way  in  the  ESRS  and  without  scope  for  sector-specific  additional 
requirements  that  would  risk  duplications  or  excessive  complexity.  For  those  FMPs  outside  the 
CSRD  scope  who  so  wish,  options  to  disclose  entity-level  information  would  be  based  on  future 
provisions  under  a  revised  CSRD  for  a  voluntary  sustainability-related  information  standard, 
envisaged in the shape of a delegated act based on the VSME standard developed by EFRAG154.    

Comparative assessment of option 0, option 1.1 and option 1.2 impacts 
Legend: +++ = Very positive      ++ = Positive     + = Slightly positive       +/- = Mixed effect           0 = no 
effect            - = Slightly negative       -- = Negative            --- = very negative 

Option 0 

Option 1.1 

Option 1.2 

Effectiveness: 

In simplifying and reducing the sustainability related requirements for FMPs  

FMPs  would  not  be  required  to 
disclose  ESG  information  at  entity 
level  (apart  from  those  subject  to 
the CSRD). 

+++ 

FMPs  would  have  to  disclose 
less  ESG  information,  but  the 
bulk  of  the  cost  related  to 
entity-level  ESG  analysis  and 
research  would  remain.  In 
addition, FMPs not covered by 
the  CSRD  would  still  need  to 
entity-level 
comply  with 
disclosures, 
the 
coherence of the framework. 

hindering 

FMPs  would  solely  be  subject  to 
product  level  disclosures  under  the 
SFDR.  This  means  that  FMPs  in 
scope  of  both  the  SFDR  and  CSRD 
would  not  be  facing  duplicating 
reporting anymore and that FMPs not 
subject  to  CSRD  would  not  have  to 
comply  with  entity-level  disclosures 
anymore.  

+ 

+++ 

In improving end-investors’ ability to understand and compare ESG products 

End-investors  would  not  receive 
information 
the  overall 
about 
sustainability performance of FMPs 
outside the CSRD scope. However, 
this 
they  will  continue 
information from the largest FMPs, 
assumingly 
impactful 
the  most 
ones.  As  opposed  to  option  1.2,  a 
repeal would also negatively impact 
end-investors’  understanding  of 
specific products they might buy.  

to  get 

End-investors  would  continue 
to  receive  information  on  the 
sustainability 
overall 
performance 
from  many 
FMPs. This can help investors 
understand  entity-level  ESG 
commitment.  However, 
this 
does not impact end-investors’ 
understanding 
specific 
products they might buy.  

of 

- 

+/- 

+/- 

+ 

receive 
End-investors  would  not 
information 
overall 
the 
about 
sustainability  performance  of  FMPs 
outside  the  CSRD  scope.  However, 
this 
they  will  continue 
information  from  the  largest  FMPs, 
assumingly  the  most  impactful  ones. 
As  opposed  to  option  0,  this  option 
does  not 
impact  end-
itself 
investors’  understanding  of  specific 
products they might buy.  

to  get 

in 

+/- 

++ 

Removes any costs linked to entity-
level  ESG  disclosures  but  subjects 
all  SFDR 
to  new 
uncertainty. 

investments 

Only partially reduces the cost 
described in Annex 3.  

Removes  any  costs  linked  to  entity-
level ESG disclosures. 

Overall 
effectiveness 

Efficiency    

154 Omnibus proposal COM (2025)81 final 

46 

 
 
 
 
 
 
 
 
+/- 

+ 

+++ 

Coherence  

The duplication with the CSRD is 
eliminated, but new coherence 
problems would emerge with the 
Omnibus, ESMA guidelines, 
national rules, and the rest of the 
sustainable finance framework. 
--- 

interactions 

The 
duplications 
SFDR  and  CSRD 
unchanged. 

between 

and 
the 
remain 

0 

The  duplication  with  the  CSRD  is 
eliminated.  CSRD  would  be  setting 
all 
disclosures 
throughout  the  framework  while  the 
solely  on 
SFDR  would 
financial products.  

entity-level 

focus 

+++ 

Stakeholders feedback  

The  overwhelming  majority  (89%)  of  consultation-respondents  consider  that  the  objective  of  the 
SFDR to strengthen transparency through sustainability-related disclosures in the financial services 
sector is still fully relevant and over 90% consider that this should be done at EU-level155.Overall, 
the  demand  for  sustainable  investment  opportunities  among  investors  also  remains  high156. 
Therefore, stakeholder feedback does not favour a repeal of the SFDR. 

Views of responding stakeholders in the public consultations were split on whether the SFDR is the 
right place to  set entity-level  disclosure requirements  for FMPs  and financial advisors, especially 
across  the  different  stakeholder  groups.  As  stated  above,  most  FMPs  and  financial  advisers 
responded that they do not consider the SFDR the right place to include entity-level disclosures157, 
while a majority of NGOs expressed support for having  such disclosures in  the SFDR158. NCAs’ 
responses were split159. Responses to the call for evidence160 were largely in favour of deleting the 
entity level disclosures, with a small minority of stakeholders expressing preferences for keeping a 
small set of indicators.  

Respondents’ views on the usefulness of the three sets of SFDR entity-level disclosures were also 
split. Disclosures concerning sustainability risk policies gathered the highest level of support, with 
49% (138 out of 280) of respondents finding them ‘totally’ or ‘mostly’ useful, while 15% (41 out of 
280)  responded  ‘not  really’  or  ‘not  at  all’.  Opinions  are  less  definitive  on  disclosures  regarding 
adverse sustainability impacts161 and remuneration policies162.  

155  See  also  above  in  Section  3.2  “Subsidiarity:  Necessity  of  EU  action”,  in  Annex  2  on  stakeholder  feedback,  and 
Section 3.2 of the evaluation, Annex 11 “How relevant is the SFDR”.  
156 See Annex 10  
157 52% (94 out of 182) responded ‘not at all’ or ‘not really’ and 21% (39 out of 182) responded ‘mostly’ or ‘totally’. 
The rest responded ‘partially’ or ‘don’t know’. 
158 19% (6 out of 32) responded ‘not at all’ or ‘not really’ and 59% (19 out of 32) responded ‘mostly’ or ‘totally’. The 
rest responded ‘partially’ or ‘don’t know’. 
159  29%  (4  out  of  14)  responded  ‘not  at  all’  or  ‘not  really’  and  36%  (5  out  of  14)  responded  ‘mostly’.  The  rest 
responded ‘partially’ or ‘don’t know’ 
160 Feedback gathered during the Call for Evidence which ran from 2 May to 30 May 2025. 
161 31% (86 out of 281) responded ‘totally’ or ‘mostly’ and the same amount responded ‘not really’ or ‘not at all’. The 
rest responded ‘partially’ or ‘don’t know’ 
162 39% (108 out of 278) responded ‘totally’ or ‘mostly’ and 26% (73 out of 278) responded ‘not really’ or ‘not at all’. 
The rest responded ‘partially’ or ‘don’t know’ 

47 

 
 
 
 
 
 
 
Other economic, social, environmental and fundamental rights impact  

In general,  companies that are required to  report  against standards have to identify and report on 
their most significant non-financial risks, dependencies and impacts, and explain how they manage 
them.  This  discipline  may  have  an  indirect  beneficial  effect  on  the  environment,  society  and 
fundamental rights, to the extent that it affects company decisions and the way companies behave. 
Options 0 and 1.2 could be expected to have detrimental impacts in this regard. There is, however, 
mixed  evidence  about  the  extent  to  which  reporting  requirements  on  their  own  will  induce 
companies  to  mitigate  and  avoid  their  negative  impacts,  especially  in  comparison  to  policies  and 
regulations that effectively price negative externalities163. 

It is therefore not possible to ascertain the concrete relative merits of the options presented in terms 
of material social, environmental and fundamental rights impacts. Option 0 could arguably be seen 
as  a  more  drastic  move  to  roll  back  sustainability-related  legislation,  which  could  lead  to  more 
detrimental impacts in this regard, whereas option 1.2 would more likely be seen as a targeted move 
to remove inconsistencies and duplications in the framework, with fewer knock-on effects of this 
type. In addition, the specific impact of option 1.1. would largely depend on the indicators in the 
Level 2 regulation that would be removed and the indicators that would be retained. If this option 
were  pursued,  this  would  be  best  done  in  a  secondary  assessment  when  preparing  the  amended 
Level 2 text. Finally, the biggest FMPs (which are assumed to be the most impactful) would still be 
in  scope  of  the  CSRD  and  would  therefore  continue  to  report  on  social,  environmental  and 
fundamental right issuers. The impacts of options 1.1 and 1.2 are therefore expected to be limited164 
while those of option 0 could be broader, as mentioned.  

The  impact  on  the  international  competitiveness  of  EU  companies  is  also  expected  to  be  limited, 
although, under option 1.1 compared to options 0 and 1.2, some additional costs would continue to 
be  incurred  by  EU  companies  subject  to  the  SFDR  entity-level  disclosures  compared  to  non-EU 
companies. However, non-EU companies distributing products in the EU that are disclosing under 
the Articles 8 or 9 would continue to be expected to comply with the SFDR entity-level disclosures 
under option 1.1.  

6.2.2.  Changes to product-level disclosures  

Option 2.1.: minimal changes to product-level disclosures  

This option would broadly maintain the same approach as the current disclosures and would work 
better with categories that rely on existing concepts.  

❖  Expected benefits and potential drawbacks for data preparers (FMPs)  

Option 2.1. would address some of the implementation issues faced by data preparers by clarifying 
certain  concepts  underlying  the  product-level  disclosures.  For  example,  the  specific  disclosures 
required  under  the  concept  of  consideration  of  principal  adverse  impacts  would  be  clarified, 
removing some of the compliance challenges faced by the market today.  

163 CEPS Study on the Non-Financial Reporting Directive, April 2021 
164 Further, the relative impact on sustainability-oriented investments of options 1.1 and 1.2 are also muted, in any case, 
by the continued likely demand for sustainable investment opportunities by investors and asset owners. See e.g. a 2024 
Morgan Stanley survey of 900 institutional investors across North America, Europe and Asia Pacific in July and August 
2024 where nearly 90% said sustainable investing activities are driven by client and external stakeholder demands with 
around  80%  expecting  sustainable  assets  to  increase  over  the  next  two  years  (Morgan  Stanley  Sustainable  Signals 
Survey Aug 2024 Results | Morgan Stanley, December 2024).   

48 

 
 
 
 
 
 
However,  the  length  and  the  complexity  of  the  disclosures  would  remain.  Data  prepares  would 
continue to face difficulties in implementing the complex rules and in gathering the extensive data 
needed  from  underlying  investments.  They  are  likely  to  continue  to  devote  as  much  resources  as 
they  do  now.  In  addition,  data  preparers  would  not  be  given  a  standardised  method  to  disclose 
information about transition-related objectives and investments, i.e. there would be no recognition 
of transitional assets or strategy in the standardised questions of the templates.  

Expected benefits and potential drawbacks for data users (mainly investors and supervisors)  

Option  2.1.  would  preserve  the  variety  in  the  range  of  datapoints  in  order  to  inform  investors  on 
many  different  sustainability-features  of  products.  In  addition,  the  targeted  changes  to  some 
concepts such as ‘promotion of ESG characteristics’ or ‘consideration of principal adverse impacts’ 
would increase the comparability of the disclosures linked to these concepts.  

However, the disclosures would continue to be very lengthy and to rely on complex and technical 
concepts which are not easily understandable by all investors, especially by retail investors.  

❖  Overall assessment: effectiveness, efficiency and coherence 

Effectiveness in addressing the specific problems  

Option  2.1.  would  allow  for  minimal  disruptions  while  partly  simplifying  and  reducing  the 
requirements for financial markets (problem driver 1). Targeted changes would simplify and clarify 
some of the complex ESG concepts such as the ones under the Article 7, 8 and 9 (e.g. consideration 
of principal adverse impacts and ESG characteristics). However, option 2.1. would not materially 
reduce the amount of data points that need to be generated by data preparers and would not address 
the  difficulties  they  encounter  when  trying  to  access  the  necessary  data  from  underlying 
investments  (problem  driver  3).  It  would  therefore  not  fulfil  in  a  satisfactory  way  the  specific 
objective of simplifying and reducing administrative burdens.  

This option would also only partly satisfy the specific objective of improving end-investors’ ability 
to understand and compare ESG products. The length and complexity of the disclosures has been 
proven to be a barrier to investors’ (especially retail investors’) understanding (further explained in 
section  2  and  the  evaluation  annex).  While  comparability  would  be  increased  as  a  result  of  the 
clarification of some concepts, investors would continue to be exposed to unnecessarily extensive 
sustainability  information  and,  as  a  result,  would  not  be  more  likely  to  understand  the  key 
sustainability  features  of  products  and  would  therefore  not  increase  their  protection  against 
potentially misleading ESG claims.  

Efficiency (costs) 

This option is not expected to materially reduce the costs associated with product-level disclosures 
in  the baseline scenario, estimated to  constitute  around  75% of the overall  annual  recurring  costs 
linked  to  disclosures  and  to  represent  an  annual  total  of  EUR  190  million  (see  Annex  3,  section 
3.10)165.  

Coherence 

There  are  multiple  interlinkages  between  the  SFDR  product  level  disclosures  and  the  rest  of  the 
sustainable finance framework, as described in Annex 6. However, minimal changes that would be 

165 C. 75% of EUR 246 mn 

49 

 
 
 
 
 
restricted  to  clarification  of  certain  terms  would  not  have  a  considerable  effect  on  the  coherence 
with other rules. More specifically, the misalignments between the SFDR definition of ‘sustainable 
investment’  and  similar concepts  under  the  EU  Taxonomy  and  the  Benchmark  Regulation  would 
not be addressed166. 

Some  targeted  changes  might  be  needed  under  the  definition  of  sustainability  preferences  under 
MiFID and IDD to ensure that the modified SFDR disclosures are reflected in the way distributors 
assess clients’ sustainability preferences.  

Option 2.2.: significant reduction of product-level disclosures  

As explained in  section 5.3.2, the specific content  of the disclosures would be largely  defined by 
the type of category chosen and their underlying criteria. As a result, the analysis of the impacts of 
this option is linked to such criteria (which are analysed under section 6.3.2, i.e. the analysis of the 
impact of the categories) and described in section 5.4 and annex 8.  

❖  Expected benefits and potential drawbacks for data preparers (FMPs)  

Option 2.2 is expected to considerably cut costs for FMPs and give them more flexibility in the way 
they can assess and explain the sustainability characteristics or objective of their products. Instead 
of  having  to  comply  with  a  generic  set  of  questions,  relying  on  complex  and  data-intensive 
concepts, FMPs will be able to focus on a shorter number of relevant metrics. The information is 
however  presented  in  a  standardised  format  through  shorter  templates.  By  introducing  more 
extensive cuts to requirements estimated to account for 75% of the costs of the current regime (see 
also  under  ‘efficiency’  below),  the  burden  reduction  would  be  expected  to  be  higher  than  25%, 
moving away from the set of about 25 questions to a few indicators and a short template for FMPs 
to prove their criteria.  

The main drawbacks for data preparers would be linked to the transition costs and potential ‘lost’ 
implementation efforts and costs from the implementation of the current reporting approach.  

❖  Expected benefits and potential drawbacks for data users (mainly investors and supervisors)  

The set of disclosures would be shorter, more comparable, and relevant based on a product’s key 
sustainability objectives or characteristics. As a result, while end-investors and distributors would 
lose  some  information  compared  to  today’s  situation,  as  the  templates  would  not  cover  the  wide 
range of SFDR sustainability concepts for all products anymore, they would have access to much 
more  relevant  and  consistent  information.  Shorter  and  standardised  templates  containing  the 
disclosures  around  the  criteria  are  expected  to  give  end-investors  and  distributors  a  much  better 
sense  of  the  levels  of  ambition  of  each  product,  and  allow  for  an  easier  comparability  of  the 
information across products.  

In addition, option 2.2. would rely on a terminology that would be much more understandable by 
non-experts.  The  language  used  by  FMPs  would  move  away  from  technical  jargon  such  as 
‘consideration of principal adverse impacts’, and would instead focus on sectoral exclusions, basic 
ESG KPIs and a simple explanation of the objective to which the financial product contributes or its 
main ESG characteristics (e.g. additional exclusions, filters based on best performers etc).  

166 See an explanation of these misalignments in the evaluation annex under the coherence section 3.1.2. ‘misalignments 
with  environmentally  sustainable  economic  activities’  under  the  EU  Taxonomy’  and  ‘misalignments  with  the 
Benchmarks Regulation’.  

50 

 
 
 
 
 
 
❖  Overall assessment: effectiveness, efficiency and coherence 

Effectiveness in addressing the specific problems  

Option  2.2  would  tackle  challenges  linked  to  the  complexity  of  the  current  rules  and  to  data 
availability  (problem  drivers  1  and  3)  and  largely  simplify  and  reduce  the  sustainability  related 
disclosure  requirements  for  financial  markets  and  therefore  fulfil  the  specific  objective  of 
simplifying and reducing administrative burdens. First, the disclosures would rely on simpler and 
clearer concepts (as described in section 6.3) which are less data intensive. For example, instead of 
analysing the performance of a financial product against a large amount of sustainability concepts 
(such  as  the  consideration  of  principal  adverse  impacts,  the  alignment  with  the  EU  Taxonomy 
criteria etc), FMPs will be able to focus their sustainability assessment and reporting on metrics that 
are relevant to their products. The data points to be reported would be significantly reduced.  

Option 2.2 would also largely satisfy the specific objective of improving end-investors’ ability to 
understand  and  compare  ESG  products  by  setting  up  shorter,  simpler  and  adequate  disclosures 
based  on  the  products’  features.  The  categorisation  of  the  product  would  reveal  its  main  key 
features  providing  investors  and  distributors  with  the  essential  reassurance  of  what  it  aims  to 
achieve,  minimising  the  need  for  additional  disclosures  which  can  overwhelm  investors.  These 
disclosures are also expected to be more comparable, enabling investors to easily compare products 
that  fall  under  the  same  category.  The  length  of  the  reporting  templates  would  be  considerably 
shortened and would focus on what is relevant for an end-investor decision making. 

Efficiency (costs) 

Compared  to  option  2.1,  this  option  is  assessed  to  help  reduce  a  far  greater  share  of  the  costs 
associated  with  product-level  disclosures  in  the  baseline  scenario,  estimated  to  constitute  around 
75% of the overall costs linked to disclosures and to represent an annual total of EUR 190 million. 
Based on the analysis in Annex 3, in spite of some initial one-off adjustment costs, a conservative 
estimate of the long-run cost reduction for SMEs in aggregate could amount to EUR 35 million and 
to EUR 20 million for larger FMPs.  

Coherence 

As described under option 2.2, and to overcome misalignments and duplications with other parts of 
the  sustainable  finance  framework  (problem  driver  2),  any  changes  to  the  SFDR  concepts  and 
product  level  disclosures  would  need  to  be  reflected  in  other  parts  of  the  sustainable  finance 
framework.  In  fact,  a  perfect  alignment  between  the  SFDR  disclosures  and  the  definition  of 
sustainability preferences under MiFID and IDD will be necessary. This would entail amendments 
to  the  corresponding  delegated  acts  under  MiFID  and  IDD  and  for  distributors  to  integrate 
information on categorisation in their processes. This can induce some initial implementation costs, 
but which will reduce the burdens on distributors overtime.  

The future SFDR product level disclosures would need to be aligned with the CSRD disclosures to 
facilitate that ESG information required from FMPs is available from CSRD companies. The details 
of the SFDR disclosures would therefore need to be set in a subsequent level 2 act, following the 
adoption of the simplified ESRS. 

51 

 
 
 
 
 
Comparative assessment of the impacts 
Legend: +++ = Very positive      ++ = Positive     + = Slightly positive       +/- = Mixed effect           0 = no 
effect            - = Slightly negative       -- = Negative            --- = very negative 

Option 0 

Option 2.1 

Option 2.2 

Effectiveness: 

In simplifying and reducing the sustainability related requirements for FMPs  

Removes  all  product  level 
disclosure requirements. 

+++ 

addresses 

the 
Partly 
implementation 
challenges 
through  targeted  changes,  but  the 
bulk of the reporting burdens and 
challenges would remain 

Largely  simplifies  and  reduces 
the  disclosure  requirements  by 
reducing  drastically  the  amount 
of  data  points  and  relying  on 
much simpler concepts.  

+ 

+++ 

In improving end-investors’ ability to understand and compare ESG products 

lengthy 

product 

and 
Removes 
level 
unclear 
disclosures  but 
leaves  a 
regulatory  void  in  terms  of 
structured  ESG  information 
increasing 
or 
products, 
leaving 
search  costs  and 
on 
investors 
market-based solutions, with 
possible 
of 
greenwashing. 

dependent 

risks 

Overall effectiveness 

-- 

+/- 

understanding 

Partly  addresses  the  barriers  to 
and 
investors’ 
improves 
comparability. 
However,  it  does  not  address  the 
the 
complexity  and 
prevent 
disclosures, 
investors 
easily 
understanding the disclosures.  

which 
from 

length  of 

+ 

+ 

Largely 
investors’ 
improves 
understanding and would address 
the  complexity  and  length  of  the 
current templates. 

+++ 

+++ 

Efficiency    

Coherence  

Removes any costs linked to 
product-level 
ESG 
disclosures  but  subjects  all 
SFDR  investments  to  new 
uncertainty. 

+/- 

Does  not  materially  reduce  the 
costs  associated  with  product-
level disclosures (see Annex 3). 

Reduces a great share of the costs 
associated  with  product-level 
disclosures (see Annex 3) 

0 

+++ 

effect 

current 
on 
No 
interactions  between  the  SFDR 
and other SF rules. 

the 

effect 

current 
on 
No 
interactions  between  the  SFDR 
and other SF rules.  

the 

0 

0 

but 

Some  duplications  with  the 
rest of the SF framework are 
new 
eliminated, 
and 
coherence  problems 
the  single 
challenges  for 
market  would  emerge  with 
ESMA 
the 
the 
guidelines 
possibility 
further 
national rules. 

and 
of 

Omnibus, 

-- 

52 

 
 
 
 
 
 
 
 
Stakeholders feedback  

The  overwhelming  support  (90%)  among  of  consultation-respondents  for  better  transparency  in 
ESG  investing  through  appropriate  sustainability-related  disclosures,  together  with  the  continued 
high  interest  in  ESG  investment  opportunities  among  investors,  is  especially  relevant  to  note  for 
product disclosures. The conclusion that stakeholder feedback does not favour a repeal of the SFDR 
can be re-confirmed. 

However,  respondents  to  the  public  consultations  largely  agree  that  changes  to  the  product-level 
disclosures are warranted. In fact, 84% (249 out of 296) totally or mostly agreed that the disclosures 
required by the SFDR are not sufficiently useful to investors, and 82% (247 out of 301) that some 
of its requirements and concepts, such as ‘sustainable investment ’are not sufficiently clear for end-
investors.  

In terms of which KPIs are necessary for end-investors, a large majority of respondents answered 
that  the  disclosures  should  be  restricted  to  key  meaningful  indicators  that  are  comparable  across 
different  markets  and  asset  classes  and  easily  understandable  for  retail  investors.  Respondents 
mostly  mentioned climate, diversity and human  rights as topics to  be covered by the disclosures. 
Conversely,  some  respondents,  mainly  from  the  NGO  sector,  suggested  that  there  should  be  a 
comprehensive set of disclosures which could include the mandatory PAIs, alignment with the EU 
Taxonomy,  percentage  of  investments  in  undertakings  with  a  science-based  transition  plan, 
exclusions and engagement. 

55%  (152  out  of  274)  of  respondents  totally  or  mostly  agreed  that  products  with  sustainability 
claims  should  be  required  to  substantiate  their  claims  with  additional  disclosure  to  ensure 
credibility  and  prevent  greenwashing.  While  there  was  no  clear  consensus  about  what  these 
qualitative  and  quantitative  disclosures  should  be,  the  most  cited  ones  include:  sustainability 
objectives, sustainable investment strategy and associated binding and measurable KPIs, minimum 
standards  of  good  governance,  percentage  of  sustainable  investments  and  Taxonomy-alignment, 
decarbonisation  targets,  percentage  of  undertakings  having  a  transition  plan,  applied  exclusions, 
engagement and voting policies and PAIs. Some respondents argued that such disclosures should be 
set  in  a  flexible  manner  to  align  with  diverse  product  investment  strategies  and  to  accommodate 
innovation  and  evolving  market  standards.  On  the  other  hand,  others  are  of  the  view  that  these 
disclosures  should  be  set  by  the  regulators  and  be  identical  for  all  financial  products  with 
sustainability claims. 

Lastly,  many  respondents  agreed  on  the  importance  of  aligning  these  disclosures  with  potential 
product categories and that any changes to the SFDR disclosures would need to be reflected in the 
MiFID and IDD sustainability preferences rules. 

The responses to the call for evidence167 confirmed that a large majority of stakeholders across the 
board welcome  considerable simplifications to  product  level disclosures  (for  example by limiting 
the number of pages for the pre-contractual document to 2 to 3 pages), focusing on key information 
for  investors  regarding  e.g.  the  potential  classification  of  a  product  and  adherence  to  associated 
criteria, its main sustainability-linked objectives and strategy, and KPIs for measuring performance.  

Other economic, social, environmental and fundamental rights impacts  

The other impacts of the options are hard to assess as, aside from the repeal option, they will mainly 
depend on the KPIs selected at level 2. The repeal option would again be a more drastic withdrawal 

167 Feedback gathered during the Call for Evidence which ran from 2 May to 30 May 2025. 

53 

 
 
 
 
by  the  EU  from  setting  requirements  for  sustainability-linked  information  regarding  financial 
products,  which  could  have  more  detrimental  impacts  in  terms  of  real-world  ESG  outcomes, 
whereas the other two options suggest keeping the existence of key ESG disclosures for financial 
products,  which  will  retain  the  positive  indirect  impact  the  SFDR  currently  has  on  social, 
environmental and fundamental rights.  

Making  these  disclosures  more  efficient,  clearer  and  understandable  would  result  in  better 
information  regarding  the  social,  environmental  and  fundamental  rights  impacts  of  financial 
products. This could in turn attract more private capital into products that have a genuine positive 
impact, or mitigate better their negative impacts, on these aspects.  

6.3.  Options  for  setting  up  a  clear  and  coherent  sustainability-linked  product 

categorisation system 

This section follows a two-step approach for the assessment of impacts. First, it assesses the general 
impact of setting up categories following the approach of option 3.1 and 3.2 (i.e. with new criteria). 
This  step  is  done  to  isolate  the  general  impacts  of  creating  new  categories  and  focuses  on  the 
similarities shared by option 3.1 and 3.2. The analysis of the impact largely relies on the elements 
of the criteria described in section 5.4 (see box 3). While details for such criteria will be finalised in 
Level 2, the key features set in Level 1 allow to conduct a robust analysis of the likely impact of the 
categories. 

As a second step, we conduct a simultaneous assessment of the three options to differentiate their 
relative benefits and costs and to highlight their contribution to the specific objectives while clearly 
distinguishing the extent of these effects.  

6.3.1.  Main benefits and potential drawbacks of setting up new categories under option 

3.1 and 3.2  

Setting  up  voluntary  categories  accompanied  by  a  clear  set  of  new  criteria  (instead  of  relying  on 
existing  complex  SFDR  concepts)  would  ease  the  implementation  burden  over  time.  The 
different  layers  of  requirements  described  in  the  evaluation  (Annex  11)  would  be  simplified  and 
streamlined and would be more adaptable to the different objectives or strategies used. In addition, 
the  criteria  would  provide  legal  certainty  by  replacing  the  central  SFDR  concepts  which  have 
proven to be difficult to apply with clear ESG requirements based on market practice pursuant to 
the  ESMA  guidelines  (e.g.  simple  exclusion  list  instead  of  a  list  of  indicators  to  ‘consider’) 
(problem drivers 1 and 2). The new approach to the criteria would also be less data intensive and 
allow  FMPs  to  focus  on  the  ESG  topics  that  they  find  most  relevant  to  their  products  (problem 
driver  3).  The  clarification  of  the  requirements  attached  to  the  categories  would  also  favour  the 
alignment  of  regulatory  expectations  from  NCAs,  facilitating  their  oversight,  and  would  alleviate 
the  need  for  long  disclosure  templates  thanks  to  the  shorter  format  of  the  disclosures.  All  these 
benefits would ultimately lead to less burdens and costs in the long run through clearer and simpler 
criteria. The costs of estimates are minimised through the use of sustainability data points for which 
estimation is possible (e.g. which are binary or where using sectoral and geographical averages is 
possible) and where market practices are well established.  

The  introduction  of  formal  categories  relying  on  criteria  would  induce  an  initial  implementation 
cost.  However,  the  suggested  criteria  would  build  on  the  criteria  introduced  by  the  ESMA 
guidelines on fund names168. There are currently approximately 4,220 investment funds in scope of 
these guidelines, meaning that these products have already borne the initial cost of applying such 

168 Annex 6 provides a description of the criteria of the ESMA Guidelines  

54 

 
 
 
 
criteria169. Annex 8 describes in more detail the specific impacts of the ESMA guidelines on funds 
using ESG terms in their name, which started applying as of 21 May 2025. For products outside the 
scope  of  ESMA  guidelines  (i.e.  insurance  and  pension  products),  mitigating  measures  could  be 
established  to  soften  the  implementation  costs  for  those  willing  to  voluntarily  use  the  product 
categories,  via  for  example  a  phase-in  of  the  new  rules  (i.e.  FMPs  could  still  apply  the  current 
framework for some time). In addition, a grandfathering clause could be applied for existing close-
ended funds that could not feasibly amend their portfolio to fit the required criteria.  

The  set  up  of  categories  would  also  have  the  potential  to  drastically  simplify  and  improve  the 
investors’  journey  and  enhance  their  protection  against  misleading  ESG  claims,  the  extent  of 
which would depend on the potential market coverage of the categorisation system chosen, i.e. 
whether all products making ESG claims would need to comply with EU minimum criteria. 
As described in the problem definition, investors are currently misled by the use of the disclosure 
articles as a self-categorisation system by the market (problem driver 4). Setting up categories with 
clear  minimum  ESG  requirements  would  improve  the  comparability  of  categorised  products  and 
would  enhance  the  understanding  of  products’  main  ESG  objectives.  The  mandatory  minimum 
criteria would also ensure minimum ESG performance and ambition and lead to enhanced trust and 
confidence  in  products  that  are  categorised  and  reinforcing  the  protection  of  investors  against 
misleading or false ESG claims for categorised products.  

Of course, an important  consideration to be added is that there is no ‘one size fits all’ on how to 
granularly define what a positive contribution to a sustainability objective should be. This is mainly 
due to the wide variety of assets, strategies, sustainability objectives that exist in the current market, 
and  which  it  is  important  to  continue  fostering  to  support  innovation  and  competitiveness.  The 
suggested  criteria  ensuring  harmonised  levels  of  contributions  and  common  exclusions  favour 
continuity  with  those  market  practices  and  the  lates  updates  to  the  regulatory  framework170.  As 
acknowledged at the start of section 5, there is a trade-off between relying on less data to inform 
categories  and  investors  on  the  one  hand,  and  possible  concerns  of  greenwashing  on  the  other. 
However, to balance the objectives of simplification and comparability, support for innovation and 
investor  protection,  a  choice  needs  to  be  made  how  and  on  what  basis  to  cluster  and  capture 
products in order to convey their main ESG features. The key is to ensure this is done on the basis 
of data that is both available to a large degree, possible to estimate without excessive effort in case 
it  cannot  be  derived  directly  from  investees,  and  is  proven  to  be  the  most  decision-useful  for 
investors,  based  on  their  preferences  when  investing  in  sustainability-related  financial  products. 
Thus,  in  pursuing  the  objectives  in  section  4  in  order  to  ensure  coherent,  effective  and  efficient 
outcomes, while on the one hand the risks of greenwashing for investors cannot be totally excluded, 
they  are  minimised  through  compliance  by  FMPs  with  the  minimum  criteria  for  ESG  product 
categories  and  accompanying  disclosures  including  the  performance  of  the  product  against  the 
objective they have contributed to based on credible, and where possible science-based, indicators. 
Investors would have a defined dataset, more discrete and less sprawling and overwhelming, to help 
inform  choices  and  compare  products.  They  could  more  easily  identify  where  products  provide 
additional  datapoints  of  interest  to  them,  on  top  of  the  minimum  criteria,  facilitating  switching 
between products and providers. 

Finally,  there  are  certain  limitations  to  note  in  how  far  the  categorisation  would  incentivise 
prospective  investee  companies  to  improve  ESG  performance.  This  impact  assessment,  including 
the articulation of the problems and specific objectives, primarily looks at the relationship between 
the end-investor and the financial intermediary, the subject matter of the SFDR. Many other factors 

169 Morningstar, ESMA Guidelines on ESG Funds’ Names, May 2025 
170 ESMA Guidelines on Funds’ Names May 2025  

55 

 
 
 
 
besides  better  transparency,  information  symmetry  and  greater  comparability  in  this  relationship 
determine overall market outcomes in terms of efficient capital allocation in the real economy. The 
initiative  therefore  needs  to  be  seen  in  tandem  notably  with  steps  towards  the  Savings  and 
Investments  Union,  which  are  beyond  the  scope  of  this  impact  assessment,  to  fully  achieve  the 
general objectives. 

6.3.2.  Comparative assessment of Option 3.1, Option 3.2 and Option 3.3 

Options  3.1,  3.2,  3.3,  mostly  differ  by  their  market  coverage  size,  their  treatment  of  transition 
finance, and their underlying criteria. These distinct features entail important differences in the role 
that the categories could play for retail investors and in the wider framework, especially regarding 
the marketing and distribution rules (as described in section 5). This leads to important differences 
in terms of achieving the specific objectives of the review.  

Legend: +++ = Very positive      ++ = Positive     + = Slightly positive       +/- = Mixed effect           0 = no 
effect            - = Slightly negative       -- = Negative            --- = very negative 

Specific  objective  1:  the  extent  to  which  the  categories  simplify  and  reduce  sustainability  related 
requirements for FMPs and enhance coherence  

Option 
3.1 

+++ 

The categories would bring coherence and provide FMPs with one common EU 
set of rules for products making ESG claims and/or be distributed to retail investors 
with sustainability preferences across the EU. They would help overcome different 
expectations  from  NCAs  which  are  taking  different  approaches  to  regulate  ESG 
claims,  on  top  of  requirements  to  adhere  to  the  ESMA  guidelines  when  making 
ESG claims in the name of funds (not covering all products within the SFDR scope 
however  nor  marketing  documentation).  The  different  sets  of  rules  depending  on 
where  the  claims  are  made  and  on  the  jurisdictions  would  be  harmonised.  Under 
this  approach,  the  criteria  of  the  categories  could  be  used  to  define  the  extent  to 
which  a  product  can  make  ESG  claims  to  investors  and  would  harmonise  the 
national  regulatory  and  supervisory  expectations,  thereby  addressing  the 
current  uncertainty  regarding  SFDR  compliance.  However,  it  is  important  to 
note that the categories would be voluntary, therefore FMPs could still include ESG 
information  on  regulatory  documentations  of  non-categorised  products  without 
having to comply with EU categories and applicable criteria171.  

Disclosures linked to categorised products would be shortened and focused on ESG 
information which is more readily available. In addition, this option would keep a 
broader  scope  (i.e.  of  the  options,  three  categories  could  cover  the  most  products 
disclosing under Article 8/9), ensuring the highest levels of continuity in terms of 
the marketing communication and names of products.  

The categories could also provide for a very useful tool for operators in charge of 
assessing  the  sustainability  preferences  of  clients  and  defining  the  target 
market  under  MiFID  and  IDD.  Instead  of  relying  on  complex  and  poorly 
comparable  disclosures,  distributors  could  use  the  three  clusters  to  easily  identify 
suitable products and would also have access to more granular information through 
the product disclosures.  

171  E.g.  a  technology-focused  fund  could  nonetheless  include  information  on  sustainability  targets,  or  exclusions  of 
certain sectors or activities based on ESG grounds. 

56 

 
 
 
 
 
Option 
3.2 

Option 
3.3 

Finally,  the transition  category would equip  FMPs with  suitable criteria  according 
to  inclusive  and  well-established  metrics  (and  accompanying  disclosures  linked  to 
ESG  data  which  is  available  and  reliable)  for  products  contributing  to  the  EU 
transition  to  a  greener  and  fairer  economy.  The  criteria  for  the  new  transition 
category  would  not  be  disruptive  as  they  reflect  market  practice  pursuant  to  the 
ESMA guidelines, and will continue to be supervised by national supervisors172.  

The  narrow  scope  of  this  option  means  that  both  categorised  and  non-categorised 
products could make ESG claims (i.e. FMPs would be allowed to make ESG claims 
in marketing documentation and names on non-categorised products). It would not 
limit  the  right  to  make  ESG  claims  to  the  products  making  a  direct  positive 
contribution  to  sustainability  or  transition  objectives  due  to  the  small  portion  of 
market that would be covered. However, for non-categorised ESG products, FMPs 
are still likely to face different sets of rules depending on the type of products or 
depending  on  national  rules.  While  this  option  would  set  criteria  for  fewer 
products  (although  a  part  of  the  non-categorised  products  would  likely  still  be 
subject  to  the  ESMA  guidelines),  it  would  also  not  address  the  differing 
regulatory expectations in the supervision of ESG non-categorised products.  

This option would also only partly support the distributors in the implementation of 
the  sustainability  preferences  of  clients  under  MiFID  and  IDD.  Operators  would 
still need to rely on disclosures for all non-categorised products with ESG features.  

Like  option  3.1,  the  transition  category  would  ease  the  implementation  of  the 
regime for products with transition-related products, following ESMA guidelines.   

+ 

+/- 

This option would largely affirm the practice in the market of treating Article 8 and 
9  as  de  facto  categories,  namely  for  ‘sustainable’  and  ‘other  ESG’  products.  It 
would entail  maintaining the existing sustainability  concepts  deemed complex and 
confusing  to  FMPs.  Therefore,  the  simplification  potential  of  option  3.1  and  3.2 
(described in section 6.3.1) would not apply to option 3.3.  FMPs would continue 
to  face  complex  and  unclear  rules  when  applying  the  existing  articles  as 
categories. Gold-plating practices are also likely to continue, as NCAs could be 
expected to continue to refine national approaches to act on greenwashing concerns 
in  the  absence  of  clear  harmonised  EU  criteria.  Coherence  with  the  rest  of  the 
framework  would  also  be  largely  unchanged,  i.e.  the  misalignments  between  the 
SFDR  definition  of  ‘sustainable  investment’  and  similar  concepts  under  the  EU 
Taxonomy and the Benchmark Regulation would not be addressed173. 

No distinct category to promote transition investments would be set up174. 

This  option  could  be  seen, however,  as less disruptive, as  the bulk  of the existing 

172  Funds  using  “transition”-related  terms  e.g.  “transitioning”,  “transitional”  etc.  and  those  terms  deriving  from 
“improve”,  “progress”,  “evolution”,  “transformation”,  “net-zero”  etc.  already  apply  the  criteria  for  portfolio  level 
exclusions and a requirement for 80% of investments to align with the overall strategy, entailing little change for them. 
173 See an explanation of these misalignments in the evaluation annex under the coherence section 3.1.2. ‘misalignments 
with  environmentally  sustainable  economic  activities’  under  the  EU  Taxonomy’  and  ‘misalignments  with  the 
Benchmarks Regulation’.  
174 Contrary to the preference expressed in the consultation, where 72% of respondents were in favour of a transition-
category  (see  Annex  2)  and  in  consumer  studies  where  global  investors  signal  a  strong  preference  to  understand 
companies’  sustainability  and  decarbonisation  commitments  when  making  investment  decisions  (see  Annex  10 
‘Specific sustainability objectives/themes’). 

57 

 
 
 
 
‘criteria’ would be retained. The categories might integrate the minimum safeguards 
of the ESMA guidelines but would largely remain aligned with the current content 
and principles of Articles 8 and 9. 

Specific objective 2: the extent to which the categories improve end-investors ability to understand and 
compare ESG products  

Option 
3.1 

+++ 

The categories would largely simplify the investment journey of end-investors by 
providing  a  coherent  and  harmonised  set  of  criteria  that  all  products  making 
ESG  claims  need  to  comply  with,  regardless  of  where  they  are  marketed.  All 
investors  could  trust  that  any  products  making  prominent  ESG  claims  are 
complying  with  robust and harmonised EU minimum  safeguards and  criteria. End 
investors would also see which category a product belongs to and could very easily 
understand  their  sustainability  objectives  and  levels  of  ambition.  The  three 
groupings can offer a clear picture to investors regarding the type of ESG products 
available  and  how  they  differ.  For  example,  contrary  to  the  situation  today, 
investors  would  have  upfront  reassurance  whether  a  product  can  have  significant 
fossil fuel exposure (transition category) or not (sustainable category), and that they 
cannot invest in assets linked to questionable human rights records (all categories). 
This  would  avoid  having  to  read  the  details  behind  products,  would  mitigate 
negative surprises and make it easier for investors to compare all ESG products 
both within a category and between them.  

In  addition,  providing  the  possibility  that  all  ESG  products  are  categorised  (and 
therefore  comply  with  EU  criteria)  would  do  away  with  the  need  for  lengthy 
disclosures. In fact, categories would ensure higher levels of investors protection 
through minimum safeguards and by removing the need for investors to go through 
complex and lengthy disclosures to  understand the ESG features  and ambitions  of 
products. By establishing the key parameters for products to be categorised as either 
sustainable, transition or other ESG, supported by the need to demonstrate progress 
toward  or  alignment  with  the  objectives  by  way  of  indicators,  but  without 
specifying  ex  ante  in  the  Regulation  exactly  how  FMPs  are  to  set  and  meet  these 
objectives, investors would have upfront reassurance that products in each category 
deliver  what  they  claim  to  do,  while  not  over-regulating  the  matter  and  stifling 
product innovation.    

It  will  be  imperative  that  the  name  of  the  categories  correctly  reflects  their 
respective levels of ambition and type of criteria. It is important that end-investors 
understand the differences between products that are mainly focused on sustainable 
assets  (sustainable  category),  ones  which  focus  on  assets  helping  the  transition  of 
various economic sectors (transition category), and products that are applying much 
lighter ESG criteria (other ESG category). If this distinction if not made clear, end-
investors  could  be  misled  in  thinking  that  all  categorised  products  offer  the  same 
levels of ESG performance.  

Option 
3.2 

On the one hand, end-investors would be able to easily identify the most ambitious 
products  in  the  market.  The  adherence  to  a  category  would  be  made  visible,  and 
retail investors interested in sustainability would be easily directed towards products 
with genuine positive contribution. On the other hand, there would be no minimum 
safeguards  for  a  large  portion  of  products  making  ESG  claims.  The  investor 
protection against misleading claims from non-categorised products would not 

+ 

58 

 
 
 
be increased compared to today’s situation.  

These  risks  could  be  mitigated  by  the  ESG  disclosures  that  could  be  imposed  on 
non-categorised products making ESG claims. In addition, certain ESG terms could 
be  restricted  for  non-categorised  products  (for  example,  ‘sustainable’,  ‘transition’ 
etc).  The  extent  to  which  FMPs  would  be  allowed  to  communicate  on  ESG 
elements  in  the  marketing  documentations  of  non-categorised  products  could  also 
be limited (e.g. no more than x% of their marketing materials).  

However,  such  additional  disclosures  would  work  against  the  first  objective  of 
overall  simplification  and  burden  reduction.  It  is  also  doubtful  that  end-investors 
(more  particularly  retail)  would  effectively  be  aware  of  and  appreciate  the 
differences between  an  ESG categorised  and an  ESG non-categorised product  and 
could  therefore  align  their  expectations  accordingly.  As  a  result,  their  ability  to 
understand the differences in claims between categorised and non-categorised 
products, and notably compare ESG non-categorised  products, would remain 
limited.  

Option 
3.3 

This option would not have a strong impact on the extent to which end investors can 
understand  and  compare  ESG  products,  largely  perpetuating  today’s  situation.  In 
addition, the lack of transition category would not enable investors to easily identify 
those  products  and  might  prevent  investors  from  properly  comparing  products  if 
criteria/disclosures for transition products are not implemented.  

+/- 

❖  Relative efficiency (costs)  

Expected costs and benefits of option 3.1 and 3.2 

Assessing  the  cost-efficiency  of  creating  categories  is  more  difficult  compared  to  assessing  the 
cost-efficiency of changes to SFDR disclosures. Disclosures are part of the requirements today, for 
which  cost  estimates  under  the  baseline  scenario  are  available  (Annex  3),  whereas  categories  are 
not.  

First,  estimating  the initial  one-off costs associated with  the setup  of new categories by engaging 
with FMPs has yielded limited data. These suggest initial one-off costs for a single FMP starting as 
of EUR 30 000, with others suggesting one-off costs in the range of EU 60 000 to EUR 500 000. 
This is mainly because, at this preparatory stage of policy development, FMPs do not have clarity 
on the type of criteria that would accompany these categories yet.  

In  addition,  estimates  also  differ  on  the  size  of  recurring  costs  associated  with  categories.  Some 
expect this to represent 5-10% of initial one-off costs. However, the recurring costs with categories 
would be expected to be lower than the recurring costs of the current SFDR in the longer term due 
to the following factors:  

(1) The rules are expected to be much clearer and to limit gold-plating which would result in 

less compliance costs linked to uncertainty and to applying different national regimes. 

(2) The  criteria  would  build  on  elements  that  are  already  being  applied  by  some  financial 
products  under  other  regulatory  pieces  (i.e.  all  funds  subject  to  the  ESMA  guidelines  on 

59 

 
 
 
 
funds  names  would  not  need  to  bear  the  one-off  implementation  cost  again175).  As 
mentioned  above,  the  criteria  could  be  phased  in  for  others  (insurance  and  pensions 
products). Option 3.1 and 3.2 suggest removing some existing requirement under the SFDR 
while building on some of the rules under the ESMA guidelines, which should lead to cost 
reduction for FMPs currently subject to both.  

(3) The  criteria  would  be  less  data  intensive  and  would  allow  FMPs  to  focus  on  a  reduced 
number  of  datapoints.  In  addition,  these  criteria  would  better  reflect,  in  a  far  more  cost-
effective way, the availability of data in the post-omnibus landscape. Categories are thus an 
effective and efficient way to overcome data gaps compared to today’s baseline scenario in 
which SFDR disclosures would continue to hinge on access to data which is less likely to be 
available. 

As outlined in section 5.3, the categories would also not involve changes to supervisory costs, nor 
entail  new  external  verification costs for FMPs,  which could  otherwise have negative impacts  on 
efficiency.  Categories  and  associated  reduced  product  disclosures  also  help  investors  to  benefit 
from  data  which  is  more  meaningful,  decision-relevant  and  entails  lower  search-costs  –  and 
therefore more efficient from their perspective.  

Finally,  the  costs  reported  by  FMPs  should  be  offset  against  the  savings  achieved  from  reduced 
disclosures. Given the uncertainty of costs related to categories vs. the availability of cost-estimates 
for  disclosures,  it  is  however  not  possible  to  arrive  at  a  reliable  estimate  of  the  net  figure  at  this 
stage.  Annex 3 sets out a rough indication suggesting that there could be some initial one-off costs 
notably  for  FMPs  which  are  SMEs  which  choose  to  be  active  in  offering  ESG  products,  which 
could however be offset in the long-term by corresponding cost savings. Given scale-effects, one-
off  costs  for  larger  FMPs  are  assessed  to  be  far  more  limited  and  which  could  be  quickly  offset 
(after about 2 years)176.  

Expected costs and benefits of option 3.3 

Option  3.3  (minimum  changes)  is  not  expected  to  entail  significant  changes  to  costs  (negative  or 
positive). Low initial one-off costs are to be expected, and the current high recurring costs should 
remain very similar, although targeted changes to the existing sustainability concepts could slightly 
reduce these.  

❖  Relative other economic, social, environmental and fundamental rights impacts  

Under  option  3.1,  categories  would  imply  that  a  larger  number  of  products  would  apply  EU 
minimum  safeguards,  which  is  expected  to  have  an  indirect  positive  impact  on  social, 
environmental and fundamental rights (although the new minimum safeguards would cover fewer 
sustainability  aspects  than  the  current  DNSH,  but  these  often  relate  to  factors  which  are  not 
considered by products anyway177). Under option 3.2, fewer products would apply such safeguards, 
therefore limiting the positive impact that the SFDR can have in this regard. However, option 3.2 
could  potentially  encourage  FMPs  to  produce  more  ambitious  products,  due  to  the  absence  of  an 
inclusive  lighter  3rd  category.  This  could  potentially  lead  to  positive  social,  environmental  and 

175  Recent  figures  from  Morningstar  (ESMA  Guidelines  on  ESG  Funds’  Names,  May  2025)  estimate  that  4220 
investment funds have applied the ESMA guidelines criteria  
176 See Annex 3, sections 3.10 and 3.11, which set out a provisional overview of cumulative costs and benefits under 
the preferred options and demonstrates that the overall savings outweigh the costs. Given data limitations at this stage, 
this is however subject to considerable uncertainty regarding notably the estimated costs associated with the creation of 
product categories. 
177 See Annex 11, section 3.1.1 

60 

 
 
 
 
fundamental rights impacts. Under option 3.3, a large number of products would be in scope, but 
the criteria might be less impactful, therefore reducing the potential positive impact.  

Given the dominant share of the EU sustainable investment market (84% of global sustainable fund 
assets178),  simple  categories  could  further  boost  the  EU  as  an  attractive  market  for  investors 
interested in sustainability.  

Summary of relative impacts  

Comparative effectiveness, efficiency, coherence and other economic and ESG impact   

Legend: +++ = Very positive      ++ = Positive     + = Slightly positive       +/- = Mixed effect           0 = no 
effect            - = Slightly negative       -- = Negative            --- = very negative 

Option 3.1 

Option 3.2 

Option 3.3 

Effectiveness: 

(1) In 

simplifying  and 

the 
sustainability  related  requirements  for 
FMPs and enhancing coherence 

reducing 

(2) In  improving  end-investors’  ability  to 
understand and compare ESG products 

Overall effectiveness:  

Efficiency    

❖  Stakeholders’ feedback  

+++ 

+++ 

+++ 

++ 

+ 

+ 

+ 

++ 

+/- 

+/- 

+/- 

+ 

The public consultation revealed strong support for a voluntary categorisation system regulated at 
the EU level: A large majority of respondents believe that EU sustainability product categories are 
necessary for an efficient distribution system based on investors’ sustainability preferences (69%), 
to  combat greenwashing (64%), and to  facilitate  professional  investors (72%) and retail  investors 
(80%)  understanding  of  products’  sustainability-related  strategies  and  objectives.  72%  of 
respondents  believe  that  disclosures  alone  are  not  enough  to  achieve  these  objectives.  While  the 
distribution of responses is similar across different stakeholder groups, respondents belonging to or 
representing the three financial services sectors (insurance, asset management and banking sector) 
have a slightly different view as regards the benefits of product categories for investors. 42% (11 
out of 26) of respondents belonging to or representing the insurance sector totally or mostly agree 
that a categorisation system would improve understanding among professional investors, compared 
to  73%  (104  out  of  143)  and  76%  (13  out  of  17)  in  the  asset  management  and  banking  sectors, 
respectively.  Similarly,  50%  (13  out  of  26)  of  the  insurance  sector  respondents  believe  a 
categorisation system would help retail investors, compared to 84% (120 out of 143) and 76% (13 
out of 17) in the asset management and banking sectors, respectively. 

178 Categorisation of products under SFDR - Report. See also Annex 5. 

61 

 
 
 
 
 
 
 
 
 
 
In  addition,  the  call  for  evidence179  confirmed  a  very  large  support  for  creating  categories.  Most 
respondents  expressed  support  for  creating  3  categories  (sustainable,  transition,  and  other  ESG), 
while  a  small  minority  preferred  2  categories  (sustainable  and  transition).  A  small  portion  of 
stakeholders  also  expressed  interest  for  a  standalone  impact  category,  while  acknowledging  that 
impact products could also fall under the sustainable or transition category and disclose how they 
conduct impact investing.  

The responses to the call for evidence also showed a general agreement regarding the need to align 
the criteria with the ESMA guidelines (i.e. the PAB and CTB exclusions). Many have also urged to 
ensure that the criteria  will be adapted to  all types of asset classes, while underlining that certain 
assets  classes  (such  as  derivatives,  real  estate  and  sovereigns)  face  considerable  challenges  under 
the current rules. Stakeholders from the insurance and pension sectors have urged to ensure that the 
criteria would fit their sectoral specificities.  

7.  PREFERRED COMBINATION OF POLICY OPTIONS 

On  the  basis  of  the  comparison  of  options  carried  out  in  section  6,  the  preferred  option  would 
combine  option  1.2  for  entity-level  disclosures,  2.2  for  product-level  disclosures,  and  3.1  for  the 
set-up of sustainability-related categories.  

7.1. 

Impacts of preferred options on the specific objectives  

This combination of the preferred options is the more efficient and effective overall way to achieve 
the two specific objectives:  

(1) FMPs  would  be  provided  with  three  categories  with  simple  criteria  for  all  ESG  products. 
Compared to the current system, the new approach would create one set  of coherent  rules 
regarding ESG claims in names, marketing communication and in the distribution  of such 
products, more geared towards FMPs and investors with an interest in ESG products which 
would be easier to compare as they would be based on shorter and standardised templates, . 
The criteria would provide clarity on the regulatory expectations and would also lower the 
risks of national gold plating. Excessive information requirements which are based on data 
which is less available and are not found to be decision-useful for investors would be cut. 
While  these  new  categories  may  involve  an  initial  cost  in  the  short  term  (for  FMPs  and 
products  not  already  subject  to  the  ESMA  guidelines),  this  would  be  duly  phased  in.  The 
trade-off is also justified as the simplification measures are anticipated to reduce recurring 
costs over the medium to longer term, ultimately leading to greater overall efficiency. Long-
term adherence to the fewer rules linked to the categories would be streamlined and much 
simpler than the current rules FMPs need to comply with. The disclosure requirements that 
would  accompany  these  disclosures  would  be  much  shorter  than  the  current  reporting 
template under the Article 8 and 9. Therefore, as set out in Annex 3, costs linked to product 
level disclosures are expected to be significantly reduced while those related to entity-level 
disclosures would disappear. Over time, these would offset the one-off costs of moving to 
the new rules. 

(2) The  categories  would  effectively  cluster  the  ESG  financial  products  into  three  groupings 
depending on ESG objectives and levels of ambition. End-investors would be able to easily 
and  quickly  understand  whether  a  financial  product  is  focused  on  contributing  to  a 
sustainability objective/made largely of sustainable assets, if a product is focused on helping 
companies  to  transition  toward  more  sustainable  practices,  or  if  a  product  is  applying 

179 Feedback gathered during the Call for Evidence which ran from 2 May to 30 May 2025. 

62 

 
 
 
 
broader  or  lighter  ESG  strategies.  The  underlying  criteria  of  the  categories  would  ensure 
harmonised minimum ESG performance, notably against risks deemed unacceptable by the 
majority  of  sustainability-minded  investors180,  thereby  increasing  investors’  protection 
against greenwashing risks. Also, accompanying product disclosures would be made easier 
and simpler for them, giving them the essential information which experience demonstrates 
is of greatest value181, with an opportunity for investors to get more detailed information on 
the ESG features if they want. This would facilitate the comparison of ESG products falling 
under the same category.  

7.2. 

Impacts of preferred options on the general objectives  

The  preferred  options  would  help  contribute  to  the  general  objectives.  Namely,  they  would  help 
boost the integrity of the EU single market for sustainable finance by fighting greenwashing in an 
effective and efficient way, by replacing lengthy and complex disclosures with targeted minimum 
safeguards  and  ambition  criteria,  which  would  apply  to  all  products  making  ESG  claims  or  be 
distributed  to  retail  investors  with  preferences  for  sustainable  products.  This  would  also  help 
encourage the efficient allocation of capital for Europe’s sustainable prosperity by boosting trust in 
ESG  financial  products  and  contributing  to  re-directing  private  capital  that  either  contribute 
positively  to  EU  sustainable  goals  or  avoid  harm  to  these  objectives  as  part  of  deeper,  more 
integrated  and  more  competitive  EU  financial  markets.  No  other  EU  legislation  sets  ESG 
disclosures  for  financial  products  which  can  help  serve  this  purpose,  and  market-based  solutions 
which would deliver the same are highly unlikely to emerge. Of course, as the options address the 
specific  objectives  identified  for  this  initiative,  they  would  need  to  work  in  tandem  with  other 
factors, involving the efficient functioning of markets and determining capital allocation, which are 
beyond the scope of this impact assessment, to fully achieve the general objectives.  

The combination of the preferred options is expected to directly or indirectly contribute to positive 
environmental,  social  and  human  rights  impacts  through  its  three  ESG  categories,  underpinning 
criteria and accompanying simpler disclosures. All ESG products would need to comply with EU 
minimum safeguards if they wish to make ESG claims or be distributed as such. These safeguards 
would  include,  depending  on  the  nature  of  the  claims,  elements  linked  to  the  respect  of  human 
rights,  adherence  to  social  safeguards  and  norms,  and  mitigation  of  key  environmental  impacts. 
Certain ESG products would also need to demonstrate their positive contribution to environmental, 
social  or  fundamental  right  objectives,  in  order  to  fall  under  the  more  ambitious  categories 
(sustainable and transition). These products  would also  need to  comply with minimum  disclosure 
requirements, which would include reporting on some social aspects.  

This  initiative  is  also  expected  to  directly  or  indirectly  contribute  to  the  achievement  of  UN 
Sustainable  Development  Goals  (SDGs)  notably  those  related  to  the  climate,  environment  and 
social progress by ensuring that ESG financial products can more efficiently both contribute to and 
not cause harm to these goals. Finally, in this regard the combination of the preferred options is also 
assessed to be the best way to ensure that the revised SFDR is consistent with the climate neutrality 
objective of the climate law182.    

180 See Annex 10 ‘Specific sustainability objectives/themes’ 
181 See Annex 11, section 3.1.1 
182 Regulation (EU) 2021/1119 of 30 June 2021 establishing the framework for achieving climate neutrality  
(European Climate Law) 

63 

 
 
 
 
7.3.  REFIT (simplification and improved efficiency) 

As  per  the  specific  objective  1  (and  the  description  of  the  impact  of  the  preferred  option  on  this 
objective  in  section  6),  the  combination  of  the  preferred  options  has  the  potential  to  drastically 
simplify and improve the efficiency of the legislation.  

7.4.  Application of the ‘one in, one out’ approach 

The  quantifiable  costs  of  this  initiative  are  categorised  as  administrative  costs  from  a  better 
regulation perspective as they link to costs for disclosures to the public.  

For  the  preferred  option  1.2,  we  estimate  an  annual  saving  of  EUR  56  million  compared  to  the 
baseline.  For  the  preferred  option  2.2.  we  conservatively  estimate  annual  recurring  savings  of  at 
least  EUR  55  million  and  for  3.1  we  were  unable  to  collect  sufficient  quantitative  evidence  to 
estimate the costs with a sufficient degree of statistical confidence. 

Overall, Annex 3 suggests a net reduction in administrative costs from the initiative183.  

8.  HOW WILL ACTUAL IMPACTS BE MONITORED AND EVALUATED? 

To monitor progress towards meeting the specific and general objectives, the Commission services 
would continue to  work together with  established processes underway notably  with  the European 
Supervisory Authorities (ESAs) and the Platform for Sustainable Finance (PSF) to analyse:  

(1) The costs incurred by the industry - The ESAs and the NCAs could be tasked to survey 
and assess the implementation costs linked to the new categorisation system at the latest 3 
years after its implementation. This assessment could also monitor the cost reductions from 
the reduced disclosures and assessing how the market is adapting to the new rules. 

(2) Possible  occurrences  of  greenwashing  in  EU  markets.  The  ESAs  –  together  with  the 
national  competent  authorities  (NCAs)  are  already  monitoring  the  occurrences  of 
greenwashing  and  supervise  sustainability-related  claims.  Their  2023  and  2024  reports184 
assess  which  areas  of  the  sustainable  investment  value  chain  (SIVC)  are  more  exposed  to 
the  risk  of  greenwashing.  The  Commission  could  work  with  the  ESAs  to  conduct  these 
assessments  regularly  (e.g.  every  two  years),  including  to  help  assess  the  effectiveness  of 
the  future  SFDR  as  a  tool  against  greenwashing  and  amid  the  changes  introduced  by  the 
omnibus proposals.  

(3) Capital  flows  to  sustainable  investment  –  the  Platform  for  Sustainable  Finance  has 
developed a novel framework for monitoring capital flows to sustainable investment, i.e. the 
financing  of  a  clean  and  competitive  transition185.  The  Commission  could  work  with  the 
PSF  to  conduct  a  targeted  analysis  a  few  years  after  the  implementation  of  the  regime  to 
assess  the  degree  to  which  the  categorisation  system,  together  with  the  simplified 
disclosures, has helped boost financing toward sustainable economic activities and projects 
and helped lower the cost of capital linked to these.  

(4) The understanding of EU retail investors – Finally, the Commission could work with the 
ESAs  and  other  associations  to  conduct  a  consumer  survey  a  few  years  after  the 
implementation  of  the  regime.  The  survey  could  test  whether  the  categories  and  their 

183 See Annex 3, sections 3.10 and 3.11 
184 2023 interim reports: ESMA progress report, EBA progress report, EIOPA progress report and the 2024 joint final 
report 
185 Financing a Clean and Competitive Transition: monitoring capital flows to sustainable investment, PSF March 2025 

64 

 
 
 
 
accompanying  streamlined  disclosures  have  managed  to  improve  consumers’  ability  to 
understand and compare ESG products and deliver credible ESG information to investors.  

65 

 
 
 
 
 
ANNEX 1: PROCEDURAL INFORMATION 

1.  Lead DG, Decide Planning/CWP references 

This  Impact  Assessment  Report  was  prepared  by  Directorate  C  "Financial  Markets"  of  the 
Directorate  General  "Directorate-General  for  Financial  Stability,  Financial  Services  and  Capital 
Markets Union" (DG FISMA). The Decide Planning reference of the "Revision of the Sustainable 
Finance  Disclosure  Regulation  (SFDR)"  is  PLAN/2024/2126.  This  initiative  is  part  of  the 
Commission’s Work Programme Simplification 2025. 

2.  Organisation and timing 

Several  services  of  the  Commission  with  an  interest  in  the  initiative  have  been  involved  in  the 
development  of  this  analysis.  Three  Inter-Service  Steering  Group  (ISSG)  meetings,  consisting  of 
representatives from various Directorates-General of the Commission, were held in 2024 and 2025. 

The  first  meeting  took  place  on  2  October  2024  attended  by  representatives  from  DEFIS,  ENV, 
CLIMA, EMPL, GROW, JUST, JRC, SJ, INTPA, and the Secretariat General (SG).  

The second meeting was held on 24 April 2025. Representatives from DEFIS, MOVE, SJ, INTPA, 
ENV, CLIMA, EMPL, GROW, JUST, ENER, JRC and the Secretariat General (SG) were present.  

The  third  meeting  was  held  on  21  May  2025  and  was  attended  by  JRC,  EMPL,  MOVE,  DEFIS, 
GROW, CLIMA, JUST, ENER, ENV and the SG. This was the last meeting of the ISSG before the 
submission  to  the  Regulatory  Scrutiny  Board  on  4  June  2025.  The  meetings  were  chaired  by 
FISMA.  

DG FISMA has considered the comments made by DGs in the final version of the IA. 

3.  Consultation of the RSB 

The  Impact  Assessment  report  was  examined  by  the  Regulatory  Scrutiny  Board  on  2  July  2025. 
The Board gave a negative opinion with the following comments. The changes in response to the 
comments  are summarised under each  respective point below (referring  to version 1). The Board 
gave  a  positive  opinion  with  reservations  on  the  revised  version  on  8  October  2025,  changes  to 
which are also summarised below (referring to version 2).  

RSB comment version 1: Policy options are not sufficiently specified to allow for an adequate 
assessment and comparison. The report leaves evidence uncovered that is necessary to justify and 
ensure feasibility, effectiveness and efficiency of the action at level 2. 

Changes  made  to  the  IA:  The  report  includes  a  more  detailed  description  of  what  the  policy 
options  would  concretely  look  like,  mainly  by  providing  a  detailed  description/example  for 
streamlined disclosures and criteria for the proposed categories.  

These specifications are added to the core report (section 5.3.2 for a description of the disclosures 
and section 5.4 for a description of the criteria, notably box 3) and further detailed in  Annex 8 
(which also provides illustration of what the level 2 criteria could look like and a mock disclosure 
template). Sections 5.3 and 5.4 also explain the detail of what would be developed in level 1 vs. 
level 2.  

The report also includes evidence of the feasibility of relying on such disclosures and criteria to 

66 

 
 
 
achieve  the  specific  objectives,  mainly  taken  from  market  analysis  of  current  practices  and 
compliance  with  existing  obligations.  Evidence  shows  that  the  suggested  criteria  build  on  data 
that is available to a significant degree and are already applied by a large portion of the market, in 
contrast to other datapoints which are less available. It also explains how the introduction of such 
criteria  would  largely  align  with  investors’  known  preferences  (based  on  studies  outlined  in 
Annex  10),  increase  comparability  and  better  address  greenwashing  concerns,  compared  to  the 
current situation.  

These  additional  elements  do  not  pre-empt  future  level  2  rules  but  are  provided  as  guiding 
illustrations to help better grasp the contours of the proposed categories and the main elements of 
the disclosures. Further analysis (such as market analysis and consumer testing) would be needed 
to set the final details once the level 1 is agreed by co-legislators.  

RSB comment version 1: The report does not fully assess a sufficient range of options, including 
a repeal option. The coherence with the ‘omnibus 1’ is not sufficiently established 

Changes made to the IA: The coherence with the ‘omnibus 1’ proposals, and more particularly 
the  possible  future  changes  to  the  CSRD  and  the  EU  Taxonomy,  is  further  detailed.  This  is 
provided in section 5 setting the stage for and describing the relevant policy options, as well as in 
Annexes 3 and 6, regarding the assumptions regarding costs underpinning the assessment and the 
links with other parts of the sustainable finance framework.  

The repeal option has been fully analyzed alongside the other proposed policy options. This is set 
out in the newly inserted sections 5.1 and 6.1.   

After more studied consideration of the implications of the ‘omnibus 1’ proposals as well as the 
option  to  repeal  the  SFDR,  the  report  maintains  its  conclusions  that  the  preferred  options 
(streamlined  product  disclosures  and  creation  of  3  categories)  are  the  most  aligned  with  the 
specific objectives (simplifying and reducing the cost for financial market participants; improving 
end  investors’  ability  to  understand  and  compare  ESG  products).  The  analysis  is  further 
substantiated  to  demonstrate  that  a  review  of  the  SFDR  along  these  lines,  not  its  repeal,  is  not 
only the most effective and efficient way to achieve these objectives but also the most coherent 
with the reality post-‘omnibus 1’ and its practical impacts.  

RSB comment version 1:  The report is  not  convincing in  terms  of the  feasibility  of providing 
relevant  ESG  information  partly  based  on  estimates,  which  would  nevertheless  allow  end 
investors to make meaningful assessments and comparisons across funds, while at the same time 
reducing costs and avoiding green washing 

Changes  made  to  the  IA:  The  report  introduces  evidence  of  the  feasibility  to  set  ESG 
disclosures  that  would  be  meaningful  and  would  be  based  on  comparable  and  credible 
sustainability  information  which  responds  to  investors’  demand  is  of  most  interest  to  them 
(further explained in section 5.2.2 and in Annex 10).  

First, the report describes the necessary features of the disclosures: (1) building from the existing 
corporate  disclosures  under  the  EU  regulatory  framework  (i.e.  CSRD  and  EU  Taxonomy);  (2) 
relying  on  concepts  and  metrics  which  are  most  commonly  available,  respond  to  investors’ 
demand, and can be externally derived or estimated in case the company is not in scope of the EU 
regulatory  framework.  For  the  latter,  the  report  provides  an  overview  of  the  state  of  play  of 
estimation practices and identifies the ESG topics and indicators for which robust estimation has 
proven  to  be  feasible.  The  main  findings  are  that  the  estimation  practices  on  the  suggested 

67 

 
 
 
exclusions are robust and derive from data that is widely available from companies. The focus on 
more simple and clear ESG indicators and concepts that would need to be estimated should also 
result in making the estimated disclosures more robust, reliable and comparable, compared to the 
excessive complexity and disparity in the disclosures today. 

Second,  the  report  presents  possible  safeguards  which  could  limit  the  greenwashing  concerns 
around estimations. These consist of transparency obligations on: (1) the proportion of data that 
was  estimated;  (2)  the  possible  use  of  external  providers;  (3)  the  implementation  of  the 
precautionary principle; (3) the calculation methodology and assumptions.  

These elements are added to the main report (section 5.4) and Annex 8. 

RSB  comment  version  1:  The  report  does  not  provide  sufficient  information  on  the  costs 
associated  with  different  options,  including  who  will  bear  the  costs  and  who  will  benefit  from 
savings. 

Changes made to the IA: Further details are provided in Annex 3 and in relevant parts of section 
6  in  the  main  report  of  the  costs  and  benefits  associated  with  the  options.  A  more  complete 
overview of the market size for products under the scope of the SFDR is also added in Annex 3 
(section  1),  together  with  an  overview  of  academic  studies  on  the  benefits  of  sustainable 
investment  (section 2), to support  the findings of consumer studies  in Annex 10 illustrating the 
demand for ESG investment options among investors. Annex 3 and relevant parts of section 6 of 
the main report also show further breakdowns of these impacts by type of stakeholder (SME vs. 
larger  FMPs),  detailed  in  the  overview  tables  in  Annex  3  as  well  as  in  its  section  3.  Further 
impacts in terms of specific sectors which could be affected by the introduction are included in 
the analysis of existing market practices in Annex 8 and in Annex 5 (competitiveness check).    

RSB  comment  version  2:  The  report  does  not  sufficiently  assess  how  the  revised  SFRD  will 
ensure the comparability between different investment products and the risks related to the use of 
estimates. The report does not adequately assess the risks of greenwashing. 

Changes made to the IA: The discussion introducing options 3.1 and 3.2 in section 5.4 includes 
additional descriptions and analysis of some of the challenges and limitations in pursuing further 
comparability beyond that achieved with the proposed criteria. The section also explains further 
the balance to be struck in relying on data which is available, estimable and of most interest to 
investors, and the possible risks of greenwashing in overlooking some potentially decision-useful 
datapoints in  the process. This  is  recalled in  section 6.3 in  comparing  the relative merits of the 
options. 

RSB comment version 2: The options are not sufficiently specified to allow for an assessment 
and  comparison.  The  report  does  not  fully  assess  effectiveness,  efficiency  and  coherence  of 
options including the repeal option. 

Changes  made  to  the  IA:  The  articulation  and  relationship  between  the  options  is  further 
specified in the introductory part of section 5, section 5.4 explains further what the options set out 
to  achieve  in  terms  balancing  between  the  need  for  continuity,  simplicity  and  adequate 
transparency for financial market participants and investors, and the analysis in sections 6.1 and 
6.3  is  complemented  with  additional  information  as  recommended  by  the  Board.  Section  6.1 
addresses  why  reliance  on  horizontal  consumer  protection  rules  (Unfair  Commercial  Practices 
Directive)  would  be  suboptimal  for  the  subject  matter  covered  by  the  SFDR,  and  6.3  discusses 
how  each  category  can  ensure  the  right  information  to  investors  but  without  overly  prescribing 

68 

 
 
 
investment strategies for financial products and hampering market innovation.    

RSB  comment  version  2:  Since  the  full  assessment  of  policy  options  depends  on  level  2 
legislation, the report should explain how main alternatives and their impacts will be assessed for 
such subsequent regulations. 

Changes made to the IA: Section 5.4 (Box: Elements to be defined at level 1 vs elements to be 
defined at level 2) recalls that the key choices will be set in level 1 and it would be premature to 
anticipate details on any level 2 implementing measures at this stage, which will be impacted by 
negotiations between co-legislators and are foreseen to be informed by further analysis including 
of  consumer  preferences  and  data  availability.  The  section  notes  however  that  those  measures 
would  be  assessed  against  their  costs  and  benefits  analysis  and  the  preparation  would  follow 
better regulation guidelines. As an example, the IA notes that the points picked up by the Board 
on  the  usability  of  specific  datapoints  regarding  adherence  to  UN  and  OECD  guidance  on 
governance practices would be addressed in level 2.         

Other changes in response to comments by the RSB (version 1) 

-  The analysis of the problems is substantiated with further background of the root causes and 
other  factors  that  have  led  to  their  emergence  (in  the  evaluation,  annex  11  to  do  with  the 
timing  of  implementation  of  the  existing  SFDR,  unsolved  data  availability  issues, 
insufficient sensitivity to genuine investor-needs etc.) and which inform the lessons learned 
for the review.  

-  Further  detail  throughout  the  report  that  the  requirements  underpinning  the  proposed 
categories,  including  the  ‘transition’  category  largely  favoured  in  feedback  by  FMPs  and 
investors,  do  not  constitute  major  new  departures  from  the  status  quo  but  rather  codify 
existing requirements and practice under the ESMA guidelines for fund names, and update 
and retrofit the requirements of the SFDR to this purpose. 

-  Analysis  to  underpin  that  the  proposed  new  disclosures  and  categories  would  constitute  a 
more proportionate regime than the status quo, more consciously geared toward FMPs and 
investors with an explicit interest in ESG investing (section 5). 
that 

law/no  categories/one 
category/more  than  three  categories)  are  suboptimal  in  meeting  the  specific  and  general 
objectives of the review and at odds with stakeholder feedback (section 5.5). 

-  Further  analysis  showing 

the  discarded  options  (soft 

-  A  discussion  on  how  investment  in  sovereign  bonds  could  be  treated  in  assessing  their 
potential positive ESG contribution (annex 7), noting that stakeholder feedback on the issue 
is  inconclusive in  the absence of comprehensive  metrics for measuring public sector ESG 
performance, and suggesting a preference for their inclusion on an optional or partial basis, 
subject to additional disclosures.    

 Other changes in response to comments by the RSB (version 2) 

-  Besides  information  on  the  trade-offs  with  estimates  added  in  section  5.4  and  6.3,  further 
assessment is added in sections 5.4 and Annex 8, section 3 on why it is not considered apt to 
regulate  ESG  data  providers,  given  the  main  results  of  the  evaluation,  coherence  with  the 
overall simplification agenda and for reasons of proportionality. 

-  Further clarifications are added to the introductory part of section 5, section 5.4 and section 
6.3  on  the  voluntary  nature  of  the  revised  framework,  that  this  however  entails  certain 
restrictions for non-categorised products on how they can be marketed to investors, and that 
the preferred options do not go beyond what is necessary to achieve the objectives. 

69 

 
 
 
-  The  option  to  repeal  the  SFDR  is  complemented  with  details  on  links  to  horizontal 
consumer  protection  rules  in  sections  5.2,  section  6.1  and  Annex  6,  section  3,  and  why 
reliance on these would likely be suboptimal, as well as further recalling why mere reliance 
on ESMA fund name guidelines would also be ineffective.  

-  Section 5.4 adds some analysis that the framework will have to evolve over time, should not 
be  overly  prescriptive  to  begin  with  to  prevent  this  from  happening,  and  that  notably 
research regarding consumer preferences will continue to be important to reflect in level 2 
and in future updates of the framework.  

4.  Evidence, sources and quality 

The  impact  assessment  draws  on  a  combination  of  desk  research,  a  targeted  and  open  public 
consultation, two Briefings from the Platform for Sustainable Finance (PSF), a joint Opinion from 
the  European  Supervisory  Authorities  (ESAs),  external  studies,  meetings  with  stakeholders  and 
other  outreach.  The  material  used  has  been  gathered  since  December  2022,  when  Commissioner 
McGuinness  announced  a  comprehensive  assessment  of  the  SFDR  framework.  This  material 
includes but is not limited to the following:  

1.  Targeted186  and  open  public187  consultation:  The  targeted  and  open  public  consultations, 
held  between  14  September  2023  and  22  December  2023,  were  an  important  part  of  the 
assessment announced by Commissioner McGuinness to evaluate potential shortcomings – 
focusing on legal certainty, the useability of the regulation and its ability to play its part in 
tackling  greenwashing.  The  open  public  consultation  was  addressed  to  the  general  public. 
The  targeted  consultation  gathered  input  from  public  bodies  and  stakeholders  who  were 
more  familiar  with  the  SFDR  and  the  EU’s  sustainable  finance  framework.  Views  were 
welcome  from  financial  market  participants,  investors,  NGOs,  relevant  public  authorities, 
national  regulators,  and  others  that  were  subject  directly  or  indirectly  to  the  provisions  of 
the SFDR and/or had more in-depth knowledge and/or (working) experience in the field of 
sustainable  finance  disclosures.  The  consultation  provided  the  Commission  with  valuable 
input to inform the review of the SFDR. 

2.  Four  technical  workshops  and  roundtables,  enabling  stakeholders  to  submit  further  input. 
The  workshops  and  roundtables  complemented  the  open  and  targeted  consultation, 
enriching the information and the observations received in the consultation. 

3.  Two Briefings188 189 from the expert group the Platform for Sustainable Finance (PSF). The 
Platform  for  Sustainable  Finance  (PSF)  responded  to  the  Commission’s  targeted 
consultation  with  a  briefing  note  in  December  2023.  Further  on,  the  PSF  published  in 
December 2024 a briefing note for the Commission outlining how a categorisation system 
for sustainable finance products could be set up. 

4.  The  joint  Opinion  from  the  European  Supervisory  Authorities  (ESAs)  on  how  to  set  up 
categories for financial products190. The Commission duly considered this joint Opinion by 

186  Consultation  document  -  Targeted  consultation  on  the  implementation  of  the  Sustainable  Finance  Disclosures 
Regulation (SFDR) 
187 Sustainable Finance Disclosure Regulation - assessment 
188 Platform on Sustainable Finance briefing on EC targeted consultation regarding SFDR Implementation - December 
2023 
189 Categorisation of products under SFDR - Report 
190 JC 2024 06 Joint ESAs Opinion on the assessment of the Sustainable Finance Disclosure Regulation (SFDR) 

70 

 
 
 
 
 
 
 
the  European  Supervisory  Authorities  (the  ESA’s),  delivered  in  June  2024  on  their  own 
initiative.  

5.  External  Studies:  the  Commission  has  considered  studies  from  both  institutional  and 
academic  sources,  quoted  throughout  in  this  assessment.    Inter  alia,  the  Commission 
considered  the  views  contained  in  the  study  requested  by  the  ECON  Committee  of  the 
European  Parliament  on  “the  current  implementation  of  the  SFDR”191.  The  Commission 
also pondered the input provided in “Mind the ESG capital allocation gap”, by economists 
Jan Fichtner, Robin Jaspert and Johannes Petry. 

6.  Engagement  with  Member  States  in  the  context  of  the  Member  State  Expert  Group 

(December 2024, June 2025), receiving preliminary inputs. 

7.  Continuous  engagement  with  experts  on  key  challenges  and  on  how  to  set  up  categories. 
With  a  view  to  address  specific  issues,  the  European  Commission  continuously  engaged 
with experts from the financial industry, NGOs/civil society and academics, as needed. 

8.  Feedback gathered during the Call for Evidence which ran from 2 May to 30 May 2025. 

The material used to inform this impact assessment comes from the market participants as well as 
other  reputable  and  well-recognised  sources.  Findings  were  cross-checked  across  the  different 
information sources to avoid biases caused by outliers or vested interests. 

191  The  current  Implementation  of  the  Sustainability-related  Financial  Disclosures  Regulation  (SFDR);  With  an 
assessment on how the legislative framework is working for retail investors 

71 

 
 
 
 
 
 
 
 
 
ANNEX 2: STAKEHOLDER CONSULTATION (SYNOPSIS REPORT) 

1.  Overview of consultation activities 

In December 2022, Commissioner Mairead McGuinness announced a comprehensive assessment of 
the SFDR framework. Since then, the European Commission has conducted extensive consultation 
activities, addressing all aspects of the proposed legislative review.  

These activities encompassed: 

1.  Two  public  consultations  that  ran  from  September  to  December  2023  (targeted192  and 

open193). A summary report194 was published in May 2024. 

2.  Four  technical  workshops  and  roundtables,  enabling  stakeholders  to  submit  further 

input. 

3.  Two Briefings195 196 from the expert group the Platform for Sustainable Finance (PSF). 
4.  The joint Opinion from the European Supervisory Authorities (ESAs) on how to set up 

categories for financial products197. 

5.  The  Study  requested  by  the  ECON  Committee  of  the  European  Parliament  on  “the 

current implementation of the SFDR”198. 

6.  Engagement  with  Member  States  in  the  context  of  the  Member  State  Expert  Group 

(December 2024, June 2025) 

7.  Continuous engagement with experts on key challenges and on how to set up categories. 
8.  Feedback gathered during the Call for Evidence which ran from 2 May to 30 May 2025. 

2.  Stakeholder consultations 

2.1.Targeted and open public consultations 

Two  public  consultations,  open  and  targeted,  ran  from  September  to  December  2023.  The  open 
consultation, aimed at the general public, asked about the current requirements of the SFDR and the 
interaction  with  other  sustainable  finance  legislation.  As  the  Commission  was  also  interested  in 
exploring  possible  options  to  improve  the  framework  and  address  any  potential  shortcomings,  it 
also  presented  a  targeted  consultation,  aimed  at  experts  such  as  financial  market  participants, 
investors,  NGOs,  relevant  public  authorities  and  NCAs  inter  alia,  adding  to  the  questions  of  the 
public  consultation  other  queries  about  potential  changes  to  the  disclosure  requirements  of  the 
SFDR and the potential establishment of a categorisation system for financial products. 

192  Consultation  document  -  Targeted  consultation  on  the  implementation  of  the  Sustainable  Finance  Disclosures 
Regulation (SFDR) 
193 Sustainable Finance Disclosure Regulation - assessment 
194  Summary  report  of  the  open  and  targeted  consultations  on  the  implementation  of  the  Sustainable  Finance 
Disclosures Regulation (SFDR) 
195 Platform on Sustainable Finance briefing on EC targeted consultation regarding SFDR Implementation - December 
2023 
196 Categorisation of products under SFDR - Report 
197 JC 2024 06 Joint ESAs Opinion on the assessment of the Sustainable Finance Disclosure Regulation (SFDR) 
198  The  current  Implementation  of  the  Sustainability-related  Financial  Disclosures  Regulation  (SFDR);  With  an 
assessment on how the legislative framework is working for retail investors 

72 

 
 
 
 
 
 
324  organisations  and  individuals  participated  in  the  targeted  consultation.  Financial  market 
participants (FMPs) and financial advisers made up the largest group of respondents (63%, 204 out 
of  324),  primarily  consisting  of  asset  management  firms  (75%),  insurance  companies  (14%),  and 
banks (10%). The second largest group of respondents were NGOs, which constituted 11% (36 out 
of 324) of the respondents. FMPs and financial advisers who responded to the consultation mostly 
conduct business for both professional and retail investors (44%) or towards professional investors 
only  (41%),  with  14%  focusing  solely  on  retail  investors.  Respondents  were  predominantly  from 
EU countries, with France, Germany, Belgium, Spain, and Luxembourg being the most represented 
(23%,  10%,  7%,  6%,  and  6%,  respectively,  totalling  52%).  Approximately  19%  of  respondents 
were from non-EU countries, predominantly the UK (11%) and the US (5%).  

51 respondents provided answers to the open public consultation only. This group consists mainly 
of FMPs and financial advisers (37.3%, 19 out of 51) and NGOs (15.7%). The greatest number of 
respondents were from Germany (14%, 7 out of 51), followed by France, Belgium, Romania (12% 
each), and the UK (10%). Their responses were consistent with the trends observed in the targeted 
consultation.  

2.2.Technical workshops and roundtables 

The  European  Commission  also  held  a  series  of  technical  workshops  and  roundtables  when  it 
issued  the  consultations  on  the  implementation  of  the  SFDR,  allowing  stakeholders  to  provide 
further  comments  accompanying  the  replies  to  the  consultations.  The  workshops  took  place  in 
October and December 2023, and January 2024. 

2.3.Two opinions from the expert group the Platform for Sustainable Finance (PSF). 

The Platform for Sustainable Finance (PSF) prepared a briefing note in December 2023 to address 
the main questions raised by the European Commission in the targeted consultation. 

Following the European Commission’s public consultation, in December 2024 the PSF published a 
briefing  note  for  the  Commission  outlining  how  a  categorisation  system  for  sustainable  finance 
products  could  be  set  up  and  calibrated.  The  briefing  note  is  accompanied  by  an  annex  with 
guidance  on  setting  thresholds  and  supporting  data.  The  annex  shows  primary  findings  on  the 
current state of the ESG markets and the potential impact that setting certain thresholds could have 
on current products falling under the scope of Article 8 and Article 9 of the SFDR. It also provides 
guidance on steps to determine possible thresholds for categories. 

2.4.The Opinion from the European Supervisory Authorities (ESAs) on how to set up categories 

for financial products. 

The European Supervisory Authorities (the ESA’s), on their own initiative, delivered in June 2024 
a joint Opinion on the assessment of the SFDR.  

2.5.The Study requested by the ECON Committee of the European Parliament on “the current 

implementation of the SFDR”. 

This document was provided in July 2024 by the Policy Department for Economic, Scientific and 
Quality  of  Life  Policies  at  the  request  of  the  Committee  on  Economic  and  Monetary  Affairs 
(ECON)  of  the  European  Parliament.  The  purpose  of  the  study  is  to  inform  the  policy  debate  on 
sustainability disclosures under the SFDR and provide a legal assessment on possible changes to be 
brought  to  relevant  legislation  in  order  to  improve  the  framework.  The  opinions  expressed  in  the 
study are the sole responsibility of the authors and do not necessarily represent the official position 
of the European Parliament. 

73 

 
 
 
2.6.Engagement  with  Member  States  in  the  context  of  the  Member  State  Expert  Group 

(December 2024, June 2025) 

The European Commission engaged with Member States in the context of the Member State Expert 
Group in December 2024, receiving preliminary comments. 

2.7.Continuous engagement with experts on key challenges and on how to set up categories. 
The  European  Commission  engaged  continuously  with  experts  such  as  financial  market 
participants, investors, NGOs, academics and other interested stakeholders, to tackle specific issues. 

2.8.Feedback gathered during the Call for Evidence which ran from 2 May to 30 May 2025. 

to 

the  call 

responded 

stakeholders 

195 
for  evidence.  Businesses  associations  and 
companies/businesses made up the largest group of respondents (68,4%). The second largest group 
of  respondents  were  NGOs,  which  constituted  9.8%  of  the  responses,  followed  by  national 
authorities  (5.2%).  Respondents  were  predominantly  from  EU  countries,  with  France,  Germany, 
Belgium, Italy and Netherlands being the most represented (19,7%, 16,1%, 15%, 6,7%, and 5.2%). 
14% of respondents were from the UK.  

3.  Results of the stakeholder consultations: 

3.1.Current requirements of the SFDR and interaction with other sustainable finance legislation. 

The consultation showed widespread support for the broad objectives of the SFDR. 89% (272 out 
of 304 respondents) considered that the objective to strengthen transparency through sustainability-
related disclosures in the financial services sector  was still relevant.  In addition, 94% (276 out of 
294  respondents)  totally or  mostly  agreed  that  opting  for  a  disclosure  framework  at  the  EU  level 
was more effective than national measures at Member State level. 

However, a wide majority of respondents also highlighted key limitations of the framework such as 
lack  of  legal  clarity  regarding  key  concepts,  limited  relevance  of  certain  disclosure  requirements 
and  issues  linked  to  data  availability.  According  to  many  respondents,  these  limitations  had 
hindered the effectiveness and usability of the framework.  

Most notably, 84% (249 out  of 296) totally or mostly agreed that  the disclosures required by the 
SFDR  are  not  sufficiently  useful  to  investors,  and  82%  (247  out  of  301)  that  some  of  its 
requirements and concepts are not sufficiently clear. 88% (263 out of 299) totally or mostly agreed 
that data gaps  are making it challenging  for  FMPs and financial advisers to  cope with  the SFDR 
legal  requirements.  Most  respondents  agreed  that  these  limitations  are  currently  creating  legal 
uncertainty  (79%,  233  out  of  296)  and  posing  reputational  risks  for  FMPs  and  financial  advisers 
(80%, 237 out of 297) as well as risks of greenwashing and mis-selling (81%, 237 out of 294). In 
addition,  a  great  majority  (over  66%)  of  FMPs  and  financial  advisers  (over  66%)  considered  the 
current  interactions  between  principal  adverse  impact  (PAI)  product  and  entity  level  disclosures 
unclear. In particular, 80% of FMPs face methodological challenges with the requirement to ‘take 
account of ’the principal adverse impact (PAI) indicators established in the RTS at entity level for 
the ‘do no significant harm ’(DNSH) test at product level. In addition, 77% found it unclear how 
FMPs  should  approach  materiality  as  regards  these  PAI  indicators  in  the  context  of  product 
disclosures for DNSH.  

74 

 
 
 
 
 
When  asked  about  issues  surrounding  data  availability,  98%  (176  out  of  180)  of  FMPs  who 
responded  to  these  questions  said  they  faced  difficulties  in  obtaining  good-quality  data,  and  53% 
(90  out  of  171)  reported  engaging  to  a  very  large  or  large  extent  with  investee  companies  to 
encourage reporting of the missing data. When asked about the cost of disclosures, 58% (167 out of 
287) of total respondents answered that they did not consider it to be proportionate to the benefits 
generated.  This  figure  increases  to  71%  (133  out  of  186)  among  FMPs  and  6  financial  advisers. 
FMPs and financial advisers indicated that the main components of the costs of disclosures are the 
costs of personnel and of external advisory services. 

Finally, 83% of respondents (245 out of 296) totally or mostly agreed that the SFDR was not being 
used  solely  as  a  disclosure  framework  as  intended  but  also  as  a  labelling  and  marketing  tool  (in 
particular articles 8 and 9).  

As  a  result,  respondents  expressed  divided  opinions  regarding  the  extent  to  which  the  regulation 
had achieved its objectives during its first years of implementation. For example, A majority (62%, 
181  out  of  292)  said  the  SFDR  had  not  effectively  strengthened  protection  for  end  investors  or 
made it easier for them to compare financial products with sustainability claims. A slight majority 
(52%, 153 out  of 294) did  not  agree that it had successfully directed capital towards investments 
deemed sustainable, including transitional investments.  

The  PSF,  for  its  part,  made  in  its  Briefing  suggestions  to  improve  the  effectiveness  and  the 
understanding of ESG and sustainable investment products: to precisely align the product's name, 
its sustainability marketing claims, declared sustainability contributions, and the actual investment 
strategy;  that  the  reporting  on  sustainability  performance  should  cover  the  entire  product,  rather 
than  just  a  portion  of  it;  and  when  referencing  sustainable  economic  activities,  the  definitions  of 
environmentally sustainable investments to be exclusively derived from the Taxonomy. 

As  regards  the  interaction  with  other  sustainable  finance  legislation,  the  consultation  showed 
consensus  on  the  need  to  ensure  consistency  across  the  wider  Sustainable  Finance  framework: 
many  respondents  identified  problems  with  the  interactions  between  the  SFDR  and  the  EU 
Taxonomy, the Corporate Sustainability Reporting Directive (CSRD), the sustainability rules under 
MiFID  II  and  IDD  and  the  EU  Climate  Benchmarks.  These  respondents  stated  that  these 
misalignments  led  to  implementation  challenges  and  operational  costs  and  called  for  further 
improvement in the overall coherence of the wider framework. 

The ESAs, in their joint opinion, also concurred that the framework could be improved and that the 
disclosures  to  investors  in  the  SFDR  may  be  complex  by  nature  and  difficult  to  understand,  in 
particular for retail investors, as shown by two consumer testing exercises199. In addition, the ESAs 
also noted that, in  practice, disclosures had been used by financial market  participants  to  classify 
their  financial  products,  as  ‘Article  8’  or  ‘Article  9’  products  had  been  used  since  the  outset  in 
marketing  material  as  ‘quality  labels’  for  sustainability,  consequently  posing  greenwashing  and 
mis-selling risks.  

The study requested by the ECON Committee concurs with the view that investors, especially retail 
ones,  have  little  use  for  most  of  the  information  generated  under  the  SFDR.  The  disclosures  are 
complex and based on concepts  that are unfamiliar and unintuitive for them.  Moreover, investors 
would  be  unable  to  differentiate  the  types  of  funds  within  Article  8  or  Article  9  and  may  even 
struggle to differentiate Article 8 and Article 9 products. The study also recognizes that, while the 

199  The  latest  round  of  testing  in  the  context  of  the  Final  Report  on  draft  RTS  on  the  review  of  PAI  and  financial 
product  disclosures  in  the  SFDR  Delegated  Regulation  showed  that  respondents  found  the  SFDR  templates 
‘complicated and hard to read’ 

75 

 
 
 
 
SFDR was conceived as a disclosure regime, in practice it is used instead as a labelling scheme for 
products,  yet  with  no  binding  threshold  to  substantiate  the  claims,  leading  to  uncertainty  and 
making it hard for investors to assess the veracity of green claims. That, in turn, increases the risk 
of “greenwashing” and mis-selling, but also of “green bleaching”, i.e., when FMPs  choose not to 
claim environmental, social, and governance (ESG) features for their products to avoid extra costs 
and legal risks. 

The Study also noted inconsistencies between the SFDR and other Sustainable Finance legislation, 
signalling for instance inconsistencies with the Taxonomy Regulation, the Benchmarks Regulation 
exclusions and their relationship with the SFDR’s PAIs, or some problems with corporate reporting 
under the Corporate Sustainability Reporting  Directive (CSRD):  corporates and FMPs may differ 
about what “material” impacts must be reported, and corporates who struggle to comply with all the 
CSRD  data  points  may  have  little  incentive  to  produce  information  in  a  form  and  level  of  detail 
enough to let FMPs to comply with their own SFDR-based reporting.  

Feedback  from  the  call  for  evidence  very  much  reflected  the  previous  feedback  on  the  main 
limitations  of  the  SFDR.  The  key  limitations  mentioned  included  the  lack  of  clarity  of  the  main 
concepts (i.e. sustainable investment and principal adverse impact); the excessive complexity of the 
disclosure requirements, the gold-plating practices and the poor comparability across products. As a 
result, the large majority of responses to the call for evidence suggests that the review should aim at 
simplifying the framework and definitions, enhance legal certainty and supervisory harmonisation, 
improve data quality and focus on end-investor understanding. 

3.2.Changes to the disclosure requirements 

Entity level disclosures: 

In  the  consultation,  views  on  whether  the  SFDR  is  the  right  place  to  set  entity-level  disclosure 
requirements  for  FMPs  and  financial  advisers  were  split,  especially  across  the  different 
stakeholders  ’groups.  Most  FMPs  and  financial  advisers  responded  that  they  do  not  consider  the 
SFDR  the  right  place  to  include  entity-level  disclosures200,  while  a  majority  of  NGOs  expressed 
support for having such disclosures in the SFDR201. NCAs’ responses were split202. 

There  was  no  consensus  either  regarding  the  views  on  the  usefulness  of  the  three  sets  of  SFDR 
entity-level  disclosures.  Disclosures  concerning  sustainability  risk  policies  gathered  the  highest 
level of support, with 49% (138 out of 280) of respondents finding them ‘totally’ or ‘mostly’ useful, 
while 15% (41 out of 280) responded ‘not really’ or ‘not at all’. Opinions  were less definitive on 
disclosures  regarding  adverse  sustainability  impacts  (31%  in  support,  31%  against)  and 
remuneration policies (39% in support, 26% against).  

Those in favour of the existing set of entity-level disclosures stated that they can provide valuable 
information to investors and civil society, allowing them to assess the sustainability ambition of an 
FMP and serving as a tool against greenwashing. Those against argued that they are not appropriate 
or  useful  to  end-investors  investing  in  financial  products  and  reported  that  investors  rarely  seek 
aggregate sustainability-related information at the level of the FMP.  

200 52% (94 out of 182) responded ‘not at all’ or ‘not really’ and 21% (39 out of 182) responded ‘mostly’ or ‘totally’. 
The rest responded ‘partially’ or ‘don’t know’ 
201 19% (6 out of 32) responded ‘not at all’ or ‘not really’ and 59% (19 out of 32) responded ‘mostly’ or ‘totally’. The 
rest responded ‘partially’ or ‘don’t know’ 
202  29%  (4  out  of  14)  responded  ‘not  at  all’  or  ‘not  really’  and  36%  (5  out  of  14)  responded  ‘mostly’.  The  rest 
responded ‘partially’ or ‘don’t know’. 

76 

 
 
 
 
 
A  large  majority  of  respondents  called  for  these  disclosure  requirements  to  be  simplified  and 
streamlined across the sustainable finance framework. Many expressed concerns about a potential 
overlap between the transparency requirements on principal adverse impacts under the SFDR and 
the reporting obligations under the CSRD. 

The PSF in its Briefing recommended assessing to what extent the disclosure of Principal Adverse 
Impacts  (PAIs), at  an entity  level,  could  be integrated into CSRD/ESRS disclosures for Financial 
Market Participants (FMPs) that adhere to both regulations. The Platform believed that conducting 
a  review  of  the  effectiveness  of  various  requirements,  simplifying  them  and  prioritising  GHG 
emission reduction targets, progress reporting, taxonomy and transition plans would be beneficial. 

The large majority of the responses to the call for evidence supported the deletion of the entity-level 
disclosures.  Most  respondents  argued  that  end-investors  are  more  interested  in  product-related 
information and that entity level disclosures should only be mandated under the CSRD, as per the 
new  scope  proposed  by  the  omnibus.  However,  a  small  minority  was  in  favour  of  retaining  the 
entity-level  disclosures while streamlining them in  view of the reduction of data points under the 
CSRD.  

Product level disclosures:  

The  consultation  sought  stakeholder  views  on  potential  changes  to  the  product  level  disclosures, 
specifically  on  whether  the  framework  should  impose  uniform  requirements  for  all  or  for  some 
financial  products  (e.g.  products  whose  asset  under  management  exceed  a  certain  threshold  to  be 
defined,  or  products  intended  solely  for  retail  investors)  regardless  of  their  sustainability-related 
claims, and whether additional disclosure requirements should be required from financial products 
that  make  sustainability-related  claims.  56%  of  respondents  (161  out  of  288)  agreed  ‘to  a  very 
large’ or ‘large extent’ that the EU should impose uniform disclosure requirements for all financial 
products  offered  in  the  EU,  regardless  of  their  sustainability  claims.  31%  (88  out  of  288)  of 
respondents  expressed  the  opposite  view.  Supporters  of  this  measure,  which  were  present 
throughout all stakeholders’ groups (for example, 50% of FMPs and financial advisers support such 
disclosures), argued that it would enable a level playing field, avoiding that sustainable products are 
disadvantaged  by  more  reporting  burdens  and  costs.  Some  also  argued  that  it  would  enhance 
transparency and comparability, allowing investors to make better informed choices. Those against 
argued that it would impose unnecessary costs on products without sustainability claims and could 
confuse  investors  with  information  that  may  not  be  aligned  with  a  product’s  investment  strategy, 
raising  the  risk  of  greenwashing.  When  asked  about  what  these  disclosures  should  be,  a  large 
majority of respondents  answered that they should be restricted to  key meaningful indicators that 
are  comparable  across  different  markets  and  asset  classes  and  easily  understandable  for  retail 
investors.  Respondents  mostly  mentioned  climate,  diversity  and  human  rights  as  topics  to  be 
covered  by  the  disclosures.  Many  respondents  also  argued  that  metrics  on  transition  should  be 
added. Conversely, some respondents, mainly from the NGO sector, suggested that there should be 
a  comprehensive  set  of  disclosures  which  could  include  the  mandatory  PAIs,  alignment  with  the 
EU  Taxonomy,  percentage  of  investments  in  undertakings  with  a  science-based  transition  plan, 
exclusions and engagement.  

In  the  consultation  it  was  shown  that  there  was  less  support  for  imposing  uniform  disclosure 
requirements  for  some  financial  products,  regardless  of  their  sustainability  related  claims  (e.g. 
products  whose  assets  under  management  exceed  a  certain  threshold  to  be  defined,  or  products 
intended solely for retail investors), with 62% (172 out of 277) of respondents not agreeing at all, or 
only  agreeing  to  a  limited  extent.  The  distribution  of  responses  is  similar  across  all  stakeholder 
groups.  Most  respondents  expressed  concerns  that  it  would  make  sustainability  performance 

77 

 
 
 
comparison  impossible  and  would  make  the  disclosure  framework  more  complex  and  confusing. 
Many have also  flagged  that it would be challenging  to  define a subset of financial products  that 
would need to fall within the scope of these disclosures. 

Additionally,  55%  (152  out  of  274)  of  respondents  agreed  that  products  making  sustainability 
claims  should  provide  additional  disclosures  to  support  their  claims  to  ensure  credibility  and 
prevent  greenwashing.  While  there  was  no  clear  consensus  about  what  these  qualitative  and 
quantitative disclosures should be, the most cited ones include: sustainability objectives, sustainable 
investment  strategy  and  associated  binding  and  measurable  KPIs,  minimum  standards  of  good 
governance,  percentage  of  sustainable  investments  and  Taxonomy-alignment,  decarbonisation 
targets,  percentage  of  undertakings  having  a  transition  plan,  applied  exclusions,  engagement  and 
voting policies and PAIs. Some respondents argued that such disclosures should be set in a flexible 
manner  to  align  with  diverse  product  investment  strategies  and  to  accommodate  innovation  and 
evolving market standards. On the other hand, others were of the view that these disclosures should 
be set by the regulators and be identical for all financial products with sustainability claims.  

Lastly, many respondents stressed the importance of aligning these disclosures with potential future 
product categories and minimum criteria under the revised SFDR framework and argued that any 
changes to the SFDR disclosures would need to be reflected in the MiFID and IDD sustainability 
preferences rules. 

On  the  other  hand,  the  PSF  in  its  Briefing  in  December  2023  underlined  the  importance  of  PAI 
disclosure  on  product  level,  in  particular  for  products  that  consider  PAIs  under  Article  7  of  the 
SFDR.  

The  Platform  also  proposed  a  streamlined  approach  to  disclosures,  recommending  a  set  of  pre-
contractual disclosures and a single set of periodic reporting disclosures.  
Disclosures  should  focus  on  key  information,  accommodating  multi-option  products  by  utilising 
website disclosure for additional details, such as individual PAI indicators.  
The  Platform  envisioned  the  integration  of  the  Taxonomy  into  the  periodic  reporting  of  any 
financial product in the future.  
Over  the  long  term,  the  Platform  advocated  mandatory  minimum  ESG  reporting  requirements, 
including GHG emissions and the Taxonomy, across all financial products.  

Lastly,  the  Platform  underscored  the  importance  of  distinguishing  between  pre-contractual 
commitments and periodic reporting, claiming that the former entails product restrictions while the 
latter provides information on the current investments of the product. 

As  regards  the  ESAs,  in  their  joint  Opinion  published  in  June  2024  they  recommended  the 
Commission  to  ensure  that  sustainability  disclosures  catered  to  different  investor  needs,  and 
improvements  in  sustainability  disclosures  took  into  account  different  distribution  channels, 
including digital ones, and ensured consistency of information provided. The Commission should 
prioritise  only  essential  information  for  retail  investors  while  professional  investors  may  benefit 
from  more  detailed  information.  The  ESAs  encouraged  the  Commission  to  carefully  reflect  on 
whether  to  include  other  products  in  the  SFDR  scope  to  ensure  harmonised  disclosures  for  both 
products  currently  in  the  scope  of  SFDR  and  any  other  products  that  could  be  brought  into  the 
scope.  Furthermore,  information  on  key  adverse  impact  indicators  could  be  considered  for  all 
financial products, based on a cost-benefit analysis justifying the introduction of such requirement; 
and the ESAs also suggested that the Commission could evaluate the introduction of a framework 
to  assess  the  sustainability  features  of  government  bonds,  taking  into  account  the  specificities  of 
that asset class. 

78 

 
 
 
For its part, the Study requested by the ECON Committee considers that SFDR disclosures should 
work  seamlessly  with  other  disclosure  rules.  In  general,  the  information  pipeline  (including 
corporate  reporting  under  the  CSRD,  indexes  under  the  Benchmarks  Regulation,  and  reporting 
under  the  SFDR)  needs  to  be  streamlined.  A  more  widespread  reporting  of  PAIs,  covering  more 
products, is needed, but calibrated between sustainable or impact products, transition products, and 
general products with no sustainability features. The Study claims that the streamlining of rules and 
the expansion of their scope, would derive considerable benefit from more emphasis, in parallel, on 
FMPs’  methodologies,  technology  and  tools  to  process  the  information.  Authorities  that  play  a 
constructive  role  in  developing  such  methodologies  and  tools  could  be  more  prescriptive  in  their 
expectations, while reducing  (some)  FMPs’ dependence on  “infomediaries”, regulated (index and 
ESG Ratings providers) or not (e.g., other data providers).  

The  call  for  evidence  signalled  that  a  large  majority  of  stakeholders  across  the  board  welcome 
considerable  simplifications  to  product  level  disclosures  (for  example  by  limiting  the  number  of 
pages for the pre-contractual document to 2 to 3 pages), focusing on key information for investors 
regarding  e.g.  the  potential  classification  of  a  product  and  adherence  to  associated  criteria  (see 
below), its main sustainability-linked objectives and strategy, and KPIs for measuring performance. 
In  addition,  most  respondents  stressed  the  need  to  add  a  reference  to  the  category  in  the  PRIIPs 
KIID.  Most  respondents  also  indicated  that  disclosures  of  sustainability  risks  remain  useful, 
including for products currently falling under Article 6 (i.e. or non-categorised products). 

3.3.Categorisation for financial products 

In the consultation, strong support for a voluntary categorisation system regulated at the EU level 
was expressed: a large majority of respondents (72%, 205 out of 284) totally or mostly disagreed 
with the idea that simply disclosing sustainability information  was enough, indicating the need to 
set up an EU categorisation system for financial products. While the distribution of responses was 
similar  across  different  stakeholder  groups,  respondents  belonging  to  or  representing  the  three 
financial services sectors (insurance, asset management and banking sector) had a slightly different 
view as regards the benefits of product categories for investors: 42% (11 out of 26) of respondents 
belonging  to  or  representing  the  insurance  sector  totally  or  mostly  agree  that  a  categorisation 
system would improve understanding among professional investors, compared to 73% (104 out of 
143) and 76% (13 out of 17) in the asset management and banking sectors, respectively. Similarly, 
50% (13 out of 26) of the insurance sector respondents believed a categorisation system would help 
retail investors, compared to 84% (120 out of 143) and 76% (13 out of 17) in the asset management 
and banking sectors, respectively.  

61% (163 out of 268) of respondents agreed that the SFDR is the appropriate legal instrument to 
deal  with  the  accuracy  and  fairness  of  marketing  communications  and  the  use  of  sustainability 
related names for financial products, 19% (51 out of 268) disagreed and the remainder were unsure. 
In addition, 69% (192 out of 279) of respondents totally or mostly agreed that the introduction of 
product categories should be accompanied by specific rules on how market participants must label 
and  communicate  on  their  products.  Several  stakeholders  raised  timing  concerns  regarding  the 
ESMA  guidelines  for  fund  names  and  the  regulatory  coherence  with  a  potential  new  product 
categorisation system. 

The  consultation  asked  about  two  proposed  approaches  to  a  potential  EU  categorisation  system: 
whether such categories should be based on new criteria (not related to existing concepts under the 
SFDR) (approach 1), or if Articles 8 and 9 should be converted into formal product categories by 
clarifying  and  adding  criteria  to  support  the  already  existing  concepts  (approach  2).  Respondents 
showed no clear preference:  results indicated a slight  preference for the  first  approach, with  50% 
(145  out  of  293)  of  respondents  totally  or  mostly  agreeing  and  23%  (66  out  of  293)  totally  or 

79 

 
 
 
mostly disagreeing. The distribution of responses varied among the different types of respondents. 
Notably,  the  majority  of  respondents  belonging  or  representing  NCAs  and  the  asset  management 
sector  supported  the  approach  1,  while  most  respondents  from  the  insurance  sector  strongly 
disagreed with it and favoured an approach based on existing concepts. The views of respondents 
representing the banking sector were divided. The majority of respondents in favour of approach 1 
highlighted the limitations in the current framework and argued that the existing concepts could not 
cater for, or differentiate between, the wide range of ESG strategies in the market. Many also stated 
that the current terms were not adequate for retail investors. They also argued that new categories 
could allow for a potential alignment with other national regimes. Conversely, most respondents in 
favour  of  approach  2  argued  that  the  SFDR  already  provided  the  necessary  elements  for 
sustainability assessments and disclosures and expressed concerns about regulatory stability and the 
associated costs of switching to a different system, which would be transferred to end-investors. 

Despite diverging views on the approach to be taken, many respondents indicated that they would 
support  a  hybrid  approach  combining  established  SFDR  concepts  with  a  voluntary  categorisation 
framework.  Irrespective  of  the  chosen  approach,  most  respondents  emphasised  the  importance  of 
the  categories  being  focused  on  retail  investors,  incorporating  international  frameworks,  and 
leveraging existing national labels. 

Although  opinions  differed  on  the  approach  to  be  taken,  commonly  agreed  principles  for  the 
categories  and  underlying  criteria  emerged  among  respondents:  (1)  Retail  investors-focused:  A 
large majority of respondents stressed the importance of categories being easily understandable by 
retail investors. They called for simple and comparable disclosures to help retail investors grasp the 
products’ investment goals, strategies used to achieve them, and ESG performance monitoring. (2) 
International  dimension:  While  acknowledging 
third  countries’ 
categorisation systems may not be feasible, most respondents urged the European approach to allow 
for  international  applicability.  (3)  Integrating  the  concept  of  transition  finance:  There  is 
overwhelming  support  (72%  of  respondents)  for  creating  a  specific  category  for  products  with  a 
transition focus, aiming to improve the sustainability profile of the assets they invest in. (4) Asset-
neutral  criteria:  Respondents  highlighted  the  need  for  underlying  criteria  to  be  asset-neutral  and 
applicable to all types of financial products. 

that  full  alignment  with 

The  Platform  also  advocated  in  its  first  Briefing  in  December  2023  for  the  introduction  of  a 
common  categorisation  scheme  to  address  the  existing  fragmentation  and  confusion  in  the 
European market. The Platform suggested that such categorisation:  

•  Should be structured in such a way to be easily understood by retail investors and used to 

address sustainability preferences.  

•  Should avoid the impression that one product’s processes are ranked better than another’s 
(e.g. 'best in class’ better than 'engagement' or vice versa), whereas a ranking according to 
the  extent  of  transparency  (e.g.  Article  9  or  8)  appeared  suitable  from  a  precautionary 
principle perspective. 

•  Should only be based on a thorough analysis of the intended use, how to ensure clarity of 
categorisation, proper evaluation of the impact of such categorisation as well as an analysis 
whether it should be mandatory or optional. In addition, it should be analysed whether the 
categorisation should be based on committed elements or actual elements of a product. 

The ESAs, in  their joint Opinion,  made some recommendations to  the Commission  regarding the 
potential  categorisation  of  financial  products.  In  this  vein,  the  Commission  could  consider  the 
introduction of a product classification system based on regulatory categories and/or sustainability 

80 

 
 
 
indicator(s)203 to help consumers navigate the broad selection of sustainable products and support 
the  full  transition  to  sustainable  finance.  The  categories  should  be  simple  with  clear  objective 
criteria  or  thresholds  to  identify  which  category  the  product  falls  into.  The  ESAs  encouraged,  at 
least, categories of ‘sustainability’ and ‘transition’. The options for product categorisation and /or 
sustainability  indicator(s)  should  be  consumer  tested  and  consulted  on.  With  clear  product 
categories  and/or  sustainability  indicator(s),  sustainability  disclosures  would  not  need  to  be  as 
detailed and extensive. 

In the Study requested by the ECON Committee, the authors concur that product names, categories 
or “labels” are useful. However, they believe that article 8 and article 9 should not be transformed 
into categories, as they are too complex and unintuitive for investors. Instead, a new system, with 
new categories should be established. In light of investor preferences, market structure, and policy 
priorities, they consider that the new categories should include “impact” products and “transition” 
(in the sense of transition facilitating) products. The inclusion of “transition” products would make 
it possible for investors to choose products that, while not making investments that are sustainable, 
have  a  clear  aim  to  bring  measurable  improvements  to  the  sustainability  profile  of  the  assets 
invested  in.  Furthermore,  a  “sustainable”  products  category,  though  promising  would  need  more 
precision.  Clearer  product  categories  would  make  the  information  more  usable  for  investors, 
helping with both “greenwashing” and “green bleaching”, under certain conditions. First, all these 
categories  should  be  based  on  consumer  testing,  both  beforehand  and  ex  post,  to  ensure  that  the 
categories  work  as  intended.  Second,  products  “names”  need  to  be  considered  together  with 
mechanisms that ensure measurability and accountability. Third, there should be more emphasis on 
market analysis, to ensure that the categories encompass a sufficiently large part of the market, and 
to track whether they help FMPs improve their sustainability features. 

The  Platform  on  Sustainable  Finance  (PSF),  in  its  second  Briefing  presented  in  December  2024, 
strongly supported establishing a categorisation scheme that benefitted retail investors, and  which 
would  be  usable  for  all  investors.  The  proposal  took  consideration  of  the  need  for  a  smooth 
transition  from  the  existing  disclosure  regime.  The  Platform  recommended  categorising  products 
with the following sustainability strategies:  

•  Sustainable:  Contributions 

Investments  or  Sustainable 
through  Taxonomy-aligned 
Investments  with  no  significant  harmful  activities,  or  assets  based  on  a  more  concise 
definition consistent with the EU Taxonomy. 

•  Transition: Investments or portfolios supporting the transition to net zero and a sustainable 
the  European  Commission's 
in 

economy,  avoiding  carbon 
recommendations on facilitating finance for the transition to a sustainable economy.  

line  with 

lock-ins, 

•  ESG  collection:  Excluding  significantly  harmful  investments/activities,  investing  in  assets 
with better environmental and/or social criteria or applying various sustainability features.  

All other products would be identified as unclassified products.  

The PSF argued that the proposal, to be effective, requires aligning sustainability preferences with 
the categories. Investors  and advisors should easily identify the products that match sustainability 
preferences, supported by mandatory disclosures that facilitate the alignment. The categorisation of 
products should reflect the sustainability strategy employed in constructing each financial product. 

The Platform  recommended  evaluating  whether the scope of the categorisation should go beyond 
the current SFDR, considering whether all products and services under sustainability preferences in 

203  A  sustainability  indicator  could  refer  to  environmental  sustainability,  social  sustainability  or  both,  illustrating  to 
investors the sustainability features of a product in a scale 

81 

 
 
 
 
IDD/MiFID should be categorised. Furthermore, the Platform recommended to develop a common 
understanding on impact investing in the EU sustainable finance framework and how it relates to 
the  EU  Taxonomy  (Taxonomy)  and,  subsequently,  determine  how  to  integrate  it  in  the 
categorisation scheme.  

The categorisation scheme should be grounded in the sustainability strategy of the financial product 
and align with an investor's values or impact objectives. Investors' sustainability values should be 
identified through their preferences, enabling a clear match with available products. Pre-contractual 
product disclosures would assist in identifying suitable options, while regular reporting should keep 
investors  informed  about  the  sustainability  performance  of  their  chosen  products.  All  types  of 
products  and  services  relevant  for  IDD/MiFID  sustainability  preferences  should  be  able  to  be 
classified within the scheme. Furthermore, investment  options that today do not  fall under SFDR 
should  be  able  to  demonstrate  that  they  fulfil  the  category  criteria  and  are  then  classified 
accordingly. 

Categories should have precise minimum criteria, clearly defined objectives, and measurable KPIs. 
Products within these categories should measure and disclose their sustainability performance.  

The PSF argued that the categorisation scheme proposed addressed SFDR disclosure issues such as 
the challenges related to inappropriate use of SFDR disclosure requirements. It aims at mitigating 
fragmentation  due  to  varying  national  labelling  regimes  and  different  interpretations  by  National 
Competent  Authorities  (NCAs),  auditors,  and  lawyers.  The  scheme  should  facilitate  investment 
flows and sustainable economic growth by preventing fragmentation, which affects the passporting 
regime for investment products.  

The PSF acknowledged that the proposal remained high-level, but it should serve as a basis from 
which  to  build  a  complete  and  detailed  categorisation  scheme.  The  proposal  requires  further 
development to define or refine thresholds based on real world testing. 

The  call  for  evidence  confirmed  a  very  large  support  for  creating  categories.  Most  respondents 
expressed support for creating 3 categories (sustainable, transition, and other ESG), while a small 
minority  preferred  2  categories  (sustainable  and  transition).  A  small  portion  of  stakeholders  also 
expressed  interest  for  a  standalone  impact  category,  while  acknowledging  that  impact  products 
could  also  fall under the sustainable or transition  category  and disclose how they conduct  impact 
investing.  

The responses to the call for evidence also showed a general agreement regarding the need to align 
the criteria with the ESMA guidelines (i.e. the PAB and CTB  exclusions). Many have also urged 
the  Commission  to  ensure  that  the  criteria  will  be  adapted  to  all  types  of  asset  classes,  while 
underlying that certain  assets classes  (such  as derivatives, real  estates and sovereigns) and  facing 
considering challenges under the current rules. Stakeholders from the insurance and pension sectors 
have urged to ensure that the criteria would fit their sectoral specificities.  

Finally, a majority of respondents called for due consideration of the changes expected under the 
omnibus proposals, and the need to reflect potential categories in product distribution rules namely 
under MiFID and IDD.   

82 

 
 
 
 
 
 
ANNEX 3: WHO IS AFFECTED AND HOW? 

1.  Practical implications of the initiative 

This  initiative  addresses  the  following  problem  drivers  identified  in  the  evaluation  and  problem 
definition:  

•  Unclear lengthy and complex disclosure requirements and ESG concepts 
•  Misalignments and duplication with other sustainable finance rules 
•  Lack of ESG data and insufficient guidance of estimations 
•  Disclosure articles (Art. 8 and 9) used as categorisation while not being fit for that purpose 

It intends to address those problems by the following combination of preferred options:  

•  Option 1.2: Deletion of entity-level disclosures 
•  Option 2.2: Significantly reduce product-level disclosures 
•  Option 3.1: introduction of categorisation system with 3 categories (sustainable, transition 

and other ESG). 

This initiative will have impacts on the following groups of stakeholders:  

•  Financial  market  participants  (including  SMEs):  are  bearing  the  cost  of  implementing  the 
SFDR as well as potential future policy options to further develop the SFDR framework. A 
significant share of financial market participants are SMEs. 

•  Non-financial  businesses:  can  benefit  from  the  SFDR  provisions  if  they  are  performing 
activities that are classified as sustainable or not harmful from an environmental, social or 
governance  perspective  and  can  have  easier  access  to  finance  by  disclosing  sustainability 
information. 

•  Citizens:  Would  benefit  from  the  SFDR  revision  by  receiving  in  the  future  sustainability 
information for financial products in a simpler format giving higher transparency, a clearer 
and  more  visible  differentiation  and  assuring  minimum  quality  standards  by  introducing 
safeguards  that  should  mitigate  greenwashing  risks,  increase  trust  and  confidence  in  such 
products. 

•  Public administrations will have one-off efforts to familiarise themselves with the updated 
SFDR rules. These largely follow market practices in the wake of the ESMA guidelines and 
are they are expected to benefit in the long-term from clearer rules and simpler disclosures. 

83 

 
 
 
 
 
 
2. 

Summary of costs and benefits 

Table 1: Overview of costs and benefits identified in the evaluation 

Measure 

BR  Type 
of cost or 
benefit* 

Group 
Affected** 

Frequency  Amount 

Description 

Requirement 
publish 
to 
entity 
level 
disclosures 

Direct 
benefit 

Direct 
admini-
strative 
costs  

Citizens 
that are 
retail 
investors 
and 
Businesses 
acting as 
professional 
investors 

Recurrent 

qualitative 

Small 
Businesses 

One-off  

€70m 

Large 
Businesses 

One-off  

Small 
Businesses 

Large 
Businesses 

Recurrent  

Recurrent 

€50m 

€43m 

€13m 

are 

Citizens 
that 
retail 
investors 
and 
Businesses 
as 
acting 
professional 
investors 

Direct 
benefit 

Requirement 
to 
publish 
product level 
disclosures 

Recurrent 

qualitative 

Direct 
admini-
strative 
costs  

Small 
Businesses 

One-off  

€200m 

Large 
Businesses 

One-off  

€180m 

84 

Entity-level disclosures of FMPs provide 
information on their policies on integrating 
sustainability risks, how they consider principal 
adverse impacts on sustainability factors, and 
how their remuneration policies align with 
sustainability objectives. This can help investors 
to choose products from those FMPs that align 
best with their sustainability preferences. 
Professional investors benefit from the ability to 
perform due diligence and select partners or 
products that align with their clients’ ESG 
mandates or their own institutional policies 

Internal  Personnel,  IT 
external  advice 
implement entity-level disclosures 

implementation  and 
familiarise  with  and 

to 

Internal  Personnel,  IT 
external  advice 
implement entity-level disclosures 

implementation  and 
familiarise  with  and 

to 

Ongoing  annual  internal  and  external  cost  to 
maintain entity-level disclosures  

Ongoing  annual  internal  and  external  cost  to 
maintain entity-level disclosures 

their 

investments  with 

financial 
risks, 
impacts, 

product 
considers 
and 

Product-level  disclosures  provide  detailed, 
information according to common parameters on 
integrates 
how 
each 
adverse 
sustainability 
sustainability 
aligns  with 
environmental  or  social  objectives.  Retail 
investors  can  use  product-level  disclosures  to 
personal 
match 
sustainability  goals,  focusing  on  the  specific 
ESG  characteristics  or  objectives  of  each 
product.  Professional  investors  benefit  from  the 
granularity  of  data  to  conduct  due  diligence, 
tailor  investment  strategies,  and  meet  client 
mandates.  Product-level disclosures provide the 
most 
investment 
information 
decisions,  as  retail  investors  typically  invest  in 
individual  products  rather  than  at  the  entity 
level.  The  disclosures  include  pre-contractual 
and  periodic 
investors 
monitor investments over time. 

information,  helping 

relevant 

for 

Internal  Personnel,  IT 
external  advice 
implement entity-level disclosures 

implementation  and 
familiarise  with  and 

to 

Internal  Personnel,  IT 
external  advice 

to 

implementation  and 
familiarise  with  and 

 
 
 
 
Measure 

BR  Type 
of cost or 
benefit* 

Group 
Affected** 

Frequency  Amount 

Description 

implement entity-level disclosures 

Recurrent  

€120m 

Ongoing  annual  internal  and  external  cost  to 
maintain product-level disclosures  

Recurrent 

€70m 

Ongoing  annual  internal  and  external  cost  to 
maintain product-level disclosures 

Recurrent 

Supervision ensures that FMPs comply with the 
SFDR,  which  strengthens  accountability for  the 
claims  made  about  sustainability.  Effective 
supervision makes it harder for firms to engage 
in greenwashing 

Direct 
benefit 

Supervise 
entity 
and 
product level 
disclosures 

Small 
Businesses 

Large 
Businesses 

are 

Citizens 
that 
retail 
investors 
and 
Businesses 
acting 
as 
professional 
investors 

Direct 
adjustment 
costs 

Admini-
strations 

Direct 
adjustment 
costs 

Admini-
strations 

One-off  

Not 
quantified 

Recurrent   Not 

quantified 

Costs  for  supervisors  and  NCAs  to  familiarise 
themselves  with  the  new  rules  and  implement 
new  procedures  (e.g.  processes,  IT-systems, 
databases) 

to 

Costs  for  ongoing  administrative  procedures 
linked 
the  SFDR. 
the  supervision  of 
According  to  the  most  recent  Greenwashing 
reports  of  ESMA,  about  80  FTEs  are  allocated 
to sustainability matters in NCAs that deal with 
market supervision of issuers and about 92 FTEs 
to supervisory and regulatory activities linked to 
investment  management204.  EBA  determined 
that  the  competent  authorities  (CA)  in  banking 
allocated only limited resources to sustainability 
issues with 9 CAs out of 30 with 3 or more FTE; 
13  two  or  less;  and  9  with  no  resources  or  no 
information205. EIOPA reports about 30 FTEs in 
total  that  are  performing  sustainability-related 
tasks.206-   

204 ESMA (June 2024): Final Report on Greenwashing: ESMA36-287652198-2699 
205 EBA  (September 2024):  Report on greenwashing monitoring and supervision.pdf and EBA (May 2023):  progress 
report on greewnwashing.pdf. 
206 EIOPA(June 2024): Advice to the European Commission on greenwashing risks and the supervision of sustainable 
finance policies 

85 

 
 
 
 
 
 
 
 
 
 
 
 
–  I. Overview of Benefits (total for all provisions) – Preferred Option 

–  Measure 

–  Group 
affected 

–  Frequency 

–  Direct benefits 

–  Amount 

–  Comments 

–  Combination 

all 

of 
preferred 
options 

–  Combination 

all 

of 
preferred 
options 

–  Small 

Business
es 

–  Large 

Business
es 

–  Recurrent  

–  -€60m 

–  Recurrent 

–  -€30m 

–  Combination 

– 

– 

–  Indirect benefits 

preferred 

of 
options:  

1)  Abolish entity level 

–  qualitative 
– 

Product 

disclosures  
2)  Significantly 
reduce 
level disclosures 
Introduce 
categorisation 
system  with 
categories 

3) 

3 

86 

–  Details 

see 
section  3.10 
below. 

–  Details 

see 
section  3.10 
below. 

–  FMP 

(preparer 
perspective)
:  
–  Reduce 

the 

sustainability-
related 
administrative 
requirements 
complexity 

and 

–  Boost 

the 
competitiveness  of 
Europe’s 
financial 
sector  by  ensuring 
conditions  which 
make 
business 
easier  and  help  to 
deepen  our  single 
market 
for 
sustainability-linked 
financial products 
–  End-

–  Improve 

investor 
and 
distributor 
(user 
perspective): 
end-
investors’  ability  to 
understand 
and 
compare 
sustainability-linked 
financial products 

–  Facilitate 

distribution 
the 
chain 

along 
investment 

–  Increase consumers’ 
in 
confidence 
products 
financial 
with 
sustainability 
claims  by  setting 
minimum  standards 
the 
line  with 
(in 
applicable  ESMA 

 
 
 
 
 
 
guidelines  on  funds 
names) 

Estimates  are  gross  values  relative  to  the  baseline  for  the  preferred  option  as  a  whole  (i.e.  the  impact  of  individual 
actions/obligations of the preferred option are aggregated together);  

•  II. Overview of costs – Preferred option 

• 

•  Citizens/Consumers 

•  Businesses 

•  Administrations 

•  One-off  •  Recurre

•  One-off 

•  Recurrent  •  One-off  •  Recurre

nt 

•  none 

•  none 

•  none 

•  none 

nt  

•  mixed208 

•  Effort 
linked 
to 
familiar
isation
207 

•  none 

•  none 

•  €€74m 

• 

-€90m 

•  none 

•  none 

•  none 

•  none 

•  none 

•  none 

•  none 

•  none 

•  Actio
n (a)   

•  Direct 

adjustment 
costs 

•  Direct 

administrativ
e costs 

•  Direct 

regulatory 
fees and 
charges 

207 Public administrations surveyed expect for the abolishment of entity-level disclosures no or limited additional effort 
(mainly to understand the new requirement), for the simplification of product level disclosures about 0.1-2 additional 
FTE  in  the  first  year  and  about  the  same  additional  FTE  for  the  introduction  of  a  product  categories  in  year  1  to 
familiarise themselves with the new regulation and perform the required adaptation.  
208 The replies of authorities were mixed, many authorities could not assess the long-term consequences without seeing 
the final proposal, some authorities saw a long-term potential of saving effort up to 30% provided that the legal clarity, 
simplicity and objectivity will increase and ambiguity decrease; some authorities expected additional effort, e.g. due to 
the approval process of funds under the new regime. 

87 

 
 
 
 
 
 
 
 
 
 
•  II. Overview of costs – Preferred option 

• 

•  Citizens/Consumers 

•  Businesses 

•  Administrations 

•  One-off  •  Recurre

•  One-off 

•  Recurrent  •  One-off  •  Recurre

nt 

nt  

•  none 

•  none 

•  none 

•  none 

•  none 

•  none 

•  Direct 

enforcement 
costs 

• 

Indirect costs  •  none 

•  none 

•  none 

•  none 

•  none 

•  none 

* The EUR 74 million is the annualised value of one-off costs amounting in total to EUR 630 million (subject to the 
caveats in Table 3 of section 3.10), assuming that a loan has been issued to finance the one-off burden over a period of 
10 years and an interest rate of 3%. 

88 

 
 
 
 
 
 
 
III. Application of the ‘one in, one out’ approach – Preferred option(s) 

One-off 

Recurrent 

Total 

[M€] 

(annualised total net present 
value over the relevant period) 

(nominal values per year) 

Businesses 

New administrative 
burdens (INs) 

Removed administrative 
burdens (OUTs) 

Net administrative 
burdens* 

Adjustment costs** 

New administrative 
burdens (INs) 

Removed administrative 
burdens (OUTs) 

Net administrative 
burdens* 

Adjustment costs** 

Total administrative 
burdens*** 

€74m 

€0m 

€74m 

€0m 

€0m 

€0m 

€0m 

€0m 

Citizens 

€24m 

-€110m 

-€86m 

€0m 

€0m 

€0m 

€0m 

€0m 

€98m 

-€110m 

-€12m 

€0m 

€0m 

€0m 

-€12m 

(*) Net administrative burdens = INs – OUTs;  
(**)  Adjustment  costs  falling  under  the  scope  of  the  OIOO  approach  are  the  same  as  reported  in  Table  2  above.  Non-
annualised values;  
(***) Total administrative burdens = Net administrative burdens for businesses + net administrative burdens for citizens. 

89 

 
 
 
 
 
 
 
 
 
 
Details on the costs and benefits 

1.  Description of the EU funds market 

The  SFDR  seeks  to  harmonize  existing  provisions  on  disclosures  to  investors  in  relation  to 
sustainability-related  disclosures  by  imposing  requirements  on  financial  market  participants 
(“FMP”,  e.g.  AIFMs  and  UCITS  management  companies  and  investment  firms  carrying  out 
portfolio  management)  and  financial  advisers  (“FA”,  firms  authorized  under  MiFID  to  give 
investment advice and credit institutions) in relation to financial products (e.g. AIFs, UCITS). The 
SFDR  requires  an  enhanced  level  of  disclosure.  The  nature  and  extent  of  these  disclosure 
requirements under the regulation depend on the characteristics of products. 

The  table  below  summarises  the  estimated  number  of  entities  affected  by  the  SFDR  and  their 
product volume. It is decomposed into the insurance & pension funds, banks and investment firms 
and investment  fund sectors. For the product  volume of those sectors, it is  important  to  note that 
there are overlaps as insurance companies, investment firms as well as banks can invest into funds 
shares/units and/or provide asset management services. According to EFAMA the total volume of 
Assets under Management in the scope of SFDR is estimated at about EUR 16 trillion (end 2023), 
of which about EUR 12 trillion are reported in the database Morningstar that serves as the universe 
of assets, for which information on the fund volume and SFDR classification was available. 

Sector 

Types of entities 

Insur-
ance 

Insurance 
companies making 
available IBIPs 

Total 
CEPS
209 
(2020) 
778 

Update
d  value 
(2025) 

772 

5 669 

5 5902 

Estimated product volume 

o/w in Morningstar 

linked 

CIU  Investment  from  in  unit-or 
index 
contracts: 
EUR 1.5 trn4 
CIU  investment  from  profit-linked 
contract EUR 1:5 trn4 
Consolidated asset value IORPS 
EUR 2.7 trn  

CIU  Investment  from  in  unit-or  index 
linked contracts: EUR 1.1 trn4  (75,9%) 
CIU 
contract EUR 0.3 trn4 (18,9%) 

profit-linked 

investment 

from 

EUR 0.5 trn (17,9%)  

for 

Institutions 
occupational 
retirement 
provisions - IORPs 
Credit  Institutions 
providing  Portfolio 
Management 

2 137 

Investment Firms  

5 778 

Banks 

Invest
ment 
firms 
Invest
ment 
funds 

NA 

- 

- 

- 

4.2 

EUR 11.1 trn3 AuM (managed 
by 201 entities) 
trn3  Customer 
EUR 
resources  distributed  but  not 
managed (153 entities) 
EUR 0.82 trn3 (overseen by 60 
entities) 

236  
(conso-
lidating 
entities 
with 
several 
activi-
ties) 
5 9231 

Alternative 
investment  funds  - 
AIF 

1 987 

3 1121 

investment  funds 

Assets  of 
in 
scope of the SFDR are estimated at 
about EUR 16 trillion (End 2023).6 

trn  of  alternative 
About  EUR  0.9 
funds 
investment 
in 
including  3 950  products 
Morningstar 
from at least 279 issuers.   

shown 

are 

capital 

Venture 
funds - EuVECA 
Social 
neurship 
EuSEF 
UCITS  

entrepre-
- 
funds 

115 

3871 

6 

161 

1 139 

1 3301 

About  EUR  12  trn  of  UCITS  are  shown 
in Morningstar inc. 25 690 products from 

209 Study on the Non-Financial Reporting Directive – CEPS  

90 

 
 
 
 
 
 
 
 
 
Sector 

Types of entities 

Total 
CEPS
209 
(2020) 

Update
d  value 
(2025) 

Estimated product volume 

o/w in Morningstar 

Total 

17 609 

17 544 

Product  volume  not  additive  due 
to overlaps in the financial sector 

at least 871 issuers. 8 

Notes to the table: 
1 
2 
3 
4 

https://registers.esma.europa.eu/publication/searchRegister?core=esma_registers_upreg 
https://register.eiopa.europa.eu/registers/register-of-insurance-undertakings 
EBA FINREP data as off Q1 2025. FINREP data is available to EBA only for institutions preparing consolidated accounts.  
EIOPA  (2024):  Advice  to  the  European  Commission  on  greenwashing  risks  and  the  supervision  of  sustainable  finance 
policies https://www.eiopa.europa.eu/document/download/4de6b580-521d-4ad0-af83-2ecf133abdf4_en?filename=EIOPA-
BoS-25-016_EIOPA%20IORPs%20in%20focus%20report%202024.pdf 
EFAMA Quarterly Statistical Release Q4 2024: quarterly-statistical-release-q4-2024.pdf 
EFAMA  Asset  Management  Report  2024.  The  product  volume  estimated  for  EU  investment  firms  includes  also 
investment volumes managed on behalf of banks and insurers that are clients of those investment firms. Exhibit 1.2 
EFAMA Market Insights – The European ESG Market At End Q1 2021 – Introducing the SFDR 
According  to  Morningstar  and  other  independent  sources  Morningstar  has  the  most  comprehensive  data  collection  of 
UCITS funds in the market. 

5 
6  

7 
8 

Products that have met certain ESG criteria with respect to the investment process or objective may 
be disclosed under Article 8 (often referred to as ‘light green’ products) or Article 9 (‘dark green’ 
products).  All  products  which  do  not  meet  these  criteria  are  disclosed  under  Article  6,  and  often 
considered as ‘other’ products.  

1.  Article 8 products consider or promote environmental or social characteristics in the pursuit 

of other financial objectives.  

2.  Article 9 products seek to make a positive impact on society or the environment through 

sustainable investment and have a non-financial objective at the core of their offering.  

The following graph shows the evolution of Article 8, Article 9 and other funds since Q2 2021. 

Source: Morningstar 

Historical development: The total market size for EU funds is fluctuating around EUR 9.1 trillion 
since Q2 2021 with Art. 8 Funds averaging EUR 5.2 trillion (57%), Art. 9 funds 0.3  trillion (3%) 
and other 3.6 trillion (40%). 

91 

 
 
 
 
 
 
2. Benefits linked to the SFDR regulation 

2.1. Transparency for investors to understand and compare ESG characteristics  

While the two main specific objectives of this legislative review are 1) an increase of transparency, 
i.e.  the  improvement  of  end-investors’  ability  to  understand  and  compare  sustainability-linked 
financial products as well as 2) a low administrative burden for the provision of such transparency, 
i.e.  simplifying  and  reducing  the  sustainability-related  administrative  requirements  of  the 
framework  for  financial  market  participants,  there  are  further  impacts  that  go  beyond  these 
objectives.  The  following  graph  illustrates  potential  objectives  that  go  beyond  the  cost-effective 
provision of transparency (outside the dotted box) as proposed in the academic literature.  

Source: Kölbel et al (2020)210 complemented by own analysis. 

To  put  the  legislative  review  of  the  SFDR  into  such  a  broader  context,  the  paragraphs  below 
provide  scientific  evidence  for  1)  investors  demand  for  transparency  as  well  as  2)  indications  of 
real-world impacts linked to sustainable investment. 

2.2. Investor demand for information on ESG characteristics 

As  also  shown  in  Annex  10,  investors  increasingly  demand  that  their  investments  not  only  yield 
financial  returns,  but  also  social  and  environmental  returns.  More  and  more  economic  papers 
provide evidence for this, e.g.:  

•  Hartzmark  and  Susmann  (Do  investors  value  sustainability?  A  natural  experiment  examining 
ranking  and  fund  flows,  The  Journal  of  Finance  74  (6),  2789-2837)  show  in  a  natural 
experiment approach based on Morningstar mutual fund data  that when a fund's sustainability 
rating improved (e.g.  from  one  ‘globe’ to  five  ‘globes’), it experienced  a positive net  flow of 
funds. Conversely, a decrease in a sustainability rating led to net outflows. 

•  Barber, Brad M., Adair Morse, and Ayako Yasuda, 2021 (Impact investing, Journal of Financial 
Economics  139  (1),  162-185)  document  that  investors  derive  nonpecuniary  utility  from 
investing in dual-objective VC funds, thus sacrificing returns. They show both that they ex ante 
(in random utility/willingness-to-pay (WTP) models) accept 2.5-3.7 percentage points of lower 
internal rates of return for impact funds and ex post actually earn 4.7 percentage points (ppts) 
lower internal rates of return as compared to traditional VC funds.  

•  Bauer,  R.,  Ruof  T.,  and  Smeets  P,  2021:  ("Get  real!  Individuals  prefer  more  sustainable 
investments", Review of Financial Studies 34 (8), 3976–4043) run two field surveys (n = 1,669, 
n = 3,186) with a pension fund that grants its members a real vote on its sustainable-investment 

210  Kölbel  J.F.,  Heeb  F.,  Paetzold  F.  and  Busch  T.:  Can  Sustainable  Investing  Save  the  World?  Reviewing  the 
Mechanisms of Investor Impact, Organization and Environment 2020, Vol. 33(4) 554-574. 

92 

Financial Reporting –Transparency on financialrisksESG Reporting –Transparency on financialrisksfromESG factorsTransparancyon impactsfromESG factorsReliable (lowriskofgreenwashing) andcomparableinformationforinvestmentdecisons(provisionofinformationat a lowadministrative cost)ObjectivesofSFDR reviewe.g.investmentintogreentechnologyreflectedintaxonomyalignedCaPEXe.g.reductionofCO2-EmmissionsCompanyactivityInvestor activitye.g.capitalallocation;engagement 
 
 
 
 
 
policy. Participants’ strong social preferences are demonstrated by a high demand reflected in 
two-thirds of participants are willing to expand the fund’s engagement with companies based on 
selected  sustainable  development  goals,  even  when  they  expect  engagement  to  hurt  financial 
performance. Support remains strong after the fund implements the choice.  

•  Heeb, Kölbel, Paetzold, Zeisberger (2022): Do Investors care about impact?: The paper assesses 
how  investors’  willingness-to-pay  (WTP)  for  sustainable  investments  responds  to  the  social 
impact  of  those  investments,  using  a  framed  field  experiment.  While  investors  have  a 
substantial  WTP  for  sustainable  investments,  they  do  not  pay  significantly  more  for  more 
impact.  This  also  holds  for  dedicated  impact  investors.  When  investors  compare  several 
sustainable investments, their WTP responds  to  relative, but  not  to absolute, levels  of impact. 
Regardless  of  investments’  impact,  investors  experience  positive  emotions  when  choosing 
sustainable  investments.  The  findings  suggest  that  the  WTP  for  sustainable  investments  is 
primarily driven by an emotional, rather than a calculative, valuation of impact. (JEL D62, G11, 
G41, Q56) 

The  European  Security  Markets  Authority  (ESMA)  identifies  in  a  recent  study211  covering  both 
UCITS  and  Alternative  Investment  Funds  that  the  proportion  of  funds  with  ESG-related  names 
increased significantly from less than 3% before 2015 to about 9% by mid-2024. Fund names are 
most  likely  the  first  piece  of  information  investors  encounter  about  a  fund  and  are  thus  a  crucial 
signal  of  the  fund’s  strategy  and  aims.  Therefore,  the  authors  analyse  in  a  panel  event  study  the 
impact of adding ESG terms to a fund’s name on funds flows. The results indicate that adding an 
ESG  term  has  a  significant  impact  on  fund  inflows  during  the  five  quarters  following  the  name 
change with a cumulative increase in inflows over the first-year amounting to 8.9%. 

While  the  results  above,  together  with  the  findings  in  Annex  10,  provide  clear  and  quantifiable 
indications  of  investor  demand  for  ESG  information  and  also  a  change  in  the  pattern  of  capital 
flows linked to higher transparency, the objective of the review of the SFDR aims in the first place 
to  increase  the  quality  of  such  transparency  for  investors  and  their  ability  to  understand  and 
compare  ESG  characteristics  (specific  objective  2).  As  the  degree  of  understandability  of  such 
information  can  only  be  established  once  the  technical  details  of  the  disclosures  will  be  fixed, 
which will take more time and will be performed at level 2 accompanied by dedicated market and 
consumer studies that will help to develop the disclosures in a way that is most consumer-friendly, 
the  exact  benefit  of  an  increased  transparency  cannot  be  measured  or  quantified  at  this  stage.  As 
such  the  benefit  would  result  from  a  higher  precision,  showing  ideally  ESG  information  in  a 
reliable  manner  (i.e.  avoiding  greenwashing)  and  making  sure  that  it  is  correctly  understood  and 
integrated into the investment decision. This will help allocating capital in line with the preferences 
of investors, instead of allocating it either to companies that pretend to score high on ESG topics 
(greenwashing)  or  that  are  misrepresented  to  perform  well  on  ESG  due  to  a  misinterpretation  of 
unduly complex ESG disclosures. 

2.3. Real world impacts including the transition 

The  ultimate  objective  of  providing  transparency  on  ESG  information  for  financial  investments 
translates also into a real-world impact that is expected to materialise through additional investment 
into  technology  that  improves  the  environmental,  social  or  governance  characteristics  of 
companies.  While  this  goes  also  beyond  the  scope  of  this  impact  assessment,  we  provide  here 
examples to put the impact assessment into a broader context and to show the big picture evidence 
from the academic literature on real-world impacts:  

211  Amzallag,  A.,  Brouwer  N., Mazzacurati  J.  and  Piazza  F.  (2025):  ESMA  TRV  Risk  Analysis:  Fund  names:  ESG-
related changes and their impact on investment flows.  

93 

 
 
 
 
•  The  "Platform  on  Sustainable  Finance  report:  Monitoring  Capital  Flows  to  Sustainable 
Investments"  aims  to  provide  insights  into  how  capital  is  being  allocated  towards 
sustainable  investments  within  the  European  Union.  The  report  focuses  on  tracking  and 
measuring the capital flows directed toward environmentally sustainable economic activities 
(aligned with the EU Taxonomy). Specifically, Taxonomy-aligned CapEx reported in 2023 
increased  from  EUR  186  billion  in  2022  to  EUR  250  billion  in  2023.  This  represents  an 
additional investment of EUR 64 billion in Taxonomy-aligned activities year-on-year.212 

There  is  also  evidence  that  establishes  a  link  between  sustainable  investments  and  real-world 
outcomes beyond the EU, e.g. the reduction of CO2 emissions:  

• 

In  a  paper  published  in  2023  the  authors  Bakry et  al.  investigate  the  relationship  between 
green  finance  and  environmental  performance  in  76  developing  countries  from  2010  to 
2019. The study finds that green finance and renewable energy significantly reduce carbon 
emissions, emphasizing their importance for environmental sustainability. Additionally, the 
research confirms the Environmental Kuznets Curve, indicating that CO2 emissions initially 
increase with economic growth but eventually decline, and it highlights the rise in emissions 
due to urbanization. The findings suggest policy recommendations to further promote green 
finance  and  renewable  energy  to  enhance  environmental  performance  in  developing 
regions213. 

• 

•  The authors Huang et al. explore the impact of green finance on green innovation in China’s 
provinces  from  2009  to  2017  in  their  2022  published  paper  “impacts  of  green  finance  on 
green  innovation:  A  spatial  and  non-linear  perspective”.  The  study  finds  a  significant 
positive  correlation  between  green  finance  and  green  innovation.  Both  direct  and  indirect 
effects  of  green  finance  positively  influence  green  innovation  locally  and  in  neighbouring 
areas.  However,  the  effectiveness  of  green  finance  decreases  as  environmental  regulation 
intensity  rises.  The  study  suggests  leveraging  the  broader  influence  of  green  finance  and 
green innovation to balance regional sustainable development while maintaining appropriate 
regulation levels214. 
In a paper published in  2023 the authors Udeagha and Muchapondwa examine the role of 
green finance and financial technology (fintech) in advancing environmental sustainability 
in the BRICS region from 1990 to 2020, highlighting the challenge of reducing reliance on 
fossil fuels and the region's untapped renewable energy potential. It finds that green finance, 
fintech, and energy innovation support carbon neutrality goals, while natural resources rent 
and  economic  growth  impair  environmental  quality,  aligning  with  the  Environmental 
Kuznets  Curve  hypothesis.  The  study  identifies  bidirectional  causality  between  CO2 
emissions  and  green  finance,  fintech,  and  natural  resources  rent,  with  unidirectional 
causality  from  GDP  and  energy  innovation  to  emissions.  The  paper  recommends  that 
BRICS  nations  enhance  green  financial  products  and  expand  green  credit  opportunities  to 
promote sustainability215. 
In their 2025 published paper “Research on the impact of green finance on regional carbon 
emission  reduction  and  its  role  mechanisms”  the  authors  Li  et  al.  examine  how  green 
finance  policy  facilitates  the  transition  to  a  low-carbon  economy  in  China,  analysing  270 

• 

212 Platform on Sustainable Finance (March 2025): Financing a clean and Competitive Transition. Monitoring Capital 
Flows into Sustainable Investments, Final Report, Table 1, page 21. 
213 Is green finance really “green”? Examining the long-run relationship between green finance, renewable energy and 
environmental performance in developing countries - ScienceDirect 
214 Impacts of green finance on green innovation: A spatial and nonlinear perspective - ScienceDirect 
215 Green finance, fintech, and environmental sustainability: fresh policy insights from the BRICS nations: International 
Journal of Sustainable Development & World Ecology: Vol 30, No 6 

94 

 
 
 
 
cities  from  2010  to  2021  using  the  double  debiased  machine  learning  model.  It  finds  that 
green  finance  significantly  reduces  regional  carbon  emissions  by  supporting  green 
technology  innovation  and  optimizing  industrial  structures.  The  effects  are  more 
pronounced  in  the  eastern  region  and  non-resource-based  cities  compared  to  central  and 
western  regions  and  resource-dependent  cities.  Additionally,  policies  like  "Broadband 
China,"  information  consumption  pilots,  and  big  data  zones  enhance  the  impact  of  green 
finance  on  emission  reductions.  The  study  provides  insights  and  policy  support  for 
leveraging green finance to advance sustainable economic development216. 

•  The authors Meo and Karim investigated the relationship between green finance and CO2 
emissions  in  the  top  ten  economies  supporting  green  finance  in  their  paper  “The  role  of 
green  finance  reducing  CO2emissions:  An  empirical  analysis”  published  in  2022.  This 
research  confirms  that  green  finance  generally  reduces  CO2  emissions,  though  the  impact 
varies based on market conditions and country-specific circumstances. The findings suggest 
that green finance is an effective financial strategy for decreasing CO2 emissions, with its 
effects  influenced  by  variations  in  market  conditions  and  the  specific  contexts  of  each 
country217. 
In  a  2024  published  study  Meryem  Filiz  Bastürk  explores  the  impact  of  green  finance  on 
carbon  emissions  globally,  in  light  of  increased  environmental  awareness  through 
frameworks  like  the  sustainable  development  goals  and  the  Paris  Agreement.  Using  the 
system generalized method of moments, she analyses data from 48 countries between 2017 
and  2022.  The  findings  demonstrate  that  green  finance,  particularly  through  green  bonds, 
significantly  reduces  carbon  emissions,  with  a  1%  increase  in  green  bonds  leading  to  a 
0.012% decrease in emissions218.  

• 

3. Description of respondent sample with cost information 

One  of  the  two  specific  objectives  of  the  SFDR  review  is  keeping  the  administrative  burden  for 
providers  of  financial  products  in  check.  Hence,  it  is  important  to  establish  first  a  baseline  that 
shows an estimate of the administrative burden linked to the SFDR in the EU. 

3.1. Source of information 

As  outlined  in  Annex  2,  the  Commission  performed  a  targeted  stakeholder  consultation  on  the 
SFDR  in  the  period  14  September  2023  -  22  December  2023.  As  part  of  this  consultation, 
respondents were asked to report their one-off and recurrent costs related to SFDR disclosures.  

3.2. One-off and recurrent costs 

What is meant by one-off and recurrent costs? One-off costs are costs that are incurred only once 
by  businesses  that  need  to  adapt  to  a  new  or  amended  piece  of  legislation  or  regulation.  In  the 
context  of  the  SFDR  they  cover  internal  and  external  costs  of  financial  market  participants  and 
financial  advisers  (or  consolidated  groups  of  such  entities)  for  familiarising  themselves  with  the 
new  regulatory  landscape  and  for  updating  internal  processes  and  IT-systems  accordingly. 
Recurrent  costs  occur  after  the  one-off  adaptation  process  is  finished  and  cover  annual  costs  for 
product and entity level disclosures. While a new product launch involves also certain one-off costs 
from  a  product  perspective  (e.g.  registration,  development  of  marketing  material,  preparation  of 

216 Research on the impact of green finance on regional carbon emission reduction and its role mechanisms | Scientific 
Reports 
217 The role of green finance in reducing CO2 emissions: An empirical analysis - ScienceDirect 
218  Does  Green  Finance  Reduce  Carbon  Emissions?  Global  Evidence  Based  on  System  Generalized  Method  of 
Moments 

95 

 
 
 
 
pre-contractual disclosures, etc.), these costs are classified as recurrent from an entity perspective as 
new products are launched on a recurring basis, e.g. every year.  

3.3. Administrative and substantive compliance costs 

From a better regulation perspective, the one-off and recurrent costs are classified as administrative 
costs as the SFDR is a disclosure regime and the costs are linked to information obligations. Hence 
no additional compliance costs linked to changes in core business functions (beyond reporting and 
disclosure) apply for the SFDR. 

3.4 Description of respondent sample 

In total 17 respondents provided both one-off and recurring costs of SFDR disclosures.  

The  costs  reported  had  to  be  decomposed  to  entity  level  and  product  level  disclosures.  For  each 
respondent, the total reported costs were split in accordance with the reported entity-product level 
split. On average respondents reported spending about 74 percent for product level and 26 percent 
for entity level disclosures.219  

Figure 1: Overview of replies 

of 

Number 
respondents 
N=10 

Size 
Large (>250 FTE 
SME 
FTE) 

(<=250 

N=7 
TOTAL/ weighted average 
Source: Stakeholder consultation 

47 641 
1 397 715 

AUM 
million 
EUR 
1 350 074 

Sust. AUM 
million 
EUR 

One-off 
cost EUR 

Recurring 
c. EUR 

product 
level in % 

entity 
level in % 

486 228 

24 822 903 

7 904 291 

5 661 

3 873 870 
28 696 773 

1 986 787 
9 891 078 

73 
94 
74 

27 
6 
26 

The  17  respondents  with  comprehensive  cost  information  in  the  sample  reported  in  total  about 
EUR 29 million  of  one-off  implementation  costs  (0.002%  of  their  AUM)  and  EUR  10  million  of 
annually recurring costs (0.001% of their AUM). 

3.5. Representativeness of sample 

The 17 respondents with comprehensive cost information (i.e. one-off and recurring costs as well as 
a split between entity- and product level disclosures) for the SFDR are representing about 9% of the 
market measured by AUM.  

219 There were additional respondents that reported the split of product and entity level disclosures and that were taken 
into account to calculate the average, while those respondents are not shown in the table as they did not provide all of 
the information displayed in the columns. 

96 

 
 
 
 
 
Description of group 
largest companies (AUM >= EUR 378 billion), representing top 20% AuM 
2nd largest companies (EUR 378 billion > AUM >= EUR 155 billion), repr. 20% AuM 
3rd largest companies (EUR 155 billion > AUM >= EUR 72 billion), repr. 20% AuM 
4th largest companies (EUR 72 billion > AUM >= EUR 19 billion), repr. 20% AuM 
5th largest companies (EUR 19 billion > AUM) in the population, ), repr. 20% AuM 
Total 
Source: Population: Morningstar and sample obtained in open public consultation. 

3 
10 
19 
61 
1 760 
1 853 

Popu-
lation 

Sample 
2 
3 
2 
3 
7 
17 

The table above shows companies of each size bucket are represented in the sample and also in the 
Morningstar population.  

Furthermore, a decomposition into the classical categories of large companies and SME shows that 
both  large  and  SME  companies  are  represented  in  the  sample  and  in  the  Morningstar  population 
and data of both groups is hence considered in the cost estimations. 

Description of group 

Large companies220 (AUM >= EUR 25 billion), representing about 
80% of AUM 
SME companies (EUR 25 billion < AUM) in the population, 
representing 20% of AuM 

Total 
Source: Sample obtained in open public consultation. 

3.6. Initial analysis of cost sample 

Morningstar 
population 

Sample 

69 

1 784 
1 853 

10 

7 
17 

An analysis by size has shown that there are strong fixed cost degression effects, meaning that large 
financial  market  participants  spend  significantly  lower  percentages  of  their  AUM  on  SFDR 
disclosures. 

If  both  the  cost  information  in  %  of  AuM  and  the  AuM  were  plotted  on  a  logarithmic  scale,  an 
approximately linear relationship could be established. This means, moving for one unit on the x-
axis, i.e. increasing the AuM by a factor of 10, led on average to a decrease of the costs expressed 
as a share of AuM by about  2/3rds or 67%. E.g. if an asset manager with  EUR 40 000 million of 
AUM has costs of 7%, the costs decrease by about 2/3rd to about 2% if the asset manager grows by 
a factor of 10, i.e. to EUR 400 000 million of AuM. 

220  AUM  is  the  only  dimension  that  we  have  available  for  the  market  sample,  whereas  the  SME  definition  (that  is 
designed rather for real economy companies and not financial companies) is based on number of employees, turnover 
and balance sheet total. For the sample obtained in the stakeholder consultation, an SME classification by employees 
has been requested (with large > =250 employees and SME below that threshold). For that sample  companies that are 
SME (by number of employees) had typically AuM <= 25 000 million (with only one exception in the sample). Hence, 
this cut-off value has been used to identify SME in the Morningstar population (that did not show an employee-based 
SME classification for the fund providers covered). 

97 

 
 
 
 
Figure 2: Recurring entity level costs 

log10 𝑐𝑜𝑠𝑡𝑠% = 𝑎 + 𝑏 ∙ log10 𝐴𝑈𝑀 

a= 
b= 
R Square 
Standard 
Error 
Observations 

-2.68050985 
-0.60413691 
0.846639718 

0.383187686 
17 

Figure 3: One-off entity level costs 

log10 𝑐𝑜𝑠𝑡𝑠% = 𝑎 + 𝑏 ∙ log10 𝐴𝑈𝑀 

a= 
b= 
R Square 
Standard Error 
Observations 

-3.2145606 
-0.378026 
0.678516 
0.38652 
15 

98 

-7-6,5-6-5,5-5-4,5-4-3,5-3-2,50123456log10RecEntityCosts-8-7,5-7-6,5-6-5,5-5-4,5-43,23,74,24,75,25,76,2log10OneoffEntityCostsOutlier 
 
 
 
 
 
 
 
Figure 4: Recurring product level costs 

log10 𝑐𝑜𝑠𝑡𝑠% = 𝑎 + 𝑏 ∙ log10 𝑠𝑢𝑠𝑡𝐴𝑈𝑀 

a= 
b= 
R Square 
Standard Error 
Observations 

-2.4189734 
-0.4836461 
0.61516 
0.426611 
18 

Figure 5: One-off product level costs 

log10 𝑐𝑜𝑠𝑡𝑠% = 𝑎 + 𝑏 ∙ log10 𝑠𝑢𝑠𝑡𝐴𝑈𝑀 

a= 
b= 
R Square 
Standard Error 
Observations 

-2.60399705 
-0.36264267 
0.313470364 
0.618120494 
17 

Based  on  the  sample  cost  observations,  a  regression  analysis  has  been  performed  to  determine  a 
cost function that estimates the relative costs (expressed as a percentage of AUM) as a dependent 
variable of AUM for entity level disclosures and of sustainable AUM (i.e. SFDR Art. 8 disclosing 

99 

-6-5,5-5-4,5-4-3,5-3-2,5-211,522,533,544,555,56log10RecurrProdCosts-5,5-5-4,5-4-3,5-3-2,5-211,522,533,544,555,56log10OneoffProdCosts 
 
 
 
 
 
 
 
 
funds  plus  Art.  9  disclosing  funds)  for  product  related  disclosures.  The  methodology  varies  for 
entity  and  product  level  disclosures  as  entity  level  disclosures  apply  to  all  financial  market 
participants whereas product level disclosures apply only to financial market participants disclosing 
either under Art. 8 or Art. 9.  

3.7. Baseline scenario and application of the standard cost model221 

The standard cost  model assumes that an entity has  to  fill  out  a form  to provide a disclosure and 
that  the  effort  needed  to  provide  this  disclosure  is  independent  from  the  entity-size  and  other 
characteristics of the business. This means that the costs of disclosure are approximately identical 
for all entities.  

Number of 
entities 
affected 

x 

of 

Frequency 
administrative 
action 

Tariff  per 
hour 

x 

x 

Time 
hours 

in 

+ 

Out-of 
pocket 
expenses 

Source: Tool #58 EU Standard Cost Model of the Better Regulation Toolbox July 2023222 

If this assumption was applicable, it would be possible to pool the cost observations and to take e.g. 
the  average  cost  and  multiply  it  with  the  number  of  entities  in  the  market  and  the  frequency  of 
disclosing information. However, as demonstrated in the previous section this is not the case for the 
SFDR disclosures and the costs vary by type of entity, in particular with the size of the entity.  

The  following  methodological  approach  has  therefore  been  taken  to  estimate  the  administrative 
burdens:  

Estimate of SFDR related 
disclosure costs as a 
function of the assets under 
management linked to the 
disclosure223 

Using the estimated cost function 
for each fund that was part of the 
EU market according to the 
Morningstar database, estimate 
SFDR related disclosure costs 

Aggregation of the costs 
for all funds to obtain an 
estimate of the SFDR 
related costs for the EU 
market 

(1) Estimate of an SFDR related disclosure costs: we have collected a sample of costs (N=17) for 
product- and entity-related disclosures from the replies received in the stakeholder consultation. 
The replies covered all essential elements of disclosure preparation including internal costs for 
personnel and IT as well as external costs for data providers and consulting. From this sample, 
using  a  statistical  regression  model,  a  cost  function  has  been  estimated  for  the  following  cost 
types:  

•  One-off costs product level disclosures  
•  Recurring costs product level disclosures 
•  One-off costs entity level disclosures  
•  Recurring costs entity level disclosures 

(2) The database Morningstar provides data for assets under management of funds that are obliged 
to disclose under the SFDR for the whole EU market and allows for a drill-down to the funds 

221 This section expands on Annex 4 ‘Analytical methods’ 
222 
regulation-guidelines-and-toolbox_en 
223 For the estimation function see section 3.6. above. 

https://commission.europa.eu/law/law-making-process/planning-and-proposing-law/better-regulation/better-

100 

 
 
 
 
 
 
level,  i.e.  to  aggregate  the  AuM  per  fund.  The  four  cost  functions  for  the  four  cost-types 
mentioned above (Figure 2 to  Figure 5) have been used to  estimate the  one-off and  recurring 
costs  for  entity  and  product-level  disclosures  as  a  function  of  AuM  for  each  fund  in  the  EU 
market. 

The costs have been aggregated for the EU market by summing the individual estimates over all 
funds that were recorded by Morningstar. 

Table 2: Cost estimate one-off and recurring costs for product and entity level disclosures 

AUM 

million EUR 
10 261 600 

Sustainable 
AUM 
(Art. 8 & Art.9) 
million EUR 
6 110 400 

Recurring cost 
entity level discl. 

one-off cost 
entity level discl. 

million EUR 
56 

million EUR 
120 

Recuring cost 
product level 
discl. 
million EUR 
190 

one-off costs 
product level 
discl 
million EUR 
380 

Source: Stakeholder consultation, Morningstar and own calculations 

The table above summarizes the result for the costs estimated for the European market. We estimate 
that financial market participants have spent one-off implementation costs amounting to EUR 120 
million  for  entity  level  disclosures  and  EUR  380  million  for  product  level  disclosures  under  the 
SFDR.  Furthermore,  we  estimate  annual  recurring  costs  of  EUR  56  million  for  entity-level  and 
EUR  190  million  for  product-level  disclosures.  The  recurring  costs  are  assumed  to  constitute  the 
costs of the baseline scenario.  

3.8. Role of the omnibus proposal for the baseline scenario 

Since 2021, the companies that have to disclose information under the SFDR have operated in an 
environment with data gaps, that have been filled by data providers and ESG rating agencies either 
with information that has been manually requested from the investee companies via questionnaires 
or if not available with estimates, e.g. with statistical estimates obtained from companies operating 
in a similar industry, of similar size, in a specific region, and other comparable characteristics. The 
data  situation  has  improved  over  time.  An  analysis  performed  by  the  Joint  Committee  of  the 
European  Supervisory  Authorities  (ESMA,  EBA  and  EIOPA)  in  2024,  reproduced  in  the  table 
below,  shows  that  key  mandatory  principle  adverse  indicators  that  are  relevant  for  the  SFDR  are 
increasingly  available  with  (green  >80%  median  coverage;  red  <=20%  low  coverage;  yellow  20-
80% medium coverage)224.  

Mandatory Principal Adverse Indicators (PAI) and their availability 

Coverage in % 
Art 8; Art 9  

Climate and other 
environment indicators 

Coverage % 
Art 8; Art 9  

Social and governance 
indicators 

88; 94 

89; 94 

91; 94 

90; 95 

GHG Emissions (Scope 1,2,3 
& Total) 

92; 96  

Carbon Footprint 

GHG Intensity 

Fossil fuel sector 

88; 94 

20; 16 

93; 96 

Lack of processes and mechanisms to monitor 
compliance with UN Global Compact principles and 
OECD Guidelines 

Violations of UN Global Compact principles and 
OECD Guidelines 

Gender pay gap 

Exposure to controversial weapons 

224  See  also  Annex  11,  Section  3.1,  Box  12  on  how  this  compares  with  the  past,  confirming  the  relatively  better 
availability of e.g. indicators such as exposure to fossil fuels and GHG emissions and the relatively poorer availability 
of those referring to gender pay gap and emissions to water. Improvement can be seen in some e.g. biodiversity. 

101 

 
 
 
 
87; 93 

Board gender diversity 

64; 65 

27; 45 

88; 95 

4; 7 

42; 45 

Share of non-renewable 
energy consumption 

Share of non-renewable 
energy production 

Activities negatively 
affecting biodiversity 

Emissions to water (tons) 

Hazardous waste ratio/ 
radioactive waste ratio 

Source: Joint Committee of the European Supervisory Authorities, JC-2024-69: Principal Adverse 
Impact disclosures under the Sustainable Finance Disclosure Regulation 

The CSRD (original and post-omnibus timetables below) in its original (pre-omnibus scope) would 
have improved the data availability with coverage of European investees covering both listed and 
unlisted large companies as well as certain SMEs (parents of large groups).  

The  timeline  below  shows  that  public  interest  entities  (PIEs),  i.e.  those  companies  that  are  the 
investees, that to a major extent constitute the portfolio population of the funds that are subject to 
the  SFDR  would  have  started  to  report  in  Q1  2025,  which  was  not  postponed  by  the  Omnibus 
proposal225.  

Wave 1 - 2024 
(reporting 2025) 

Wave 2 - 2025 
(reporting 2026) 

Wave 3 - 2026-2028 
(reporting 2027-29) 

Public interest entities (>500 
employees)226 

Large undertakings  

SME undertakings 

New timeline 

No stop the clock rule; same timeline 

Postpone by 2 years 

New scope 

Remove large midcaps (with <1000 
employees) 

Remove Large midcaps 
(with <1000 employees) 

Remove 

SFDR relevance 

High, investees of UCITS, Bond and 
Money Market funds 

Low, typically bank financed, relevant as investees of 
certain alternative investment funds, e.g. private equity  

Source: European Commission, SWD (2025) 80, Omnibus proposal. 

The  SFDR  data  requirements  concern  mainly  listed  companies  as  it  regulates  disclosures  of 
enterprises offering investment products consisting largely of listed investees with the exception of 
alternative  investment  funds  and  venture  capital  funds  that  hold  also  private  non-listed  assets. 
According to ECB data Euro-area Non-Financial Corporations had outstanding listed debt of EUR 
1.6 trillion227 and listed shares of EUR 7.6 trillion228 by the end of 2023, of which investment funds 
held  34%  and  24%  respectively229,  a  total  of  EUR  2,4  trillion  of  listed  securities.  Expressed  as  a 
share of EU assets under management of about EUR 16 trillion, this represents about 15%. These 
investees are subject to CSRD reporting. 

CSRD wave 1 companies, i.e. companies that were subject to the NFRD and started reporting under 
the  CSRD/ESRS  for  fiscal  year  2024  (i.e.,  publication  in  2025)  are  thus  key  investees  for  SFDR 

225 European Commission, SWD (2025) 80, Omnibus proposal. 
226 Public interest entities as defined in Article 2(1) of the Accounting Directive (2013/34/EU) are entities governed by 
the  law  of  a  Member  State  whose  transferable  securities  are  admitted  to  trading  on  a  regulated  market,  insurance 
undertakings and credit institutions as well as national transposition entities, i.e. entities that are added by EU member 
states due to local definitions of public interest entities. 
227 CSEC.M.N.I9.W0.S11.S1.N.L.LE.F3.T._Z.EUR._T.M.V.N._T | ECB Data Portal 
228 CSEC.M.N.I9.W0.S11.S1.N.L.LE.F511._Z._Z.EUR._T.M.V.N._T | ECB Data Portal 
229 EFAMA Asset Management Report 2024, p. 28. 

102 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
reporting.  These  companies  will  not  be  affected  retroactively  by  the  planned  scope  reductions 
("stop-the-clock" or omnibus proposals) as these reductions primarily impact companies covered in 
later CSRD waves. Rather, a replacement can be expected of currently either estimated values or 
data  collected  with  questionnaires  by  data  from  audited  sustainability  reporting  for  about  15%  of 
the  investee  universe.  This  data  collection  step  would  usually  be  performed  by  data  providers, 
which do continue providing ESG data to financial market participants with or without the omnibus 
and we do not expect that this improvement of quality for certain datapoints would have significant 
impact on the data provider fees charged to financial market participants.  

3.9. Who is bearing the cost of the SFDR implementation? 

While in absolute terms the amounts reported for one-off and recurring costs in our sample for the 
SFDR implementation seem high (ranging up to EUR 29 million of one-off investment and up to 
EUR 10 million of annual recurring costs for one FMP), in relative terms, the costs, e.g. for large 
FMP (with AuM > EUR  25 billion) that  dominate the market  in  terms of product  volume (about 
75% in the Morningstar funds population), are in a range of 0.002-0.15 basis points (one basis point 
is  only  1/100  one hundredth  of one percentage point) for annual  recurring costs and 0.01 to  0.46 
basis  points  for  one-off  costs,  that  are  usually  written  off  over  several  years  by  businesses.  This 
indicates  that  even  if  the  fees  were  100%  passed  on  to  end-investors,  they  should  not  face 
substantial  changes  in  the  transaction  fees.  This  is  in  line  with  observations  of  ESMA  that  has 
shown, e.g. that the fees of UCITS funds have not significantly changed in the period 2021-2023.230 
Furthermore ESMA has shown in the same publication that there are no significant differences in 
the fees charged for ESG UCITS and general UCITS funds. 

To  gauge  further  the  economic  significance  of  these  costs  as  compared  to  the  benefits,  if  these 
amounts  were  instead  used  to  directly  reduce  CO2-emmissions,  taking  into  account  that  EEA 
reports  that  the  EU-27  countries  emitted  around  2 907 204  kilo  tonnes  of  CO2  in  2020231  and  a 
price  of  about  96.3  EUR  per  tonne  of  CO2232,  they  would  achieve  annual  savings  of  0.1%  Co2 
emissions.  In  other  words,  it  suffices  that  SFDR  achieves  an  annual  reduction  of  0.1%  in  Co2 
emissions in order for the associated costs to be justified. 

3.10. Estimation of cost impacts of the preferred set of options 

In the following, we estimate the cost impacts of the preferred set of options. For this, we split first 
the  costs  obtained  in  the  evaluation  for  the  baseline  scenario  into  costs  for  SME  and  Large 
companies.  

230 ESMA Market Report on Costs and Performance of EU Retail Investment Products 2024 and ESMA Market Report 
Annexes on Costs and Performance of EU Retail Investment Products 2024.  
231 See EEA greenhouse gases – data viewer: EEA greenhouse gases — data viewer | European Environment Agency's 
home page.  
232 Worldbank Carbon Pricing Dashboard: https://carbonpricingdashboard.worldbank.org/compliance/price  

103 

 
 
 
 
 
 
Table 3:  Administrative costs baseline scenario and cost impact preferred options233 

• 

• 

•  Entity level 

disclosures baseline 
•  Change with option 
1.2 Abolish entity 
level disclosures 

•  Product level 

disclosures baseline 
•  Change with option 
2.2 Significantly 
reduce product level 
disclosures 

•  Change  with  option 
Product 

3.1 
Categorisation 

•  TOTAL –  
•  All options combined 
•  Annualised 

one-off 

costs 

•  One-off costs 

•  SME 

(<= €25b AuM) 

•  Large 
(> €25b 
AuM) 

•  Recurrent costs per annum 
•  SME 

(< =€25b 
AuM) 

•  Large 
(> €25b AuM) 

•  €70m  

•  €50m 

•  €43m  

•  €13m 

•  €5m 
(+7%; N=1) 

• 

•  €0.5m 
(+1%; N=1) 

• 

• 
- € 43 m 
(-100%; N=1) 

• 

• 
- € 13 m 
(-100%; N=1) 

• 

•  €200m  

•  €180m 

•  €120m  

•  €70m 

•  + €336m 
(+170%; N=1) 

• 

•  + €14m 

• 

(+8%; N=2) 

• 

• 
- €35m 
(-50%; N=2)234 

• 
- €20m 
(-50%; N=2)235 

• 

•  + €246m 
(+150%, N=2) 

• 

•  +€25m 
(+14%; N=3) 

•  +€ 19m 
(+50%; N=2) 

• 

• 

•  +€5m 
(+15%; N=3) 

• 

• 

•  + €590m 
(rounded) 

•  + €40m 
(rounded) 

• 

- €60m 
(rounded) 

• 

- €30m 
(rounded) 

•  €69m 

•  €5m 

• 

-€60m 

• 

-€30m 

Source: Stakeholder consultation and own calculations. Results give only indications of potential costs and 
are  to  be  interpreted  with  caution  as  they  are  based  on  extremely  small  samples,  in  particular  for  SMEs 
where the simplification should bring most benefits; the one-off costs might be overestimated as the one/two 
respondents on which the estimation is based assume a certain minimum fixed amount that needs to be spent 
to implement the changes that is even higher than the initial one-off costs.  

The cost calculations presented above are only rough indications as most respondents were not able 
to estimate costs as at the preparatory stage of level 1, including without the technical details to be 
specified  in  level  2.  Therefore,  only  anecdotal  evidence  could  be  collected  that  can  give  a  rough 
indication  of  the  cost  impacts  of  this  regulation.  The  results  suggest  that  SMEs  (which  would 
choose  to  be  active  in  offering  ESG  products)  might  expect  significant  one-off  costs  that  can  be 
offset in the long-term by corresponding cost savings, whereas large businesses have only limited 
one-off costs and are likely to set these investments off quickly (after about 2 years). As part of the 
level 2 work, European Supervisory Authorities should verify the plausibility of these estimations 
once  detailed  proposals  have  been  worked  out,  and  if  respondents  indicate  that  they  expect 
significantly different  costs, the cost  implications should be taken into account  when deciding on 
the  preferred  option  to  make  sure  that  the  objective  of  administrative  simplification  and  burden 
reduction is met. 

233 Whereas the boxes containing the baseline entity-level and product-level costs are based on a more reliable sample 
and estimation of costs with the current regime, very little data is currently available to derive cost-estimates associated 
with the changes, notably regarding the creation of product categories as well as adjusted disclosures.  
234  We  have  received  two  replies  indicating  a  full  range  of  20%-50%  of  cost  savings.  Given  that  the  intended 
simplification under option 2.2 would significantly reduce product disclosures, we assume that a saving at the higher 
end of the range is justified. 
235 ibid 

104 

 
 
 
 
 
 
 
 
3.11 Summary costs, benefits and one-in-one-out calculation 

Overview of costs and benefits identified in the evaluation 

Measure 

Cost  Be-
nefit Type* 

Group 
Affected** 

Frequency 

Amount 

Description 

Requirement 
to 
entity 
disclosures 

publish 
level 

Direct 
benefit 

Direct 
admini-
strative 
costs  

Citizens that 
are retail 
investors and 
Businesses 
acting as 
professional 
investors 

Recurrent 

qualitative 

Small 
Businesses 

One-off  

Large 
Businesses 

One-off  

Small 
Businesses 

Large 
Businesses 

Recurrent  

Recurrent 

€70m 

€50m 

€43m 

€13m 

Amount 

that 
Citizens 
retail 
are 
investors  and 
Businesses 
acting 
professional 
investors 

as 

Recurrent 

Direct 
benefit 

Requirement 
to 
product 
disclosures 

publish 
level 

Entity-level disclosures of FMPs provide 
information on their policies on integrating 
sustainability risks, how they consider 
principal adverse impacts on sustainability 
factors, and how their remuneration policies 
align with sustainability objectives. This 
can help investors to choose products from 
those FMPs that align best with their 
sustainability preferences. Professional 
investors benefit from the ability to perform 
due diligence and select partners or 
products that align with their clients’ ESG 
mandates or their own institutional policies 

Internal  Personnel,  IT  implementation  and 
external  advice  to  familiarise  with  and 
implement entity-level disclosures 

Internal  Personnel,  IT  implementation  and 
external  advice  to  familiarise  with  and 
implement entity-level disclosures 

Ongoing  annual  internal  and  external  cost 
to maintain entity-level disclosures  

Ongoing  annual  internal  and  external  cost 
to maintain entity-level disclosures 

to 

according 

specific  ESG 

Product-level  disclosures  provide  detailed, 
information 
common 
parameters  on  how  each  financial  product 
integrates  sustainability  risks,  considers 
adverse  sustainability  impacts,  and  aligns 
with  environmental  or  social  objectives. 
Retail 
investors  can  use  product-level 
disclosures to match investments with their 
personal  sustainability  goals,  focusing  on 
characteristics  or 
the 
objectives  of  each  product.  Professional 
investors  benefit  from  the  granularity  of 
data 
tailor 
to  conduct  due  diligence, 
investment  strategies,  and  meet  client 
mandates. Product-level disclosures provide 
the  most 
for 
investment  decisions,  as  retail  investors 
individual  products 
typically 
rather 
level.  The 
include  pre-contractual  and 
disclosures 
periodic 
investors 
monitor investments over time. 

in 
the  entity 

information,  helping 

invest 
than  at 

information 

relevant 

Direct 
admini-
strative 
costs  

Small 
Businesses 

One-off  

Large 
Businesses 

One-off  

€200m 

€180m 

Internal  Personnel,  IT  implementation  and 
external  advice  to  familiarise  with  and 
implement entity-level disclosures 

Internal  Personnel,  IT  implementation  and 
external  advice  to  familiarise  with  and 

105 

 
 
 
Overview of costs and benefits identified in the evaluation 

Measure 

Cost  Be-
nefit Type* 

Group 
Affected** 

Frequency 

Amount 

Description 

Direct 
benefit 

Supervise 
entity 
product 
disclosures 

and 
level 

Recurrent  

Recurrent 

Recurrent 

€120m 

€70m 

Not  quanti-
fied 

Small 
Businesses 

Large 
Businesses 

-  

Citizens 
retail 
investors  and 
Businesses  - 
professional 
investors 

implement entity-level disclosures 

Ongoing  annual  internal  and  external  cost 
to maintain product-level disclosures  

Ongoing  annual  internal  and  external  cost 
to maintain product-level disclosures 

the  SFDR,  which 

Supervision  ensures  that  FMPs  comply 
with 
strengthens 
accountability  for  the  claims  made  about 
sustainability.  Effective  supervision  makes 
in 
firms 
it  harder 
greenwashing 

engage 

for 

to 

Direct 
adjustment 
costs 

Admini-
strations 

Direct 
adjustment 
costs 

Admini-
strations 

One-off  

Not  quanti-
fied 

for  supervisors  and  NCAs 

Costs 
to 
familiarise  themselves  with  the  new  rules 
(e.g. 
implement  new  procedures 
and 
processes, IT-systems, databases) 

Recurrent  

Not  quanti-
fied 

for 

issuers  and 

  about  92  FTEs 

Costs 
administrative 
ongoing 
procedures  linked  to  the  supervision  of  the 
SFDR.  According 
the  most  recent 
to 
Greenwashing  reports  of  ESMA,  about  80 
FTEs are allocated to sustainability matters 
in NCAs that deal with market supervision 
to 
of 
supervisory and regulatory activities linked 
investment  management236.  EBA 
to 
determined  that  the  competent  authorities 
(CA)  in  banking  allocated  only  limited 
resources  to  sustainability  issues  with  9 
CAs out of 30 with 3 or more FTE; 13 two 
or  less;  and  9  with  no  resources  or  no 
information237.  EIOPA  reports  about  30 
FTEs 
are  performing 
that 
total 
sustainability-related tasks.238  

in 

236 ESMA (June 2024): Final Report on Greenwashing: ESMA36-287652198-2699 
237 EBA  (September 2024):  Report on greenwashing  monitoring and supervision.pdf and EBA (May 2023):  progress 
report on greewnwashing.pdf. 
238 EIOPA(June 2024): Advice to the European Commission on greenwashing risks and the supervision of sustainable 
finance policies 

106 

 
 
 
 
 
 
 
–  I. Overview of Benefits (total for all provisions) – Preferred Option 

–  Measure 

–  Group 
affected 

–  Frequency 

–  Direct benefits 

–  Amount 

–  Comments 

–  Combination 

all 

of 
preferred 
options 

–  Combination 

all 

of 
preferred 
options 

–  Small 

Business
es 

–  Large 

Business
es 

–  Recurrent  

–  -€60m 

–  Recurrent 

–  -€30m 

–  Combination 

– 

– 

–  Indirect benefits 

preferred 

of 
options:  

4)  Abolish entity level 

–  qualitative 
– 

Product 

disclosures  
5)  Significantly 
reduce 
level disclosures 
Introduce 
categorisation 
system  with 
categories 

6) 

3 

107 

–  Details 

see 
section 3.10. 

–  Details 

see 
section 3.10. 

–  FMP 

(preparer 
perspective)
:  
–  Reduce 

the 

sustainability-
related 
administrative 
requirements 
complexity 

and 

–  Boost 

the 
competitiveness  of 
Europe’s 
financial 
sector  by  ensuring 
conditions  which 
make 
business 
easier  and  help  to 
deepen  our  single 
market 
for 
sustainability-linked 
financial products 
–  End-

–  Improve 

investor 
and 
distributor 
(user 
perspective): 
end-
investors’  ability  to 
understand 
and 
compare 
sustainability-linked 
financial products 

–  Facilitate 

distribution 
the 
chain 

along 
investment 

–  Increase consumers’ 
in 
confidence 
products 
financial 
with 
sustainability 
claims  by  setting 
minimum  standards 
the 
line  with 
(in 
applicable  ESMA 

 
 
 
 
 
 
guidelines  on  funds 
names) 

Estimates  are  gross  values  relative  to  the  baseline  for  the  preferred  option  as  a  whole  (i.e.  the  impact  of  individual 
actions/obligations of the preferred option are aggregated together); 

•  II. Overview of costs – Preferred option 

• 

•  Citizens/Consumers 

•  Businesses 

•  Administrations 

•  One-off  •  Recurre

•  One-off 

•  Recurrent  •  One-off  •  Recurre

nt 

•  none 

•  none 

•  none 

•  none 

nt  

•  mixed240 

•  Effort 
linked 
to 
familiar
isation
239 

•  none 

•  none 

•  €74m* 

• 

-€90m 

•  none 

•  none 

•  none 

•  none 

•  none 

•  none 

•  none 

•  none 

•  none 

•  none 

•  none 

•  none 

•  none 

•  none 

•  Actio
n (a)   

•  Direct 

adjustment 
costs 

•  Direct 

administrativ
e costs 

•  Direct 

regulatory 
fees and 
charges 

•  Direct 

enforcement 
costs 

• 

Indirect costs  •  none 

•  none 

•  none 

•  none 

•  none 

•  none 

* The EUR 74 million is the annualised value of one-off costs amounting in total to EUR 630 million (subject to the 
caveats in Table 3 of section 3.10), assuming that a loan has been issued to finance the one-off burden over a period of 
10 years and an interest rate of 3% 

239 Public administrations surveyed expect for the abolishment of entity-level disclosures no or limited additional effort 
(mainly to understand the new requirement), for the simplification of product level disclosures about 0.1-2 additional 
FTE  in  the  first  year  and  about  the  same  additional  FTE  for  the  introduction  of  a  product  categories  in  year  1  to 
familiarise themselves with the new regulation and perform the required adaptation.  
240 The replies of authorities were mixed, many authorities could not assess the long-term consequences without seeing 
the final proposal, some authorities saw a long-term potential of saving effort up to 30% provided that the legal clarity, 
simplicity and objectivity will increase and ambiguity decrease; some authorities expected additional effort, e.g. due to 
the approval process of funds under the new regime. 

108 

 
 
 
 
 
 
 
III. Application of the ‘one in, one out’ approach – Preferred option(s) 

One-off 

Recurrent 

Total 

[M€] 

(annualised total net present 
value over the relevant period) 

(nominal values per year) 

Businesses 

New administrative 
burdens (INs) 

Removed administrative 
burdens (OUTs) 

Net administrative 
burdens* 

Adjustment costs** 

New administrative 
burdens (INs) 

Removed administrative 
burdens (OUTs) 

Net administrative 
burdens* 

Adjustment costs** 

Total administrative 
burdens*** 

€74m 

€0m 

€74m 

€0m 

€0m 

€0m 

€0m 

€0m 

Citizens 

€24m 

-€110m 

-€86m 

€0m 

€0m 

€0m 

€0m 

€0m 

€98m 

-€110m 

-€12m 

€0m 

€0m 

€0m 

-€12m 

(*) Net administrative burdens = INs – OUTs;  
(**)  Adjustment  costs  falling  under  the  scope  of  the  OIOO  approach  are  the  same  as  reported  in  Table  2  above.  Non-
annualised values;  
(***) Total administrative burdens = Net administrative burdens for businesses + net administrative burdens for citizens. 

Relevant sustainable development goals 

•  IV. Overview of relevant Sustainable Development Goals – Preferred Option(s) 

•  Relevant SDG 

•  Expected progress towards the Goal 

•  Comments 

•  SDG 

13 

“Climate 

• 

Action” 

•  SDG 6 “Clean Water and 

Sanitation” 

•  SDG  7  “Affordable  and 

Clean Energy” 

expected 

Initiative 
investment 
toward the identified SDGs 

encourage 
flows  contributing  positively 

to  help 

• 

•  SDG 

9 
Innovation 
Infrastructure”  

“Industry, 
and 

•  SDG3 “Good Health and 

Well-being” 
5 

•  SDG 

Equality” 

“Gender 

109 

 
 
 
 
 
 
 
 
 
 
ANNEX 4: ANALYTICAL METHODS 

Estimation of Administrative Costs and Burdens 
For the estimate of the SFDR related costs for businesses that are classified as administrative costs 
in  the  Better  Regulation  terminology,  the  standard  cost  model  (see  Tool  #58  EU  Standard  Cost 
Model of the Better Regulation Toolbox July 2023) has been used.241 The data to perform the cost 
estimations has been taken from the stakeholder consultation and has been scaled-up for the whole 
European market. Please refer to section 3.7 in Annex 3 for a description of the details. 

.

241 
regulation-guidelines-and-toolbox_en 

https://commission.europa.eu/law/law-making-process/planning-and-proposing-law/better-regulation/better-

110 

 
 
 
 
ANNEX 5: COMPETITIVENESS CHECK 

1.  Overview of impacts on competitiveness  

Dimensions of 
Competitiveness 

Impact of the initiative 

(++ / + / 0 / - / -- / n.a.) 

References to sub-sections of the main 
report or annexes 

Cost and price competitiveness  ++ 
International competitiveness  
Capacity to innovate 
SME competitiveness 

+ 
+ 
+ 

2. 

Synthetic assessment  

Sections 6, 7; Annex 3 
Sections 6, 7 
Sections 6, 7 
Annex 12 

The combination of the preferred options presented in Section 8 have a positive impact 
across all the dimensions of competitiveness above.  

On cost and price competitiveness, the options are expected to reduce compliance costs 
to  a  significant  extent,  as  detailed  in  Annex  3.  The  options  are  set  to  help  EU  FMPs 
improve their cost competitiveness by addressing many of the identified undue  burdens 
and  excessive  compliance  costs  associated  with  the  status  quo.  The  preferred  option  to 
alleviate  burdens  and  costs  of  reporting  will  remove  duplications  and  inconsistencies, 
facilitating  market  entry.  The  preferred  option  to  set  up  a  clear  and  coherent 
categorisation system for sustainability-linked financial products reflects current market 
practices  to  a  large  extent,  entailing  minimal  adjustment  costs  compared  to  the 
alternatives.  These  costs  are  expected  to  be  outweighed  by  the  economic  benefits  of 
continued  investment  flows  according  to  a  simpler,  clearer  and  more  intuitive 
categorisation of products.   

Given the EU’s overwhelming market share for sustainable financial products globally, a 
positive impact is also to be expected on international competitiveness. The competitive 
position  of  EU  FMPs  and  funds  in  launching  and  providing  services  in  relation  to 
sustainability-linked financial products would be further bolstered. Through lower costs 
arising  from  the  removal  of  undue  burdens  and  a  simpler  categorisation  regime  for 
products, the EU market for sustainable products can also be expected to grow, to help 
scale  up  the  flow  of  private  savings  and  investments  into  the  real  economy  and  its 
transition towards more sustainable economic practices. Given the dominant size of the 
EU market in this area, the categorisation regime can be expected to become a de facto 
global standard and contribute to attracting inward investment flows into the EU.  

The  market’s  capacity  to  innovate  is  also  positively  supported  by  reduced  reporting 
burdens  and  clear  product  categories.  Lower  compliance  costs  can  help  free  up  FMPs’ 
resources for product innovation. The criteria underpinning the categories leave room for 
flexibility  allowing  FMPs  to  design  products  according  to  diverse  parameters,  while 
providing the essential reassurance to retail investors about what their products can and 
cannot invest in. The criteria would be future-proof and allow to continue designing and 
innovating products according to emerging technological trends and evolutions in science 
and environmental policy. Overall, provided FMPs seize opportunities to design products 
in  accordance  with  a  simple  categorisation  system,  increased  funds  toward  private 

111 

 
 
 
 
sustainability-oriented  innovations  in  the  real  economy  can  be  expected  to  ensue, 
supporting  the  flow  of  additional  private  risk  capital  toward  the  twin  green  and  digital 
transitions to finance the EU’s long-term climate and competitiveness goals.  

In  terms  of  sectors  which  are  most  likely  to  be  impacted,  some  negative  effects  could 
arise  for  those  targeted  by  the  PAB/CTB  exclusions,  namely  tobacco,  controversial 
weapons,  and  companies  involved  in  human  rights  violations  or  heavily  in  fossil  fuels. 
However, this  would continue their treatment  under PAB/CTB  benchmarks, and would 
not apply beyond ESG-focused financial products. Non-ESG focused products could still 
fully  include  these  companies  at  FMPs’  and  investors’  discretion.  Conversely,  the 
creation of categories could  support positive impacts  notably in  sectors  associated with 
high  levels  of  environmental  and  social  progress  (sustainable  category),  those 
undertaking  meaningful  improvement  toward  less  harmful  environmental  or  social 
practices  (transition  category),  and  those  which  can  be  accommodated  in  various  other 
diverse ESG strategies (other ESG category). For instance, the sustainable category could 
further help boost investment in EU companies with Taxonomy-aligned activities, in key 
Taxonomy-eligible sectors such as renewable energies, transport, manufacturing and real 
estate242.  For  its  part,  the  transition  category  could  help  facilitate  investment  toward  a 
wide range of sectors for which meaningful transition-trajectories are most advanced or 
under development.  For  example, a key metric in this context would be  the market-led 
Science-Based  Targets  initiative,  which  has  gathered  commitments  from  over  10000 
companies across the world (53% from Europe), with the highest number in the services 
and  manufacturing  sectors243.  Finally,  the  third  category  could  encompass  a  variety  of 
sectors  pursuing  diverse  ESG  strategies,  and  appeal  notably  to  investors interested  in  a 
diversified product with clear ESG-based exclusions244.               

Finally, the initiative is also expected to have a positive impact on SME competitiveness. 
Together  with  the  provisions  of  the  Omnibus  (i.e.  removal  of  listed  SMEs  from  the 
scope, value chain cap applicable to companies outside the CSRD to limit trickle-down 
effects,  single  voluntary  standard  for  companies  outside  the  CSRD),  SMEs  can  benefit 
from the flow of funds and be included in products under a simple categorisation system, 
as well as from lower reporting and compliance costs incumbent on FMPs. While SMEs 
may typically not constitute a large share of the portfolios of investees within mainstream 
(UCITS)  financial  products,  the  simplification  of  disclosures  and  clear  criteria 
underpinning  categories  could  support  some  reallocation  of  portfolios  toward  greater 
inclusion of SMEs, including through greater clarity on the use of estimates and proxies. 
This  could  stem  from  addressing  any  bias  in  favour  of  larger  listed  companies  from 
whom granular data is more available.    

242  Together  with  other  recent  steps  to  boost  competitiveness  taken  to  facilitate  Taxonomy-reporting  by 
companies  under  the  Omnibus:  “Commission  to  cut  EU  taxonomy  red  tape  for  companies  -  European 
Commission” 
243 https://sciencebasedtargets.org/ For example, a 2022 SBTi analysis of 205 companies which had made 
commitments demonstrated that these were reducing scope 1 and 2 emission at a faster rate than required: 
linear annual rate of 5.9% between target setting year and 2021, compared to minimum annual reduction of 
4.2%  required  for  meeting  1.5°C  (Source:  materials  shared  for  10  July    2025  ESMA  transition  finance 
workshop by a SBTi founding member organisation)  
244 More information on possible sectoral/company level impacts on funds’ portfolios is also provided in 
Annex 8. 

112 

 
 
 
 
 
ANNEX 6: INTERACTIONS BETWEEN THE SFDR AND THE 
SUSTAINABLE FINANCE AND BROADER CORPORATE 
SUSTAINABILITY FRAMEWORK  

This  annex  aims  at  explaining  the  interactions  between  the  SFDR  and  the  rest  of  the 
sustainable finance and broader corporate sustainability framework. It also highlights the 
specific  considerations  that  need  to  be  taken  into  account  for  the  review  regarding  the 
links  and  necessary  alignments  between  the  SFDR  and  the  CSRD,  the  EU  Taxonomy 
Regulation,  the  Benchmark  Regulation,  CSDDD  and  the  MiFID/IDD  sustainability 
delegated act.   

1.  The EU sustainability disclosure regimes and tools that feed into the SFDR  

Box 5: The flow of information: from companies to the financial sector to end investors  

Corporate Reporting Disclosure Directive (CSRD) 

What is the CSRD  

The Corporate Sustainability Reporting Directive (CSRD) modernised and strengthened 
the  rules  concerning  the  disclosure  of  sustainability  information  by  undertakings  in 
response  to  the  increased  demand  for  corporate  sustainability  information  and 
transparency.  The  existing  CSRD  requires  that  large  undertakings  and  listed  SMEs 
disclose information necessary to understand the undertaking’s impacts on sustainability 
(ESG) matters, and information necessary to understand how sustainability matters affect 

113 

 
 
 
 
 
the  undertaking’s  development,  performance  and  position.  The  CSRD  phases  in  the 
reporting requirements for different categories of undertakings.  

The reporting requirements are specified in European Sustainability Reporting Standards 
(ESRS), which were developed in draft form by EFRAG and adopted by the Commission 
via Delegated Regulation 2023/2772.  

How does it interact with the SFDR  

FMPs  rely  on  ESG  information  disclosed  by  investee  companies  under  the  CSRD  (the 
‘European Sustainability Reporting Standards’, or ESRS) to assess the principal adverse 
impacts  (PAIs)  of  their  investments.  To  this  end,  the  ESRS  mirrors  the  PAIs  to  ensure 
FMPs get the information needed.   

However, the CSRD does not cover all entities/assets that FMPs invest in. For example, 
the  CSRD  does  not  apply  to  most  third-country  companies.  In  the  EU,  the  CSRD 
currently applies to all large companies and all listed companies (including listed SMEs 
and non-EU companies listed in EU). It also applies to non-EU companies that generate 
more than EUR 150 million in the EU and have either an EU branch with turnover above 
40  million  or  an  EU  subsidiary  that  is  itself  in  CSRD  scope.  This  scope  represents  on 
average 30% of EU portfolios. To bridge the data gaps, FMPs are using estimates.  

In  addition,  the  recent  omnibus  Commission  proposal  reduces  the  CSRD  scope. 
Reporting  obligations  would  apply  only  to  large  companies  with  more  than  1000 
employees  (i.e.  companies  with  more  than  1000  employees  and  either  turnover  above 
EUR 50 million or balance sheet  above EUR 25 million). Non-EU companies in  scope 
would be reduced to the ones generating a turnover above EUR 450 million, with an EU 
branch threshold set at EUR 50 million and EU subsidiary threshold set at “large’. The 
ESRS are also expected to be streamlined.  

Special considerations for the review: the disclosures and criteria need to take account of 
the  upcoming  loss  of  publicly  available  data  from  CSRD  companies.  The  need  to 
generate/buy estimates is expected to grow.  

EU Taxonomy Regulation  

What is the EU taxonomy  

The  EU  Taxonomy  provides  a  classification  system  of  environmentally  sustainable 
economic activities. It helps address the risk of greenwashing and supports investors in 
directing  their  capital  towards  the  activities  needed  for  the  green  transition.  The  EU 
Taxonomy  can also  serve as a tool for financial  and non-financial  undertakings to  plan 
and  communicate  on  their  business  strategies,  transition  planning,  as  well  as  their 
investing and lending activities for the transition to a low-carbon, sustainable economy.  

How does it interact with the SFDR 

Financial products  promoting environmental characteristics or having  an  environmental 
objective are required to regularly disclose their alignment with the EU Taxonomy.  

The  recent  Commission  proposals  pursuant  to  the  Omnibus  simplify  the  reporting 
templates,  leading  to  a  reduction  of  data  points  by  64-89%  depending  on  the  type  of 

114 

 
 
 
company,  introduces  a  materiality  threshold  to  make  disclosure  of  alignment  for 
companies  with  less  10%  eligible  activities  not  mandatory,  introduces  the  option  of 
reporting partial alignment to foster transition finance, reduces the scope for mandatory 
reporting on operational expenditure and simplifies certain criteria245. 

Special considerations for the review: same as for the CSRD  

Benchmark Regulation  

What ESG disclosures does the Benchmark Regulation provide  

The  Benchmark  Regulation  (BMR)  introduced  disclosure  requirements  for  all  EU 
benchmarks  with  ESG  factors,  mandating  administrators  to  disclose  whether  they 
integrate ESG in their benchmark design, and if so how. BMR also requires benchmark 
administrators  of  EU  Climate  Benchmarks,  i.e.  Paris-Aligned  Benchmark  (PAB)  and 
Climate  Transition  Benchmark  (CTB)  to  regularly  report  on  the  performance  of  their 
benchmarks  against  a  set  of  sustainability-related  Key  Performance  Indicators  (KPIs). 
Their  methodologies 
focused  on 
decarbonisation trajectory and activity exclusions. Exclusions encompass companies that 
significantly  harm  one  or  more  environmental  objectives  set  out  in  the  Taxonomy 
Regulation.  PABs  and  CTBs  are  designed  to  reorient  investment  towards  ESG 
opportunities rather than focusing on simple risk reduction, in line with the objectives of 
a transition to a climate-resilient economy. 

rely  on  minimum 

requirements 

technical 

How does it interact with the SFDR 

ESG disclosures from benchmark administrators are indispensable for FMPs relying on 
benchmarks  for  their  ESG  features  of  their  portfolio.  In  addition,  SFDR  Art.9(3) 
recognises  EU  climate  benchmarks  as  a  robust  investment  strategy  for  funds  having  as 
their objective a reduction in  carbon emissions. They are widely  used as reliable labels 
for investment products pursuing a sustainable investment objective.   

Special  considerations  for  the  review:  the  future  SFDR  criteria  must  ensure  alignment 
with the criteria of the EU Climate Benchmarks to ensure these can be recognised as a 
robust  way  to  comply  with  the  categories.  Products  following  such  benchmarks  should 
automatically  be  recognised  under  the  relevant  category.  In  addition,  the  future  SFDR 
disclosures  should  take  the  benchmark  disclosures  into  account  to  avoid  situations  in 
which FMPs cannot get necessary data on the indices they use (to the extent possible.  

European Green Bonds standard  

EUGBS is a voluntary standard to help scale up and raise the environmental ambitions of 
the green bond market. It sets a gold standard for how companies and public authorities 
can  use  green  bonds  to  raise  funds  on  capital  markets  to  finance  ambitious  large-scale 
green  investments,  while  meeting  high  sustainability  requirements  and  protecting 
investors. The use of proceeds must be 100% aligned with the EU Taxonomy Regulation, 
with  the exception of the so-called flexibility  pocket  up to  15%, ensuring that financed 
projects contribute substantially to at least one of the six environmental objectives, do no 
significant  harm  to  others,  and  meet  minimum  social  safeguards.  Both  EU-based  and 

245 Commission to cut EU taxonomy red tape for companies - European Commission  

115 

 
 
 
 
international private or public issuers can adopt the standard, making it a potential global 
benchmark. 

How can this tool be used under the SFDR 

It  can  help  investors  to  easily  assess,  compare  and  verify  that  their  investments  are 
sustainable and ensure that funds are allocated to taxonomy-aligned economic activities, 
thereby reducing greenwashing risks. 

2.  SFDR  information  feeds  into  the  sustainability  preferences  and  target 

market under MiFID and IDD delegated acts  

These rules introduced the notion retail investors’ sustainability preferences as part of the 
suitability test in investment and insurance advice. Investors are given the opportunity to 
set minimum sustainability requirements for their investments which can be expressed in 
relation to SFDR disclosures (proportion of taxonomy-aligned investment, proportion of 
sustainable investment, consideration of principal adverse impact). Distributors therefore 
rely on products’ information made available under the SFDR to match retail investors’ 
preferences.  

Consideration for the review:  The future SFDR categories should be designed in a way 
that  is  easily  understandable  for  retail  investors  to  ease  the  implementation  of  the 
suitability test. In addition, the scope of financial products that can be distributed under 
MiFID  and  IDD  is  broader  than  the  SFDR  scope  (e.g.  shares,  bonds,  derivatives, 
structured  notes…).  The  review  should  explore  whether  some  of  these  products 
(especially structured notes) should be scoped in the SFDR to  avoid  greenwashing and 
ease as much as possible the implementation of the rules by distributors. 

3.  Further considerations regarding other specific parts of the EU acquis 

Corporate Sustainability Due Diligence Directive (CSDDD)  

The  CSDDD  requires  very  large  companies  and  ultimate  parent  companies  of  groups 
domiciled or active in  the EU to  conduct  due diligence to  identify  and address  adverse 
human rights  and environmental impacts  in  their own operations, their subsidiaries and 
their  value  chains.  It  also  requires  them  to  adopt  a  transition  plan  for  climate  change 
mitigation.  

How does it interact with the SFDR 

Compliance  with  the  CSDDD  entails  that  companies  under  the  scope  will  be  either 
sustainable  or  on  a  credible  path  to  sustainability  with  respect  to  human  rights  impacts 
and those environmental impacts that are regulated by the international conventions listed 
in  the  Annex  of  the  Directive,  and  will  have  adopted  relevant  good  governance  and 
management practices. These due diligence efforts and compliance with the CSDDD can 
influence investment  decisions under the SFDR.  In turn, the SFDR has the potential to 
help companies under the CSDDD finance their sustainability transition. 

Shareholder  rights  Directive,  Green  Claims  Directive,  EU  Ecolabel,  Unfair 
Commercial Practices Directive 

116 

 
 
 
4.  The Shareholder Rights Directive (SRD), as amended in 2017, sets out “comply 
or  explain”  rules  for  institutional  investors  and  asset  managers  with  respect  to 
their engagement and investment policies. Its Chapter Ib entered into application 
in  June 2019  and requires institutional  investors and  asset managers to  be more 
transparent  about  their  investment  strategies,  their  engagement  policies  and  the 
implementation  thereof.  These  “entity-level”  rules  help  investors  and  ultimate 
beneficiaries  such  as  future  pensioners,  life  insurance  policy  holders  and 
investment  fund  unit  holders  to  optimise  their  investment  decisions,  also  taking 
into  account  their  preferences,  including  with  respect  to  the  long-term  non-
financial  performance  of  the  investee  companies.  As  regards  the  (proposed) 
Green Claims Directive, SFDR disclosures are distinct as the directive does  not 
apply  to  mandatory  or  voluntary  sustainability  information  required  under  EU 
financial services rules including in the areas governed by the SFDR. The SFDR 
is  also  distinct  from  the  mooted  project  to  create  an  EU  ecolabel  for  financial 
products, which could have led to a system of granting an EU-level sustainability 
label  to  certain  funds  based  on  defined  conditions,  but  which  is  currently  on 
hold246. Finally, the Unfair Commercial Practices Directive247 and its subsequent 
Commission  guidance  on  unfair  business-to-consumer  commercial  practices248 
provides  examples  of  what  constitute  misleading  environmental claims or green 
claims,  which  apply  horizontally  to  all  commercial  products  and  are  meant  to 
complement existing rules that take into account the specific features of financial 
products.  Claims  under  the  revised  SFDR  could  fall  within  the  definition  of 
‘environmental claims’ under Article 2(1)(o) of the Directive, the requirements of 
which  would  be  met  by  application  of  the  requirements  under  the  SFDR 
(consistent  with  Article  3(4)  and  (9)  of  that  Directive).  ESMA  guidelines  on 
fund names 

In May 2024, ESMA issued its final guidelines249 for funds marketed in the EU that use 
ESG-  or  sustainability-related  terms  in  their  names.  The  guidelines,  which  aim  at 
protecting  investors  against  greenwashing  risk,  set  minimum  requirements.  Fund 
managers had until May 21, 2025, to either align with the requirements or change fund 
names  to  ensure  compliance.  Consistent  with  the  personal  scope  of  the  Sustainable 
Finance Disclosure Regulation, the guidelines are directed at fund managers250 marketing 
funds in the EU. 

Fund category 

No ESG word in 
name 

No additional requirement 

Requirements 

Social/governance or 

-  Minimum of 80% of investments used to meet  environmental or social 

246 Project plan | Product Bureau 
247 Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair 
business-to-consumer commercial practices in the internal market 
248 Guidance on the Unfair Commercial Practices Directive 
249 ESMA34-472-440 Final Report on the Guidelines on funds names 
250 The guidelines apply to fund managers who promote UCITS and alternative investment funds that use 
ESG- or sustainability-related terms in their names. 

117 

 
 
 
 
transition related 
term or “transition” 
in name 

Environment-related 
or impact related 
terms in name 

Sustainable related 
terms in name 

characteristics/sustainable investment objectives. 

-  CTB  exclusions251:  exclusions  of  companies  involved  in  (1)  any 
activities  related  to  controversial  weapons;  (2)  the  cultivation  and 
production of tobacco; (3) in violations of the UN Global Compact (UN 
GC) principles or the OECD Guidelines for Multinational Enterprises.  
If ‘transition’: investments contained in the 80% thresholds must be on a 
clear and measurable path to social or environmental transition 

- 

-  Minimum of 80% of investments used to meet environmental or social 

characteristics/sustainable investment objectives. 

-  PAB  exclusions:  CTB  exclusions  +  exclusions  of  companies  that 
derive :  (4)  1  %  or  more  of  their  revenues  from  exploration,  mining, 
extraction, distribution or refining of hard coal and lignite; (5) 10 % or 
more  of  their  revenues  from  the  exploration,  extraction,  distribution  or 
refining  of  oil  fuels;  (6)  50  %  or  more  of  their  revenues  from  the 
exploration,  extraction,  manufacturing  or  distribution  of  gaseous  fuels; 
(7)  50  %  or  more  of  their  revenues  from  electricity  generation  with  a 
GHG intensity of more than 100 g CO2 e/kWh. 
If ‘impact’: investments contained in the 80% thresholds must be made 
with  the  objective  to  generate  a  positive  and  measurable  social  or 
environmental impact alongside a financial return.  

- 

-  Minimum of 80% of investments used to meet environmental or social 

characteristics/sustainable investment objectives. 

-  PAB  exclusions:  CTB  exclusions  +  exclusions  of  companies  that 
derive :  (4)  1  %  or  more  of  their  revenues  from  exploration,  mining, 
extraction, distribution or refining of hard coal and lignite; (5) 10 % or 
more  of  their  revenues  from  the  exploration,  extraction,  distribution  or 
refining  of  oil  fuels;  (6)  50  %  or  more  of  their  revenues  from  the 
exploration,  extraction,  manufacturing  or  distribution  of  gaseous  fuels; 
(7)  50  %  or  more  of  their  revenues  from  electricity  generation  with  a 
GHG intensity of more than 100 g CO2 e/kWh 
Invest meaningfully in sustainable investment (minimum of 50%) 

- 

5. How the Omnibus interacts with the SFDR review  

The SFDR was not included as part of the announcement by the Commission President in 
November 2024 setting the stage for the February 2025 Omnibus252. This focused rather 
on simplifications to sustainability information under CSRD, the EU Taxonomy and the 
Corporate Sustainability Due Diligence Directive. The review of the SFDR was  already 
well  underway  by  this  time,  with  the  consultations  carried  out  already  having  clearly 
signalled  the  preferred  directions  how  to  simplify  the  framework.  In  other  words,  the 
priority  objective  of  simplification  underpinning  the  Omnibus  was  already  well-

251 As defined in Article 12(1)(a)-(c) of Commission Delegated Regulation (EU) 2010/1818 
252  Remarks  after  the  Informal  meeting  of  Heads  of  State  and  Government  regarding  the  Budapest 
Declaration  on  the  New  European  Competitiveness  Deal,  https://audiovisual.ec.europa.eu/en/video/I-
263708 

118 

 
 
 
 
 
 
established  for  the  review  of  the  SFDR  at  that  time,  and  signalled  accordingly  under  a 
"simplification” policy objective in the Commission 2025 Work Programme253.  

It  is  also  appropriate  to  carry  out  the  review  of  the  SFDR  in  a  successive  step  and  to 
reflect, in its revised design, the new scope and range of sustainability information from 
corporates to be delivered under the Omnibus. This helps avoid a situation like in 2021 
where  FMPs’  disclosure  obligations  were  defined  before 
those  of  EU 
corporates/investees were clear254. At the same time, it is not advisable to delay adopting 
the  reviewed  SFDR  until  all  changes  under  the  Omnibus  are  complete,  including  the 
finalisation of simplification changes to the European Sustainability Reporting Standards 
(ESRS).  This  is  to  avoid  prolonging  FMPs  having  disclosure  obligations  under  SFDR 
which are no longer catered for (with specific datapoints255) under a revised ESRS, which 
could also complicate the effort to simplify ESRS the longer this persists. 

Reviewing the SFDR is also necessary and coherent subsequent to the Omnibus, given its 
focus  on  paring  back  excessive  requirements  notably  in  the  CSRD  and  the  EU 
Taxonomy.  In  this  regard  however,  while  publicly  available  corporate  sustainability 
information from larger EU corporates/investees under these frameworks will continue to 
be important under SFDR, the investable universe for financial products always extended 
far  beyond  listed  and  larger  EU  companies  under  the  CSRD  scope.  Besides  the  strong 
support  from  investors  for  information  on  the  sustainability  features  of  financial 
products,  reviewing  the  SFDR  in  a  commensurate  way  is  nonetheless  necessary  to 
sustain the specific use-case for sustainability information required under the CSRD and 
Taxonomy to inform the composition and disclosures for financial products. Otherwise, 
the continued purpose of the CSRD and Taxonomy would be partially undermined.  

253 Commission work programme 2025 - European Commission 
254 See Section 4 ‘Conclusions and lessons learned’, Annex 11 
255 The current ESRS includes over 50 datapoints to support the corresponding information provisions of 
financial market participants related to principal adverse impacts set out in the SFDR Level 2 (Commission 
Delegated Regulation (EU) 2022/1288) 

119 

 
 
 
 
 
 
 
 
 
 
 
 
ANNEX 7: ADDITIONAL BACKGROUND ON SPECIFIC SECTORS OR 
INVESTMENTS 

Special considerations for insurance and pension products   

Manufacturers  of  pension  schemes  and  funds  and  insurance-based  products  have  faced 
challenges  in  the  first  years  of  the  SFDR  implementation.  They  have  flagged  that  they 
manage complex portfolios, with a broader range of listed and unlisted assets, than most 
retail investment products, and that some of their main assets cannot be assessed against 
the  ESG  framework,  in  particular  for  sovereign  bonds.  These  points  are  not  specific  to 
pension  and  insurance  products,  however,  as  many  UCITS  and  AIFs  face  the  same 
challenges.  However,  this  coupled  with  regulatory  constraints  and  data  availability 
issues, has led to lower portfolio ratios for pensions and insurance providers that can be 
aligned with the concepts for sustainable investments given in the SFDR (i.e. Taxonomy-
alignment or definition of sustainable investment). 

The pension funds industry has shown a nuanced support for a categorisation system and 
raised two issues linked to the specificities of the sector: 

(1) Concerns  that  the  criteria  would  not  fit  their  portfolio:  FMPs  have  flagged 
that  the  current  SFDR  disclosures  (i.e.  PAIs,  good  governance  and  taxonomy 
KPIs)  are  applicable  mainly  to  listed  equity  but  not  the  other  assets  in  which 
pension funds/IORPs invest. These data points are either very difficult (PAIs) or 
impossible to generate (Taxonomy) for assets such as sovereign bonds. 

According  to  feedback  received,  the  two  sets  of  criteria  outlined  in  Section  5 
could make sense, but they would need to reflect the nature of the assets held 
by such products. The pension funds industry for instance points out that various 
long-term products (characterised by diversification, low risk) might never reach 
the  “sustainable”  category.  FMPs  have  also  flagged  that  portfolio  level  PAB 
exclusions would not be applicable to 100% of pension funds/IORPs due to their 
investments in certain assets.  

(2) Concerns  that  the  potential  role  for  the  categories  in  the  distribution  and 
marketing  rules  would  not  fit  their  sectoral  rules.  Some  pension  funds 
participants have a fundamentally different customer journey than retail investors. 
Members of IORPs and certain pension products are automatically enrolled, while 
some  pension  products  are  commercialised  and  compete  with  other  financial 
products.  Moreover,  for  auto-enrolment  products,  FMPs  argued  that  products 
would  not  have  any  incentive  to  mislead  consumers  through  greenwashing, 
questioning the need to reinforce their marketing rules. 

The  insurance  industry  has  similar  concerns.  The  majority  of  FMPs  consider  that 
criteria  should  be  suitable  for  broadly  diversified  portfolios,  e.g.  in  respect  of  the 
prudent person principle in Solvency II, and the diversified range of products they cover. 
Stakeholders  have  also  asked  that  categories  should  guarantee  that  all  investment 
instruments (e.g. government bonds) of portfolios are covered by the metrics of the 
system.   

120 

 
 
 
FMPs  have  also  argued  that  criteria  will  also  need  to  reflect  the  characteristics  of 
insurance products. Stakeholders have identified some technical elements that should be 
addressed  (e.g.  the  definition  of  ‘all  investments’  encompasses  many  assets  that  have 
nothing to do with investments, like deposit to cedants or cash equivalents).   

Treatment of sovereign256 bonds Given the specific nature of general purpose sovereign 
bonds which can fund a variety of public sector expenditures such as hospitals, schools 
etc. or investments  such as transport networks  and other infrastructures,  and which can 
thus be difficult to assess against sustainability metrics, specific solutions are required on 
how to integrate them in any calculations for the positive contribution criterion linked to 
product categories257. The solution should apply beyond insurance and pension products.  

An option is to continue including them and signal relevant metrics against which they 
can be assessed (provided e.g. by the World Bank258, some NGOs or other entities/trade 
bodies259), but these may not cover the same ground as would be possible for corporate 
bonds, across all relevant  ESG metrics. Another would be to  include them only  for the 
parts of products which are screened using similar metrics, e.g. associated with social and 
governance metrics such as human rights and corruption. This would mean FMPs having 
to  provide  more  detailed  explanations  distinguishing  between  parts  of  products  where 
comparable data between sovereign and corporate issuers is possible and where it is not.  

Alternatively,  they  could  be  included  based  solely  on  a  screening  of  available  metrics 
(and spared from having to be assessed against unavailable ones). This could mean quasi-
automatic qualification for some issuers which fare well in relation to human rights and 
other  governance  indicators  or  climate  change  and  other  environmental  commitments, 
and  outright  exclusion  of  those  that  don’t  (e.g.  favouring  EU  sovereign  issuers  as 
opposed to those blacklisted under various instruments e.g. sanctions, money laundering 
or tax avoidance lists etc).    

Yet  another  option  could  be  for  FMPs  to  have  the  option  of  excluding  them  and 
providing  explanations  in  their  disclosures  of  the  part  of  products  that  this  relates  to. 
However, this could have drawbacks in terms of overall comparability. Finally, sovereign 
bonds  could  be  excluded  altogether,  subject  to  a  review  clause  on  their  inclusion, 
subsequent  to  the  development  of  guidance  or  further  methodologies  for  how  to  assess 
them more comprehensively against sustainability metrics.    

Stakeholder  feedback  on  the  issue  is  also  mixed  and  inconclusive.  There  is  seemingly 
little  support  for  either  outright  inclusion  or  exclusion.  The  intermediate  options  of 
partial/optional inclusion may thus be preferred, subject to additional disclosures. Given 
the  primarily  political  nature  of  the  decision,  however,  these  options  are  not  subject  to 
further consideration of their relative impacts in this impact assessment.    

Multi-option products (“MOPs”) which allow consumers to choose between different 
underlying funds for investing, should be able to demonstrate that they fulfil the criteria 
of  the  categories  and  be  classified  accordingly.  This  is  a  challenge  due  to,  inter  alia, 

256 Reference here also covers sub-sovereign and supranational debt 
257 At present,  sovereign bonds account for c.10-20% of  Article  8 and 9 funds (see:  SFDR Article 8 and 
Article 9 Funds: Q2 2025 in Review | Morningstar) 
258 Home | Worldwide Governance Indicators 
259  E.g.  Freedom  House  |  Expanding  and  Defending  Freedom  Worldwide;  2024-state-of-transition-in-
sovereigns-2024-tracking-national-climate-action-for-investors-report.pdf; Sovereign Bonds   

121 

 
 
 
 
investment  options  that  are  not  financial  products  sold  as  part  of  IBIPs  (and  pension 
schemes) in many Member States, or the variety of underlying investments, which often 
can be determined by the client at the point of sale. 

Special considerations for impact investing  

Impact  investing  refers  to  the  small  but  growing  market  practice  of  managing  and 
channelling  investments  that  target  measurable  change  in  specific  environmental  or 
social areas. The practice involves investment funds set up with a pre-defined intention 
with  regard  to  addressing  an  environmental  or  social  need,  investing  in  specialised 
companies  or  projects  delivering  targeted  solutions  in  these  areas,  and  measuring  and 
managing  the  desired  impact  while  earning  a  financial  return  for  investors.  The  funds 
typically  define  an  upfront  strategy  (‘theory  of  change’)  to  underpin  investments  and 
seek  to  ensure,  and  measure,  impacts  in  terms  of  outcomes  which  would  not  have 
happened  without  the  investments.  The  funds  can  invest,  for  instance,  in  start-ups 
pursuing environmental solutions or products and other initiatives and ventures targeting 
specified social or health outcomes.  

impact 

According  to  Impact  Europe,  a  trade  association  representing  the  industry,  in  2024  the 
European 
in  assets  under 
investing  market  managed  EUR190  billion 
management,  up  from  around  EUR  80  billion  in  2022.  Data  from  ESMA  and 
Morningstar shows a fourfold increase in the use of the term “impact” in funds’ names 
between  2019  and  mid-2024,  with  roughly  450  European  UCITS  and  AIFs  using  the 
term  (compared  to  over  7500  using  general  ESG  terms),  representing  0.57%  of  total 
UCITS and 0.51% total AIFs. Growth seems to have levelled off since 2023. The broad 
concept  is  recognised  as  one  of  the  four  distinct  labels  under  the  UK  FCA’s 
Sustainability  Disclosure  Requirements,  and  the  use  of  the  term  is  also  subject  to 
ESMA’s  guidelines  on  fund  names  using  ESG  terms.  ESMA  is  also  developing  a 
supervisory tool to promote convergence in oversight by NCAs of the practice. 

Some  stakeholders,  notably  from  the  impact  industry  itself,  have  favoured  creating  a 
dedicated  category  for  impact  investing  in  the  SFDR,  saying  this  would  give  added 
clarity  and  visibility  to  the  practice,  and  help  mobilise  funds  in  pursuit  of  various 
(possibly  underserved)  EU  objectives.  Some  stakeholders  also  suggest  that  a  dedicated 
category would be needed to serve the 50% of European investors who are found to want 
to make a real-world impact with their savings, and channel funds towards start ups and 
scale  ups  working  on  innovative  green  and  social  solutions260..However,  given  the 
relatively small  scale and recent  character of the activity in  the overall context of ESG 
investing,  the  nascent  and  developing  supervisory  experiences,  as  well  as  balance  of 
stakeholder  views,  the  case  for  a  distinct  category  in  a  revised  SFDR  does  not  appear 
crucial. Rather, it is assessed that the activity can be accommodated in the broader more 
encompassing  categorisation,  e.g.  within  the  principles  and  criteria  for  sustainable  or 
transition  products.  Specific  disclosures  can  apply  to  funds  claiming  impact  in  their 
names or in their disclosures, based on a common definition of the practice (e.g. theory 
of change, monitoring of the impact etc). 

Special considerations regarding the defence sector  

Amid  some  concerns  raised  in  the  past  that  ‘ESG  factors’  are  posing  impediments  to 
investments in the defence sector, the Commission has clarified on several occasions that 

260 WWF: Recommendations on the SFDR Review Sustainable Finance | WWF 

122 

 
 
 
 
there are no such restrictions in the SFDR, or in the EU sustainable finance framework 
more  broadly.  For  example,  the  March  2024  Communication  for  a  European  Defence 
Industrial Strategy (EDIS)261 sets out that “under the EU sustainable finance framework, 
no EU rule, or any EU planned rule, impedes private investment in the defence industry” 
262. This messaging was reaffirmed by the White Paper on European Defence Readiness 
2030  of  March  2025263,  stating  that  the  SFDR  review  will  provide  additional 
clarifications  “on  the  relationship  of  defence  with  the  investment  goals  of  the 
sustainability framework”.  

Under  the  SFDR  companies  active  in  the  defence  sector  are  subject  to  the  same 
expectations  as  companies  in  any  other  sectors.  However,  in  practice  some  product 
providers  or  supervisors  may  de-facto  consider  such  investments  as  incompatible  with 
products making ESG claims, reflecting in part potential long-standing concerns of some 
investors to invest in the defence sector.  

Against  this,  the  review  of  the  SFDR  should  reflect  relevant  unfolding  developments 
regarding  the  need  to  continue  supporting  private  investments  towards  defence264.  The 
SFDR  should  notably  build  on  the  guidance  from  the  Commission  regarding  the 
application of the EU sustainable finance framework regarding the defence sector. This 
guidance,  announced  in  the  EDIS  Communication,  re-confirms  that  nothing  in  the 
framework  discriminates  against  defence265  and  that  investing  in  companies  in  the 
defence sector can be compatible with a sustainable investment strategy provided that the 
relevant  due  diligence  checks  are  performed  like  for  other  sectors.  The  revised  SFDR 
should also duly reflect the actions, announced in the March 2025 White Paper, to further 
bolster  access  to  finance  for  the  defence  sector  in  the  defence  readiness  omnibus 
proposals of June 2025266.   

The policy choices for the SFDR review in this area flow from these steps taken by the 
Commission and are not subject to further consideration in this impact assessment.    

261https://defence-industry-space.ec.europa.eu/document/download/643c4a00-0da9-4768-83cd-
a5628f5c3063_en?filename=EDIS%20Joint%20Communication.pdf  
262 With the exception of the specific case of controversial weapons banned by international conventions 
(biological  and  chemical  weapons,  anti-personnel  mines,  cluster  munitions),  which  are  subject  to  more 
stringent disclosures in SFDR or exclusions under PAB/CTB. 
263https://defence-industry-space.ec.europa.eu/document/download/30b50d2c-49aa-4250-9ca6-
27a0347cf009_en?filename=White%20Paper.pdf  
264 Recent data  shows continuing  growth in investments into aerospace and defence notably by Article 6 
and 8 funds (see: SFDR Article 8 and Article 9 Funds: Q2 2025 in Review | Morningstar) 
265  For  further  context,  UK  authorities  have  also  provided  similar  clarifications.  See  FCA  position  on 
sustainability regulations and the UK defence, 11/03/2025 
266 Defence Readiness Omnibus - European Commission 

123 

 
 
 
 
 
 
ANNEX 8: ADDITIONAL INFORMATION AND ILLUSTRATIVE 
EXAMPLES OF POTENTIAL CRITERIA AND DISCLOSURES (OPTION 
3.1 AND 3.2) AND APPROACH TO ESTIMATION 

This  annex  recaps  and  further  explains  the  suggested  criteria  presented  in  section  5.4 
under  option  3.1  and  3.2.  It  also  provides  for  mock  templates  for  the  streamlined 
disclosures described under option 2.2.  

DISCLAIMER:  The content of this  annex does not pre-empt the future elaboration of 
level 2 rules. It aims at providing more information on the type of criteria which could be 
elaborated on the basis of high-level principles to be set in the regulation. It also aims at 
helping  readers  understand  how  the  categories  can  work  in  practice  and  what  the 
suggested disclosures could look like.  

ANNEX 8 - TABLE OF CONTENTS  

1. 

Section 1: Proposed criteria for the categories proposed in option 3.1 and 
3.2.  

1.1.The two pillars approach 

1.2.Concrete criteria per category  

1.3.Illustrative example of how the criteria could be implemented  

1.4.Evidence of the usability and feasibility of the criteria 

Section 2: Proposed product disclosures under option 2.2. 

Section 3: Proposed approach to estimation to bridge the ESG data gaps 

2. 

3. 

124 

 
 
 
 
 
 
 
 
 
 
 
SECTION 1: UNDERLYING CRITERIA FOR THE CATEGORIES PROPOSED                     

UNDER OPTION 3.1 AND 3.2 

This  section  describes  the  set  of  criteria  suggested  for  the  categories  and  provides  for 
illustrative examples of what the concrete and detailed criteria (to be further developed 
at  level  2)  could  look  like.  It  also  provides  illustrative  examples  of  how  these  criteria 
could  be  applied  in  practice  and  provides  evidence  of  the  feasibility  of  the  suggested 
criteria as well as evidence of their likely impact.  

SUMMARY OF THE MAIN FINDINGS: 

The  current  SFDR  definition  of  ‘sustainable  investment’  builds  on  three  principles: 
investment having an environmental or social objective, causing no significant harm (as 
per  the  ‘do  no  significant  harm’  [DNSH]  principle  through  the  consideration  of  the 
principal  adverse  impact  indicators)  and  investing  in  companies  with  good  governance 
practices.  

As set out in Sections 5.4 and 6.3 in the main report, the revised criteria build on these 
core  principles  and  underpin  them  with  a  set  of  clear  minimum  criteria  to  prevent 
greenwashing  and  the  excessive  fragmentation  of  FMPs’  approaches.  This  would  bring 
clarity  to  FMPs  in  the  application  of  the  criteria,  help  systematize  the  categorisation 
process and enhance the comparability of products. The cost of implementation of these 
criteria will be limited by ensuring continuity with robust market practices and existing 
rules, namely the ESMA guidelines on funds’ names. 

How will the proposed criteria enhance comparability and help fight greenwashing?  

The evaluation (annex 11) has identified that the lack of clarity linked to the concept of 
‘sustainable  investment’  has  led  to  widely  different  interpretations  and  implementation 
approaches amongst FMPs. As shown in box 10 of annex 1, the exposure to sustainable 
investments of products tracking a similar benchmark can range from 1% to 80%.  

The  evaluation  also  finds  that  the  ‘DNSH  test’,  which  is  done  through  the  high-level 
principle  of  ‘consideration  of  principal  adverse  impacts’,  has  not  led  to  harmonised 
implementation  practices  and  has  not  prevented  harmful  investments.  This  is  mainly 
because the current SFDR leaves considerable discretion to FMPs in choosing how they 
consider these impacts.  

To remedy this, two main measures are suggested to enhance the comparability and help 
fight greenwashing:  

➢  Positive contribution: Setting a minimum portion of investment to contribute 

to the sustainability objective (70/80% of the product)  

➢  Exclusions:  Setting  clear  exclusions  of  harmful  industries  and  activities  in 
which  products  cannot  invest  in  –  these  exclusions  would  be  aligned  with  the 
ones  of  the  EU  Climate  Benchmarks,  as  introduced  by  the  ESMA  guidelines  on 
funds’ names 

125 

 
 
 
 
 
What  is  the  evidence  that  reliable  and  comparable  sustainable  information  is 
available for the proposed criteria? How to ensure that the costs of implementation 
and market disruptions will be limited (to the extent possible)?  

Section 1.4 presents further evidence on the feasibility of the proposed criteria based on 
market analysis of current financial products.  

the 

that  at 

least  80%  of 

investments  align  with 

First, the bulk of the suggested criteria replicate what has already been introduced 
under  the  ESMA  guidelines  for  ESG  funds  names.  The  guidelines,  which  started 
applying in May 2025, require investment funds with ESG-related terms in their names 
to  (1)  ensure 
their  ESG 
objectives/characteristics; (2) apply the exclusions of the EU Climate Benchmarks.  The 
number  of  investment  funds  currently  applying  these  requirements  has  been 
estimated  at  4.570267.  The  same  study  also  estimates  that  the  universe  of  funds  using 
ESG-related  terms  only  decreased  by  8%  since  the  entry  into  application  of  these 
requirements,  showing  that  most  funds  in  scope  managed  to  implement  the  ESMA 
criteria. Since the criteria for the categories largely build on these guidelines, most of 
the one-off implementation costs would have already been borne by funds in scope 
of  the  guidelines.  In  addition,  market  analysis  described  in  section  1.4  shows  that  the 
implementation  of  sectoral  exclusions  are  the  key  elements  of  comparability 
identified  in  funds  with  ESG  characteristics  or  objectives,  demonstrating  the  well-
established market practices around exclusions268.  

Second, the criteria refer to sustainability topics for which the information is either 
available from investee companies or possible to estimate by FMPs/external providers 
when the information is missing (more information on the approach to estimation below 
in section 3). The proposed exclusions build on findings from market analysis on which 
indicators  are  most  frequently  disclosed  by  companies269270  and  rely  on  common  and 
clear metrics which are possible to estimate in a harmonised way.  

Practical  limitations  to  reach  perfect  comparability  First,  there  are  certain  practical 
limitations to the levels  of comparability which can be reached/required from products. 
Findings  from  the  evaluation271  show  that  there  is  no  ‘one  size  fits  all’  on  how  to 
granularly  define  what  a  positive  contribution  to  a  sustainability  objective  should  be. 

267 ‘ESMA Guidelines on ESG Funds’ Names, early insights into rebranding activity and portfolio impact’ 
by Morningstar/Sustainalytics, 20 May 2025. 
268 Frank Bold, SFDR review: analysis of current practices and future directions for investors, December 
2024 and Morningstar, SFDR Article 8 and Article 9, 2022 
269  For  example,  the  PSF  report  highlights  which  sustainability  indicators  lack  publicly  available  or 
estimated  data,  such  as  biodiversity  and  water.  The  ESAs  annual  report  mentioned  above  also  gives  a 
useful state of play of the reporting based on FY 2023. In addition, box 12 of annex 11 shows that ESG 
data is widely available on topics such as GHG emissions, exposure to fossil fuel sectors and exposure to 
controversial weapons.  
270  For  example,  for  the  transition  category,  in  2024,  37%  of  polled  investors  in  a  Robeco  study  (300 
FMPs) said they already invest in companies with high emissions if they have credible transition plans, and 
an extra 26% are planning to do so in following 1-2 years. Similar figures are reflected in a 2024 Morgan 
Stanley survey showing that globally, of the asset owners and asset managers surveyed that have a net-zero 
target, 32% and 25% respectively are expecting to meet their target by mostly shifting capital toward high 
emitters that are decarbonising and a further 28% of both groups is expecting to do so by a combination of 
this  and  tilting  toward  low  emitters.  Lastly,  a  2025  survey  commissioned  by  E3G  in  the  UK  found  that 
86% of investors surveyed consider transition plans as a valuable tool to inform their investment decisions. 
271 For example, the different approaches to contribution described in Frank Bold, SFDR review : analysis 
of current practices and future directions for investors, December 2024 

126 

 
 
 
 
This is mainly due to the wide variety of assets, strategies, sustainability objectives that 
exist  in  the  current  market.  If  a  very  granular  and  common  (mandatory)  approach  to 
contribution was to be applied to all products regardless of their sustainability objective 
(e.g. minimum alignment with the EU Taxonomy), the investment universe would be too 
restricted, and the categories would not be usable (i.e. only a handful of products could 
be  categorised).  In  other  words,  it  would  be  counterproductive  to  micro-engineer  what 
characteristics ESG products could have to this extent, both for product innovation and 
for  ensuring  a  future-proof  regulatory  framework,  for  encouraging  the  offer  of  ESG 
products on the market, and ultimately for both the specific and general objectives of this 
initiative272. In fact, the potential of categories to simplify the framework for FMPs and 
to enhance the comparability of products and fight greenwashing would be significantly 
lowered if only a handful of EU products are categorised.  

Therefore,  the  suggested  criteria  focus  on  ensuring  harmonised  levels  of  contribution 
rather than granularly defining the nature of the contribution for them. This would also 
ensure  continuity  with  what  investment  funds  had  to  implement  under  the  ESMA 
guidelines on funds’ names (in application since May 2025). FMPs would be required to 
measure  and  disclose  their  assessment  of  performance  against  the  objective  that  they 
contribute  to.  This  should  be  based  on  credible  and  where  possible  science-based 
indicators273.   

In  addition  to  the  measures  described  above,  the  Commission  could  be  empowered  to 
define a minimum ESG performance for certain sustainability objectives. In order to set 
this comparable minimum quantitative criterion on performance, two elements would be 
needed:  (1)  widely  available  data  from  underlying  investments  or  otherwise  estimable 
datapoints;  (2)  a  politically  agreed  science-based  target  (e.g.  minimum  performance  on 
GHG  emissions  for  climate-related  objectives)  so  that  the  law  can  set  that  minimum 
threshold unequivocally.  

Practical limitations to ensuring safeguards on certain sustainability topics: Second, the 
data  availability  issues  described  in  the  problem  definition  impact  the  amount  of 
sustainability  topics  for  which  robust  safeguards  against  greenwashing  can  be  applied 
(for  now).  Even  though  the  current  DNSH  covers  12  sustainability  topics274,  data 
availability  issues  have  impacted  the  implementation  of  the  current  DNSH  test  and 
prevented  the  implementation  of  safeguards  on  issues  for  which  no  data  was  available. 
This  has  created  the  false  perception  that  ESG  products  consider  all  possible  ESG 
negative  impacts  despite  the  lack  of  requirements  linked  to  the  consideration  of  such 
impacts  and  the  lack  of  available  data  to  do  so.  Many  stakeholders  reported  that  they 

272 E.g. to illustrate the point, limiting ESG products to those for which granular publicly available data is 
available under the (post-omnibus) CSRD, would represent a considerable change and challenge for FMPs 
in  terms  of  administrative  requirements  and  continuity  (vs.  specific  objective  1),  give  investors  a  very 
narrow  ESG  product  range  for  any  meaningful  comparison  to  serve  their  demonstrated  interest  in  ESG 
investing  (vs.  specific  objective  2;  Annexes  2  and  10),  and  would  rather  diminish  the  scope  of  the  EU 
single market for sustainable finance rather than boost its integrity (vs. general objective 1) and potential to 
efficiently  allocate  capital  for  Europe’s  competitiveness  and  sustainable  prosperity  (vs.  general  objective 
2).  
273 The SFDR level 2 could also provide a non-exhaustive list of ESG indicators on certain sustainability 
topics for FMPs’ use (see further under section 1.2 below) 
274  These  topics  are  set  by  Commission  Delegated  Regulation  (EU)  2022/1288,  through  the  principal 
adverse  impacts  (PAIs)  listed  in  table  1  of  Annex  I:  GHG  emissions,  carbon  footprint,  GHG  intensity, 
exposure to the fossil fuel sector, non-renewable energy consumption and production, energy consumption 
intensity, biodiversity, water, waste, human right due diligence processes, gender pay gap, gender diversity 
and controversial weapons. 

127 

 
 
 
 
typically  do  not  select  PAIs  that  have  less  than  40%  coverage  (i.e.  where  they  have 
underlying data for less than 40% of the portfolio). The PAIs for which the coverage is 
the  lowest  (as  shown  in  box  12  of  Annex  11)  include  biodiversity,  water  and  waste. 
Therefore,  the  suggested  safeguards,  in  the  form  of  exclusions,  only  focus  on 
sustainability topics for which reliable and comparable information can be derived (based 
on  findings  in  Annex  11).  While  this  approach  would  indeed  lead  to  a  reduction  of 
mandatory sustainability aspects to be analysed, it is a necessary trade-off to improve the 
efficiency and effectiveness of the criteria.  

Table 1: Key impacts of the proposed criteria (compared to current situation)  

Identified legal limitations  

Practical impact  

Current situation 

No minimum expectation regarding the positive 
contribution of the product.  

The  levels  of  sustainable  investment  can  vary 
significantly.  

Example shown in Annex 11 (box 10): Products with 
very similar sustainability objectives report a portion 
of sustainable investment  varying from  1% to  80%. 
Their 
therefore  not 
harmonised.  

levels  of  contribution  are 

There  is  no  guarantee  that  these  products  will  not 
include  harmful  investment,  despite  having  applied 
the ‘do no significant harm’ principle and appearing 
to be compliant with EU rules.   

No  harmonised  approach  on  how  to  ensure  no 
significant harm. In other words, FMPs are free 
to  choose  the  way  they  consider  their  adverse 
impacts on the indicators provided in the SFDR 
delegated acts.  

New situation under the proposed criteria 

Proposed criteria   

Practical impact  

Mandatory  minimum  proportion  of  the  product 
to contribute to the sustainability objective    

The  levels  of  sustainable  investment  would  be 
harmonised across all categorised products.  

Mandatory  common  exclusions  of  harmful 
activities   

The  specific  thresholds  are  indicated  below  in 
section 1.2.  

There  would  be  a  list  of  industries  or  activities that 
products  cannot  invest  in.  This  will  guarantee  no 
harmful  investments  (on  topics  for  which  binary 
exclusions are feasible and implementable).  

128 

 
 
 
 
 
 
1.1.CRITERIA 

BUILT 

ON 

TWO 

PILLARS: 

POSITIVE 

CONTRIBUTION/AMBITION AND EXCLUSIONS  

   Pillar 1: positive contribution ensuring minimum levels of ESG ambition 

This criterion relates to the current SFDR concepts of ‘contribution’ and ‘environmental 
and  social  characteristics’  -  present  in  Articles  9  and  8  respectively  -  and  aims  at 
addressing the lack of legal clarity and greenwashing risks related to these concepts.  

FMPs would be free to choose their own sustainability objective(s) and how they plan to 
contribute to it/them, subject to proper transparency. However, a minimum threshold of 
the product’s portfolio to be covered by the ESG strategy would be required:  

✓FMPs  must  clearly  disclose  their  binding  sustainability-related  objective(s) 
and the strategy to achieve it/them 

✓The  binding  objective(s)  should  consist  of  having  a  minimum  level  of 
investment  above  a  certain  threshold  (i.e.  portion  of  portfolio  covered  by  the 
objective strategy) 

✓The  assessment  of  performance  against  this  objective  should  be  based  on 
credible  and  where  possible  science-based  indicators.  Such  measurement  could 
leverage  on  existing  PAI  indicators  (subject  to  improvements),  and  other  ESG 
performance indicators which could be developed at level 2, and should be clearly 
disclosed in contractual documentation. .  

Pillar 2: exclusions ensuring minimum safeguards on certain ESG issues  

This criterion relates to the current DNSH and good governance principles of the SFDR. 
It  aims  at  moving  away  from  the  high-level  concept  of  “consideration  of  principal 
adverse impact” and setting clear binary exclusion criteria. 

The negative criterion would take the form of a clear list of industries or activities that 
products  cannot  invest  in.  Such  list  would  build  on  what  is  already  applied  under  the 
ESMA  guidelines  on  funds’  names  and  would  reflect  a  wide  consensus  of  harmful 
industries and industries with high carbon footprints.275 

Such exclusions would make rules more consistent across the EU, harmonise the NCAs’ 
supervisory expectations about what categorised products cannot invest in, and therefore 
enhance  the  comparability  between  such  products,  in  line  with  investors’  broadly 
signalled preferences regarding which sectors should be excluded (Annex 10).  

275  The  ESMA  guidelines  require  funds  to  exclude  certain  companies  referred  to  in  the  EU  climate 
benchmark exclusions. 

129 

 
 
 
 
 
 
 
Also, by focussing on fewer sustainability topics than the current DNSH, this approach 
would  reduce  the  amount  of  data  that  FMPs  need  to  collect276.  The  new  minimum 
safeguards would focus on elements where data is available, making it more realistic to 
apply  the principle in  practice.  Inevitably,  the exclusions can and will not  cover all the 
ESG aspects previously  covered by the PAIs (e.g. biodiversity and water). FMPs could 
continue to identify and consider material negative outcomes on these topics on a best-
effort basis.  

1.2.SUGGESTED DETAILED CRITERIA FOR EACH CATEGORY  

The below largely builds on the criteria already introduced by the ESMA Guidelines on 
funds’  names  and  reflects  the  current  state  of  the  market  (see  section  1.4  below).  The 
suggested criteria also take account of the findings on data availability in the evaluation 
annex (more specifically the findings on box 12) and rely, as much as possible, on ESG 
concepts for which reliable and comparable sustainability information is available.  

Sustainable category 

Positive contribution:  

✓  FMPs  must  clearly  identify  and  disclose  the  sustainability  objective(s) 
(which could be climate, environmental or social related).  

✓  FMPs  must  implement  a  binding  investment  strategy  linked  to  this  objective 
which needs to cover 70/80% of the product’s portfolio277. FMP remain free to 
set their own strategy. The strategy would need to be substantiated and monitored 
by ESG key performance indicators (KPIs) defined by FMPs. The SFDR could 
provide  a  non-exhaustive  list  of  ESG  indicators  (to  be  defined  at  level  2)  on 
certain  sustainability  topics  (e.g.  GHG  emissions,  renewable  energy,  water, 
waste)  which  FMPs  can  use  depending  on  their  sustainability  objective(s)278  to 
monitor and disclose their ESG performance linked to  their strategy. FMPs  will 
remain free to use other indicators if these do not fit their sustainable objective(s) 
(e.g.  qualitative  objective  linked  to  social  issues)  or  their  strategy  (e.g.  impact 
strategies needing tailored KPIs). A minimum alignment with the EU Taxonomy 
could for example be one of the ways FMPs can demonstrate their contribution to 
a climate or environmental objective (safe harbour).  

The assessment of the performance against the chosen sustainability indicator(s) must be 
clearly disclosed in contractual documentation.  

276  These  topics  are  set  by  Commission  Delegated  Regulation  (EU)  2022/1288,  through  the  principal 
adverse  impacts  (PAIs)  listed  in  table  1  of  Annex  I:  GHG  emissions,  carbon  footprint,  GHG  intensity, 
exposure to the fossil fuel sector, non-renewable energy consumption and production, energy consumption 
intensity, biodiversity, water, waste, human right due diligence processes, gender pay gap, gender diversity 
and controversial weapons. 
277  Further  analysis  to be  done ahead  of  the  adoption  of  the  level  2 measures.  ESMA  guidelines  refer  to 
80%, the FCA labelling rules refer to 70%. 
278 This list would build on the current principal adverse indicators of the annex 1 of the SFDR Delegated 
Act and would take into account EU corporate reporting rules, market practices and available data.  

130 

 
 
 
 
 
 
Exclusions:  

The  product  must  apply  exclusions  based  on  those  of  the  EU  Paris-Aligned 
Benchmark (PAB) 

 Activities related to controversial weapons  

 Activities related to the cultivation and production of tobacco 

 Companies in violation of the UN Global Compact (UN GC) principles or the 
OECD Guidelines for Multinational Enterprises (also covering the existing good 
governance leg) 

  Companies  that  derive  1%  or  more  of  their  revenues  from  exploration, 
extraction, distribution or refining of hard coal and lignite 

  Companies  that derive 10  % or more of their revenues  from  the exploration, 
extraction, distribution or refining of oil fuels 

  Companies  that derive 50  % or more of their revenues  from  the exploration, 
extraction, manufacturing or distribution of gaseous fuels 

  Companies  that  derive  50  %  or  more  of  their  revenues  from  electricity 
generation with a GHG intensity of more than 100 g CO2 e/kWh 

Social 
safe-
guards 

Climate 
safe-
guards 

In addition,  the exclusions would specify that  investees cannot  be  engaged in  activities 
involving fossil fuel expansion and should, where relevant, have a coal phase out plan.  

FMPs  could  continue  to  identify  and  consider  material  negative  outcomes  on  other 
sustainability factors on a best-effort basis.  

Transition category 

Positive contribution:  

✓  FMPs  must  clearly  identify  and  disclose  the  transition  objective(s)  (which 
could be climate, environmental or social related).  

✓  FMP  must  implement  a  binding  transition  strategy  linked  to  this  objective 
which needs to cover 70/80% of the product’s portfolio. FMPs remain free to 
set their own strategy. For example, 70/80% of the portfolio could be invested in 
transitioning assets or could be covered by a transition strategy at the level of the 
portfolio  (e.g.  GHG  emission  reduction  of  the  portfolio  per  year).  The  strategy 
would  need  to  be  monitored  by  ESG  key  performance  indicators.  The  SFDR 
will  provide  a  non-exhaustive  list  of  indicators  which  FMPs  can  use  to 
demonstrate  how  the  strategy  pursues  this  objective.  These  would  build  on 
existing  market  practices  and  the  existing  sustainable  finance  framework.  For 

131 

 
 
 
 
 
 
example, possible metrics to meet the transition objective could be: (a) a clear and 
measurable transition strategy at the level of the portfolio (e.g. a GHG emission 
reduction  of  x%  per  annum  for  products  with  climate  transition  objective);  (b) 
investments in undertakings or economic activities with a credible transition plan, 
including  science-based  targets  aligned  with  any  sector-specific  pathways  and 
supported  by  other  conditions  (decarbonisation  actions,  financing  etc.);  (c) 
investments in Taxonomy-eligible activities with CapEx plan or partially aligned 
with  the  EU  Taxonomy;  (d)  investment  in  portfolios  tracking  EU  climate 
transition  benchmarks  (PAB/CTB);  (e)  investments  in  companies  or  economic 
activities  without  transition  plan,  provided  that  the  FMP  has  put  in  place  a 
credible,  active  and  continued  engagement  strategy  and  that  the    investee 
companies  demonstrate  pre-defined  credible  measurable  positive  change  in 
relation to the specified KPI.  

Exclusions:  

The product must apply exclusions based on those of the EU Climate Transition 
Benchmarks (CTB): 

 Activities related to controversial weapons  

 Activities related to the cultivation and production of tobacco 

 Companies in violation of the UN Global Compact (UN GC) principles or the 
OECD Guidelines for Multinational Enterprises (also covering the existing good 
governance leg) 

Social 
safe-
guards 

In addition,  the exclusions would specify that  investees cannot  be  engaged in  activities 
involving  fossil fuel  expansion and should, where relevant,  have a  coal  phase out  plan. 
FMPs  could  continue  to  identify  and  consider  material  negative  outcomes  on  other 
sustainability factors on a best-effort basis. 

‘Other ESG’ category 

Positive contribution:  

✓  FMP  must  implement  a  binding  investment  strategy  (e.g.  ESG  process-based 
strategy)  linked  to  the  ESG  claim  made  which  needs  to  cover  70/80%  of  the 
product’s portfolio. If needed, to support FMPs, examples of robust sustainable 
strategies  could  be  provided  via  guidance.  These  examples  could  be  the  use  of 
ESG ratings, a best-in-class strategy on a given ESG indicator, or outperforming 
the investment universe on a specific ESG indicator.  

132 

 
 
 
 
 
 
 
Exclusions:  

The  product  must  apply  exclusions  based  on  those  of  the  EU  Climate  Transition 
Benchmarks (CTB): 

Social 
safe-
guards 

 Activities related to controversial weapons  

 Activities related to the cultivation and production of tobacco 

 Companies in violation of the UN Global Compact (UN GC) principles or the 
OECD Guidelines for Multinational Enterprises (also covering the existing good 
governance principle) 

FMPs  could  continue  to  identify  and  consider  material  negative  outcomes  on  other 
sustainability factors on a best-effort basis.  

1.3.EXAMPLES OF HOW THESE CRITERIA COULD BE IMPLEMENTED  

Examples  of  what  products  categorised  under  the  sustainable  category  could  look 
like based on the suggested criteria (for illustrative purposes):  

Example of a financial product with a climate-related objective:  

•  Positive contribution on climate by investing in sustainable companies,  projects 
or other assets supporting the development of solutions to tackle climate change 
issues. The sustainability strategy to ensure the attainment of the objective covers 
70/80% of the products’ assets.  

o  Data needed for the assessment of the positive contribution can be found 
in the general description of the company (corporate purpose, objective of 
the company, sector of activity – which are information to be included in 
the  legal  statutes).  This  data  is  usually  collected  as  part  of  FMPs’  due 
diligence assessment.  

o  Data  needed  for  the  articulation  of  the  KPI  chosen  and  defined  by  the 
FMP  to  substantiate  and  monitor  the  strategy  (e.g.  X%  of  revenues  by 
portfolio  companies  to  align  with  strategy  and  demonstrate  progress 
toward  achieving  the  objective  of  the  product  in  terms  of  performance) 
can be found either: (1) in companies’ disclosures under the CSRD (ESRS 
E1  –  climate  change)  including  disclosures  for  their  Taxonomy-aligned 
activities  (e.g.  renewable  energies,  activities  ‘enabling’  climate  change 
mitigation etc)279; (2) in companies’ disclosures under the ISSB (IFRS S2 
–  climate-related  disclosures)  or  other  international  standards280;  (3)  can 
be derived from an external data provider (see section 3 part 1 below); or 
(4)  estimated  by  the  FMP  using  proprietary  or  open-source  tools, 
appropriately explained (see section 3 part 2 below). 

279 CSRD public reporting in place since 2025; Taxonomy public reporting since 2022  
280 E.g. the Global Reporting Initiative - GRI - Home 

133 

 
 
 
 
•  The products  commit not  to  invest in  companies engaged in  activities involving 
fossil fuel  expansion as  well as  any economic activities/companies  in  violations 
of the PAB exclusions (described above).  

o  Data  needed  for  the  assessment  of  the  exclusions  can  be  found  (1)  in 
companies’  disclosures  under  the  CSRD  (ESRS  mirror  the  PAB 
exclusions  under  ESRS  E1-1/E1-6/E1-9;  ESRS  S1-1/S1-14/S1-16/S1-
17/S2-1/S3-1/S4-1. ESRS 2 – SBM 1; ESRS G1-4; (2) some aspects are 
covered  by  ISSB  disclosures  or  other  international  standards;  (3)  can  be 
derived from an external data provider; or (4) estimated by the FMP. Data 
for  the  exclusion  of  companies  engaged  in  expansion  of  fossil  fuel 
activities can be found in widely used public databases281.  

Examples  of  what  a  product  categorised  under  the  transition  category  could  look 
like based on the suggested criteria:  

Example of a financial product with a climate transition objective:  

•  Positive contribution on climate transition by investing in companies developing 
decarbonisation  solutions  and/or  companies  on  a  credible  path  to  net  zero 
demonstrated  by  science-based  targets,  transition  plans  or  Taxonomy  partial 
alignment and capex disclosures.  

o  Data  needed  for  the  assessment  of  the  positive  contribution  and 
articulation of the KPI chosen and defined by the FMP to substantiate and 
monitor  the  strategy  (e.g.  X%  of  investments  or  revenues  by  portfolio 
companies  to  align  with  strategy  and  demonstrate  progress  toward 
achieving  the  objective  of  the  product  in  terms  of  performance)  can  be 
found  e.g.  in  (1)  the  general  description  of  the  company  (sector  of 
activity) and in specific disclosures such as CSRD ESRS E1-1 (transition 
plan for climate change mitigation)282; (2) their disclosures of Taxonomy-
aligned  Capex  plans  (as  per  section  1.1.2  of  Annex  1  of  Commission 
Delegated  Regulation  (EU)  2021/2178);(3)  those  disclosed  pursuant  to 
science-based  targets283;  (4)  disclosed  pursuant  to  module  B3  of    the 
voluntary standard for SMEs (VSME) developed by EFRAG (Annex 1 of 
the Commission Recommendation on a voluntary sustainability reporting 
standard for small and medium-sized undertakings of 20 July 2025)284; (5) 

281 E.g. those published by a network of NGOs, namely  GCEL 2024 | Global Coal Exit List;  Global Oil 
and Gas Exit List  
282 EFRAG’s  2025 State of Play study highlighted the  55% of ESRS preparers have  already reported on 
transition plans. Furthermore, the Platform on Sustainable Finance’s report on monitoring of capital flows 
demonstrates  that  it  is  possible  to  implement  criteria  for  credible  transition  plans.  They  analysed  1063 
companies operating within the European Economic Area, with 764 of them reporting under the NFRD and 
covering  approximately  40%  of  NFRD  universe.  12%  of  companies  in  scope  fulfilled  the  minimum 
characteristics with elements of credible  transition plans as defined by the PSF in its report on transition 
plans. 
283 As of August 2024, more than 6,000 companies have defined science-based pathways validated by the 
Science based target initiative (SBTi). The Recommendation on voluntary sustainability reporting for small 
and medium-sized companies (SMEs) adopted by the Commission in July 2025  also provides a basis for 
assessing transition (see C3 – GHG reduction targets and climate transition). 
284 250730-recommendation-vsme-annex-1_en.pdf  

134 

 
 
 
 
derived from an external data provider; or (6) estimated by the FMP using 
proprietary or open-source tools, appropriately explained.     

•  Other  possibility:  positive  contribution  to  climate  transition  by  setting  a 

decarbonisation trajectory of at least 7% per annum.  

o  Investment into portfolios tracking EU climate benchmarks, informed by 
underlying data from constituent entities regarding their compliance with 
the trajectory. 

•  The products commit not to invest in economic activities/companies in violations 

of the CTB exclusions (described above).  

o  Data  from  the  same  sources  as  for  the  example  under  the  ‘sustainable’ 

category above. 

Examples of what a product categorised under the ‘other ESG’ category could look 
like based on the suggested criteria:  

•  A  financial  product  that  provides  global  exposure  based  on  a  global  benchmark 
but with an ESG tilt towards companies with stronger ESG credentials: lowering 
carbon-equivalent exposure compared to the benchmark.  

o  Data  needed  for  the  assessment  of  the  positive  contribution  and 
articulation of the KPI chosen and defined by the FMP to substantiate and 
monitor  the  strategy  (e.g.  X%  of  investments  or  revenues  by  portfolio 
companies  to  align  with  strategy  and  demonstrate  progress  toward 
achieving  the  objective  of  the  product  in  terms  of  performance)  e.g.  (1) 
based  on  companies’  ESG  ratings  or  other  scoring  methods285;  (2)  for 
gradual higher weighting of  better improving assets from e.g. CSRD286 or 
international reporting frameworks; (3) data vendors; or (5) estimated by 
the FMP using proprietary or open-source tools, appropriately explained.     

•  The products commit not to invest in economic activities/companies in violations 

of the CTB exclusions (described above).  

o  Data  from  the  same  sources  as  for  the  example  under  the  ‘sustainable’ 

category above. 

This  category  would  also  include  products  with  a  sustainability  objective  but  not 
reaching the 70/80% percentage set under the other two categories.  

285 E.g. CDP: Turning Transparency to Action 
286 E.g. ESRS 2 SBM-1 Strategy, business model and value chain 

135 

 
 
 
 
 
 
 
 
1.4.EVIDENCE  OF  THE  USABILITY  AND  FEASIBILITY  OF  THE 

PROPOSED CRITERIA  

FEASIBILITY OF THE CONTRIBUTION CRITERIA  

FMPs are free to set their own objective(s) and indicators to measure their contribution to 
those objectives. Based on their target market in terms of prospective investors, they can 
focus on sustainability issues on which companies disclose information or that they can 
derive  or  estimate  as  per  above.  In  addition  to  the  illustrative  examples  in  section  1.3 
above, for example, an FMP that choses to contribute to biodiversity would invest largely 
in  companies  that  disclose  information  regarding  their  biodiversity  performance  or  in 
companies that develop solutions to biodiversity issues (this information can be found in 
the general information and other disclosures of the company).  

FEASIBILITY OF THE EXCLUSION CRITERIA 

First, market analysis shows that the implementation of sectoral exclusions are the 
main  elements  of  comparability  today  in  funds  with  ESG  characteristics  or 
objectives.  

According to the Morningstar study, a key common trend among these funds is their low 
exposure  to  some  controversial  activities  such  as  controversial  weapons,  tobacco, 
companies  with  severe  controversies  and  with  thermal  coal  activities  (see  box  6). 
Similarly,  the  Frank  Bold  study287  shows  a  high  degree  of  harmonisation  in  core 
exclusions  (and  their  related  disclosures)  linked  to  controversial  weapons,  thermal 
coal,  tobacco  and  violations  of  UNGP  and  OECD  Guidelines  for  Multinational 
Enterprises.  Studies  show  that  these  also  tend  to  broadly  align  with  investors’ 
declared preferences (Annex 10).  

287 Frank Bold, SFDR review : analysis of current practices and future directions for investors, December 
2024. 

136 

 
 
 
 
 
 
 
 
 
 
 
 
 
Box 6: popular exclusions implemented by funds disclosing under Art.6, 8 and 9288  

Graph 1: Article 6, 8, and 9 Funds' Involvement in Controversial Weapons 

Graph 2: Article 6, 8, and 9 funds’ involvement in tobacco  

Graph 3: Article 6, 8, and 9 funds’ involvement in severe controversies  

288 SFDR_Article_8_and_Article_9_Funds_Q4_2022.pdf 

137 

 
 
 
 
 
 
Graph 4: Article 6, 8, 9 funds involvement in thermal coal  

Second, market analysis also shows that the PAB and CTB exclusions are generally 
reachable by a majority of funds that are likely to aim for a category.  

The PSF report gives a  first  analysis  of the potential  impact  of applying the PAB/CTB 
exclusions to funds that would likely aim at being categorised. It is to be noted that this 
study  does  not  cover  all  products  in  scope  of  the  SFDR  (e.g.  insurance  and  pension 
products are not assessed) and that there is some variability when comparing how many 

138 

 
 
 
 
 
 
companies are to be excluded, mainly due to the lack of underlying data from funds and 
from varying implementation methods among FMPs and data providers.  

The PSF initial findings show that out of 4,300 open-end funds and ETFs with ESG or 
sustainability-related  terms  in  their  names,  1,600  funds  might  potentially  breach  the 
PAB/CTB  exclusions.  Graph  1  of  Box  7  shows  the  potential  breaches  of  these  1,600 
funds.  It  shows  that the  majority of these funds  hold  fewer than 5 stocks potentially  in 
breach of the exclusion criteria.  

A similar study from Bloomberg gives an initial view of the average AUM that might be 
in breach of the PAB/CTB exclusions and indicates the main driver of exclusion. Graph 2 
and 3 of Box 7 is based on a sample of 9,147 Article-8 and 814 Article-9 funds. It shows 
that the average AUM that would potentially need to be excluded are around 4% for the 
PAB exclusions and between 6 and 7% for the CTB exclusions. For the latter, the main 
driver  of  exclusions  is  the  UNGC  violations  (which  would  be  improved  in  any  case  to 
address the implementation challenges identified in the problem definition and evaluation 
annex).  

Finally, the PSF report analyses the specific impact of the PAB environmental exclusions 
on companies in certain industries. Box 8 shows that the energy sector would potentially 
be most affected by stock divestment if PAB exclusions are applied. This is mainly due 
to the exclusion criteria linked to energy generation above a certain GHG intensity289 (to 
be  noted  that  the  industry  would  still  be  able  to  issue  use  of  proceeds  instruments  that 
could be invested in by categorised products – see proposal below).  

289  Commission  Delegated  Regulation  (EU)  2020/1818,  Article  12(1)  g.  “companies  that  derive  50%  or 
more of their revenues from electricity generation with a GHG intensity of more than 100 g CO2 e/kWh” 

139 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Box 7: potential impact of the PAB/CTB exclusions on existing EU funds  

Graph 1:  distribution of number of companies to  be excluded from  around 1,600 funds 
when applying PAB/CTB exclusion criteria  

Graph  2:  Impact  of  PAB  exclusions  on  funds  using  sustainability,  environmental  and 
impact related terms  

Source: Bloomberg as of November 2024 

Graph  3:  Impact  of  CTB  exclusions  on  funds  using  social,  transition  or  governance 
related terms  

Source: Bloomberg as of November 2024 

140 

 
 
 
 
 
 
 
Box 8: impact of PAB exclusions on different industry  

Source:  Morningstar  Sustainalytics  and  Morningstar  Direct,  data  as  of  May  2024,  for 
industries only the top 10 are shown 

Finally,  the  PAB  and  CTB  exclusions  have  already  been  implemented  under  the 
ESMA  Guidelines  on  funds  names  by  all  funds  using  ESG-related  terms  in  their 
name and the results of the implementation are positive.  

Fund  managers  had  until  21  May  2025  to  either align  with  the  requirements  or  change 
funds names to ensure compliance.  

The scope of impacted funds varies from the different studies. In 2024, ESMA estimated 
the  number  of  funds  with  ESG-related  terms  in  their  name  at  6,490  while  Morningstar 
estimated  4,570.  The  below  relies  on  Morningstar  findings  using  data  from  early  May 
2025 and March 2025290.  

Asset managers have taken various approaches to comply with the guidelines. Some 
have  rebranded  funds  by  replacing  or  removing  ESG-related  terms,  with  or  without 
corresponding portfolio changes. Others have made minor adjustments, such as divesting 
from companies that don’t meet the requirements.  

290  All  figures  below  are  extracted  from  the  research  paper  ‘ESMA  Guidelines  on  ESG  Funds’  Names, 
early insights into rebranding activity and portfolio impact’ by Morningstar/Sustainalytics, 20 May 2025. 

141 

 
 
 
 
 
 
 
 
 
 
➢  Impact on the funds’ name 

A year after the release of the final ESMA fund naming guidelines, the universe of EU 
open-end funds and ETFs with ESG-related  terms in their names has  dropped by 
only about 8% to an estimated 4,220. 

The paper estimates that at least 880 funds, or 19% of in-scope funds, have rebranded 
so  far,  including  508  that  have  dropped  ESG  terms,  304  that  have  replaced  one 
ESG-related term with another, and 68 that have added an ESG term. Passive funds 
have  been  disproportionally  affected.  Among  those  that  dropped  ESG-related  terms, 
about  200,  or  40%,  adopted  non-ESG  alternatives  such  as  “screened”,  “select”,  or 
“committed”,  suggesting  that  managers  remain  keen  to  signal  ESG  characteristics 
through fund names.  

The most frequently removed terms are “ESG” and “sustainable,” while terms such 
as “transition,” “climate,” and “screened” have gained in popularity. 

➢  Impact on the funds’ portfolio 

Looking  at  March  2025  portfolios,  the  impact  of  the  guidelines'  exclusion  rules  on  in-
scope  funds  is  already  evident.  The  number  of  funds  holding  “contentious”  stocks  has 
declined compared with a year ago291.  

The exhibits below highlight 25 of the most commonly held “contentious” companies in 
the sample’ portfolio in 2024 and in 2025 (see method in footnote), showing the number 

291  Research  method  from  Morningstar/Sustainalytics:  First  identified  the  companies  that  should  be 
excluded under the CTB and PAB exclusion rules, using Morningstar Sustainalytics’ product involvement 
and controversies research to build the exclusion lists. Then selected a sample of 2320 in-scope funds with 
complete portfolio equity holdings for both May 2024 and March 2025.  

142 

 
 
 
 
 
of funds holding each stock, their average portfolio weight, the aggregate holding value 
and the main reasons for exclusions.  Overall, the number of funds holding these stocks 
declined  from  May  2024  to  March  2025,  accompanied  in  many  cases  by  a  decrease  in 
both average portfolio weight and aggregate holding value. It is fair to assume that part 
of  the  decline  can  be  attributed  to  stock  divestments  made  to  comply  with  the  ESMA 
guidelines. 

The paper also  conducts the same  analysis focussing  on funds that have  retained ESG-
related  terms  in  their  names.  This  reduced  universe  of  approximately  2,590  funds  is 
required  to  completely  divest  from  stocks  in  breach  of  the  ESMA  guidelines.  As 
expected,  there  are  more  divestments  (in  relative  terms).  For  example,  the  number  of 
funds holding TotalEnergies shares dropped by 34% between May 2024 and March 2025 
(to 139 from 210), compared with the 24% decrease seen earlier among the full sample 
of  funds  with  complete  portfolio  holdings  over  the  observation  period.  Similar 
divestment  outcomes  were  found  in  other  energy  stocks  including  Neste  (47%  versus 
41%, previously), Repsol (30% versus 23%), Galp Energia (30% versus 18%), and Eni 
(45% versus 28%).  

While  we  can  expect  some  of  the  stocks  listed  below  to  no  longer  feature  in  these 
portfolios going forward, others may remain due to differing interpretations of the rules 
and variations in data sources. 

143 

 
 
 
 
➢  Preliminary conclusions  

It can be concluded that the ESMA guidelines on funds names had a significant impact in 
the claims made by FMPs both in the names and portfolio constructions. The fact that the 
universe  of  funds  using  ESG-related  terms  only  decreased  by  8%  shows  that  most  of 
funds in scope managed to implement the ESMA criteria.  

If  the  criteria  for  the  categories  build  on  the  ESMA  criteria,  most  of  the  one-off 
implementation  cost  would  have  already  been  borne  by  funds  in  scope  of  the  ESMA 
guidelines.  

144 

 
 
 
 
 
 
 
 
 
 
 
SECTION 2: UNDERLYING DISCLOSURES FOR THE CATEGORIES 

PROPOSED UNDER OPTION 2.2   

There  is  considerable  evidence  from  the  consultations  that  the  vast  majority  of  end-
investors would be better served by shorter  and  more focused information. This  is  also 
confirmed by the findings of Annex 10.   

Option  2.2  therefore  moves  away  from  relying  on  standardised  questions  for  all  ESG 
financial  products  and  suggests  refocussing  the  templates  on  fewer  indicators  and 
sustainability  topics  which  are  relevant  for  investors’  decision.  Consumer-facing 
disclosures  should  provide  consumers  with  information  on  the  key  sustainability 
characteristics  of  products  in  a  simple,  accessible,  consumer-friendly  way.  This  would 
also  allow  for  an  easier  comparability  of  products  with  an  easy-to-use  source  of 
information. Together with the categories, this would help them assess whether products 
meet their needs and preferences. 

Option 2.2 is therefore coherent with the creation of categories, with disclosures tailored 
to  the  categories  under  which  products  fall  (i.e.  specific  disclosures  would  depend  on 
whether a product is largely composed of sustainable assets, or transitioning assets, or if 
the  product  implements  other  ESG  processes).  The  disclosures  would  rely  on  clear, 
measurable  and  usable  concepts  (i.e.  the  suggested  criteria  described  above)  and  on 
ESG  concepts  for  which  information  is  either  available  from  investee  companies  or 
possible to estimate.  

The  below  suggests  to  focus  the  specific  disclosures  on  the  underlying  criteria  of  each 
category.  This  would  allow  investors  to  clearly  understand  (1)  the  ambition  to  be 
expected  from  categorised  products;  (2)  the  specific  sustainability  objective  and  its 
accompanying strategy; (3) what the product does not invest in for sustainability-related 
reasons. On top of that, a short set of ESG KPIs (e.g. 3 KPIs) would allow consumers to 
compare products  based  on topics that are deemed relevant depending  on the category. 
These  KPIs  would  need  to  rely  on  sustainability  topics  for  which  information  is  either 
available  from  investee  companies  or  possible  to  reliably  estimate  by  FMPs/data 
providers when the information is missing.  

The below provides mock templates for illustrative purposes only. The detailed elements 
and final design of the template should be developed at a later stage at level 2 to allow 
for additional consumer studies to be conducted.  

Sustainable Category  

Product Name292 

“To  qualify  for  the  sustainable  category,  a  financial  product  must  contribute  to  a 
sustainability objective and meet EU minimum standards on climate and social issues.” 

What is the sustainability objective(s)? 

Short  description.  E.g.  This  product  focuses  on  investing  in  companies  that  improve 
health and wellbeing.  

A  short  description  of  the  strategy  and  of  the  KPI/s  used  to  measure  the 

292 And authorisation details 

145 

 
 
 
 
contribution 

E.g. At least 70/80% of investments are made in innovative companies in the sectors of 
medicine, diagnostics, healthcare services, medical devices and equipment.  

[KPIs  used  to  measure  the  contribution]  e.g.  %  of  revenues  derived  from  the 
generation of medicine, diagnostics etc…  

[top 5 investments] 

[Additional voluntary KPIs] 

KPI 1  (e.g. related to climate performance)                         

KPI 2: (e.g. related to pollution control or animal testing) 

Exclusions:  

There are no investments made in  

- 
- 
- 
- 
- 

- 
- 

- 
- 

- 
- 

- 
- 

companies involved in any activities related to controversial weapons; 
companies involved in the cultivation and production of tobacco; 
companies in violation of the United Nations Global Compact (UNGC) 
principles or the Organisation for Economic Cooperation and Development 
(OECD) Guidelines for Multinational Enterprises; 
companies that derive 1 % or more of their revenues from exploration, mining, 
extraction, distribution or refining of hard coal and lignite; 
companies that derive 10 % or more of their revenues from the exploration, 
extraction, distribution or refining of oil fuels; 
companies that derive 50 % or more of their revenues from the exploration, 
extraction, manufacturing or distribution of gaseous fuels; 
companies that derive 50 % or more of their revenues from electricity 
generation with a GHG intensity of more than 100 g CO2 e/kWh. 

- 

companies involved in fossil fuel expansion or without coal phase-out plans  

Transition Category  

Product Name293 

“To  qualify  for  the  transition  category,  a  financial  product  must  contribute  to  a 
transition objective and meet EU minimum standards on social issues.” 

What is the transition objective(s)? 

Short description. E.g. This product invests in companies and projects contributing to 
global decarbonisation and the climate transition 

A  short  description  of  the  strategy  and  of  the  KPI/s  used  to  measure  the 

293 And authorisation details 

146 

 
 
 
 
 
 
 
 
 
 
 
 
 
contribution 

E.g.  At  least  70/80%  of  investments  are  made  in  ‘climate  solutions’  –  low-carbon 
technologies,  nature-based  solutions,  and  greenhouse  gas  removal.  The  product  also 
ensures a reduction of the overall GHG emission of the underlying investee of at least 
7% per annum.  

[KPIs  used  to  measure  the  contribution]  e.g.  %  of  partial  alignment  with  the  EU 
Taxonomy on relevant climate or environmental objective(s)  

[top 5 investments] 

[Additional voluntary ESG KPIs] 

KPI 1  (e.g. portion of investments in companies with a transition plan/science-based 
targets)                         

KPI 2: (e.g. related to water use or circular economy ) 

Exclusions:  

There are no investments made in  

- 
- 
- 
- 
- 

companies involved in any activities related to controversial weapons; 
companies involved in the cultivation and production of tobacco; 
companies in violation of the United Nations Global Compact (UNGC) 
principles or the Organisation for Economic Cooperation and Development 
(OECD) Guidelines for Multinational Enterprises; 

- 

companies involved in fossil fuel expansion or without coal phase-out plans 

147 

 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
‘Other ESG’ Category  

Product Name294 

“To  qualify  for  the  ’Other  ESG’  category,  a  financial  product  must  put  in  place  an 
ESG strategy and meet EU minimum standards on social issues.” 

What is the ESG strategy  

Short  description.  E.g.  This  product  offers  global  exposures  to  a  global  investment 
benchmark/index  while  integrating  environmental,  social  and  governance  screenings 
(i.e. 70/80% tilt toward companies with stronger ESG scores). To do so, the product 
only selects companies that are amongst the best 50% ESG performers in their sectors.  

[top 5 investments] 

[Additional voluntary ESG KPIs] 

KPI 1  (e.g. GHG emissions)                         

KPI 2: (e.g. related to additional human rights screening beyond the exclusion below) 

Exclusions:  

There are no investments made in  

- 
- 
- 
- 
- 

companies involved in any activities related to controversial weapons; 
companies involved in the cultivation and production of tobacco; 
companies in violation of the United Nations Global Compact (UNGC) 
principles or the Organisation for Economic Cooperation and Development 
(OECD) Guidelines for Multinational Enterprises; 

294 And authorisation details 

148 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SECTION 3: SUGGESTED APPROACH TO ESTIMATION 

Estimates are often  used to  refer to  data that has been proxied or derived from  a third-
party  source.  Due  to  data  shortages  the  use  of  estimates  will  be  inevitable  and  is 
already part of current market practices 295. In fact, the investable universe for financial 
products  always  extended  beyond  listed  and  larger  EU  companies,  including  non-EU 
companies and assets that are not covered by EU reporting rules. No EU legislation such 
as the CSRD would have ever closed this data gap.   

While  estimations  always  carry  some  levels  of  greenwashing  risks,  these  risks  can  be 
reduced by the following possible measures:  

1.  Focussing  the  criteria  and  the  disclosures  on  ESG  concepts  which  are 

possible to estimate.  

A  key  issue  linked  with  estimations  under  the  current  SFDR  is  the  nature  of  certain 
datapoints  which  cannot  be  estimated  when  the  information  is  not  available.  Examples 
include the principal adverse impact on ‘board gender diversity’, defined as the average 
ratio of female to male board members in investee companies, expressed as a percentage 
of  all  board  members.  If  the  company  does  not  disclose/communicate  its  board 
composition, FMPs/external providers cannot reasonably estimate such data.  

To lower the risk of incorrect/weak estimation, the SFDR criteria and disclosures should 
focus on sustainability data points for which estimation is possible (e.g. which are binary 
or  where  using  sectoral  and  geographical  averages  is  possible)  and  where  market 
practices are well established.  

Main findings on the positive state of play of estimations on exclusions:  

The  Platform  for  Sustainable  Finance  ran  a  survey296  with  data  vendors  to  assess  the 
comparability of data that an institutional investor would receive when retrieving the best 
available  relevant  data  from  a  range  of  vendors  to  report  on  a  global  portfolio.  The 
survey  was  carried  out  via  an  open  call  to  capture  the  current  state  of  affairs  for  data 
availability and quality as offered by different data vendors. A random sample of EU and 
non-EU  securities  were  chosen  that  was  large  enough  for  statistically  relevant  analysis 
(N=300).  

The survey concluded that high levels of consistency were found in the estimations 
of  exclusion  across  vendors,  with  80%  of  issuers  showing  0%  divergence  in  their 
estimations of PAB exclusions.   

Common market  practices on the estimations  of the PAB exclusions include the use of 
sector  average,  or  modelling  using  business  activity  and  exposure  (e.g.  looking  at  the 
average emissions per revenue or per employee of companies in the same NAICS sector, 

295 Between 30% and 50% of the average holdings of EU asset managers consist of entities not subject to 
CSRD reporting requirements (and therefore do not publish Taxonomy or CSRD sustainability data).  As a 
result,  FMPs  are  already  forced  to  source  the  missing  data  either  internally  or  commercially  from  third-
party providers. See ESMA report on Trends, Risks and Vulnerabilities (TRV), 2023 
296 EU Platform on Sustainable Finance, Data Vendor Survey 2024, March 2025 

149 

 
 
 
 
 
 
 
 
 
 
 
 
similar  production  size  and  same  energy  mix).  Most  market  practices  include  the 
implementation of the precautionary principle297, see chart below.  

2.  Additional disclosures around estimation practices from FMPs  

When  FMPs  generate  their  own  estimations,  the  SFDR  could  introduce  similar 
obligations  to  the  transparency  requirements  for  estimations  under  the  Benchmark 
Delegated  Regulation 298.  These  include  disclosures  on  the  research  and  calculation 
methodology, on assumptions underlying estimates and precautionary principles, on 
the use of external data providers. The elements to be disclosed by the FMPs would be 
part of the products’ legal documentations and will therefore be supervised by NCAs (as 
it  is  the  case  for  SFDR  disclosures  today)  who,  in  contrast  to  today,  would  thus  be 
provided with clearer information to judge whether the estimates are robust enough.  

For cases when FMPs use an external provider, FMPs could instead be asked to disclose 
the  proportion  of  information  estimated  vs  information  not  estimated.  This  is  because 
estimation  methodologies  are  normally  not  disclosed  by  data  providers  for  competition 
reasons. 

Other  possible  measures  to  limit  greenwashing  risks  linked  to  estimations,  such  as 
regulating  third-party  providers  or  ESG  data  products,  do  not  emerge  as  major 
shortcomings from the evaluation carried out for the review, would be at odds with the 
objectives of the targeted review of the SFDR as a simplification initiative by extending 
its regulatory scope, and were thus deemed as incompatible with the simplification and 
burden reduction agenda or already discarded in past impact assessment 299. Beyond the 
steps  to  formalise  the  practice  of  reliance  on  estimates,  and  to  base  this  practice  on 
datapoints which are most available and of interest to investors, there is little evidence to 
suggest  that  extending  the  regulatory  perimeter  of  the  SFDR  to  ESG  data  providers 
would  help  bring  down  costs  further.  Rather  it  can  be  expected  that  any  costs  of 
additional regulatory would be passed on through data users across the investment chain, 
adding  to  overall  costs  of  ESG  investing.  It  could  thus  be  ineffective,  incoherent  and 
counterproductive to undertake piecemeal regulatory steps to any address issues in data 
providers’ business models, solely involving their ESG data.   

297  ‘Emissions  estimations  should  embed  a  precautionary  principle’,  Andreas  G.F.  Hoepner  and  Joeri 
Rogelk 
298 Commission Delegated Regulation (EU) 2020/1818, Article 13.  
299 
The  Impact  Assessment  report  SWD  (2023)204  accompanying  the  Commission  proposal  for  an 
ESG  rating  regulation  has  discarded  the  option  of  harmonising  methodologies  and  on  setting  minimum 
content  requirements  for  ESG  ratings.  The  same  logic  would  apply  for  ESG  data  products  (i.e.  ESG 
estimates). 

150 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Chart  on  the  implementation  of  the  precautionary  principle  to  estimate  GHG 
emissions  

151 

 
 
 
 
 
 
 
ANNEX 9:  EXAMPLES OF EXISTING ESG LABELLING REGIMES 
AND ESG RULES BY NCAS OR LABEL PROVIDERS 

A.  Examples of NCAs practices  

NCA 

Scope 

Criteria  

AMF 
Doctrine300 

(France) 

Mandatory for 
retail funds 
established in 
France. 

Non-French 
funds have to 
include a 
disclaimer in 
their marketing 
material if they 
do not comply 

BaFin (Germany) 
Guidance (no 
published final 
version; 
administrative 
practice similar to 
consultation 
paper)301 

German retail 
funds which 
use an ESG 
related term in 
the name or are 
marketed 
explicitly as 
sustainable 

Three  types  of  funds,  depend  on  how  active 
product provider can communicate around ESG:  

Type 3: funds which do not take into account (or 
lightly) non-financial criteria required to limit the 
communication around extra-financial criteria to 
their prospectus;  

Type 2: funds which take extra-financial criteria 
into  account  without 
taking  a  significant 
commitment  require  -measurable  objectives  for 
consideration  of  non-financial 
(a 
discretionary rate of exclusion for the selectivity 
approach)  -  higher  rating  indicator  or  extra-
financial  analysis  than  investment  universe  -
minimum of 90% of the assets must be provided 
with  extra-financial  ratings  and  analysis  or  75% 
for emerging markets.  

criteria 

Type 1: funds which significantly commit to take 
into  account  extra-financial  criteria  requires 
specific  binding  measurable  objectives 
for 
consideration  of  non-financial  criteria  (20% 
exclusion  of  the  worst  assets  for  the  selectivity 
approach for instance) and a minimum of 90% of 
the  assets  must  be  provided  with  extra-financial 
ratings and analysis. 

Alternative 1 

1.  Compliance  with  a  minimum  investment 

ratio in sustainable assets (75 %) 

2.  DNSH 

including  specified  exclusions 
(e.g.  <  10%  fossil  fuels  (ex  gas);  <  5% 
coal, oil; 0% oil sand / shale) 

3.  Good governance  

Alternative 2  

1.  Adherence  to  a  sustainable  investment 

300 Information to be provided by collective investment schemes incorporating non-financial approaches | 
AMF 
301 BaFin - Consultations - Consultation 13/2021 - Draft BaFin Guideline for Sustainable Development ... 

152 

 
 
 
 
strategy, e.g. best in class (75%)  

2.  DNSH 

including  specified  exclusions 
(e.g.  <  10%  fossil  fuels  (ex  gas);  <  5% 
coal, oil; 0% oil sand / shale) 

Finansinspektionen 
(Sweden) and FSA 
(Denmark) 

All products 
within the 
ESMA 
guidelines on 
funds name  

Although  the  ESMA  clarified302  in  December 
2024 that a ‘meaningful’ allocation to sustainable 
investments should be at least 50%, regulators in 
in  Sweden  and  Denmark 
impose  higher 
thresholds of 80% and 85% respectively.  

B.  Examples of existing labels in the EU303  

Name and region 

Products 

Criteria  

CDP Climatrics304  Funds 

Ecolabel UZ 49 
(Austria)305 

Funds, IBIPs, 
Green Bonds, 
savings 
products 

- Rating based on the environmental impact, 
transparency, and performance of their portfolio 
companies.  
- Score components relate to climate, water, and 
forest.  
- A fund’s portfolio score is the portfolio 
weighted average of the underlying holdings’ 
company scores. 

- Exclusion relating to nuclear, armaments, fossil 
fuels, genetic engineering, human rights 
violations, lack of minimum commitment to 
labour standards. Note: separate criteria for public 
issuers and real estate  
- Investment policy and selection criteria, survey, 
evaluation, and selection processes of sustainable 
investment products must be above average or 
contribute to present/future problem or exclude 
certain issues on environmental or social aspects. 
Other criteria apply for Real estate and Bonds. 

Engelen, 

Peter-Jan 

Megaeva, 

302 ESMA Q&A on the application of the Guidelines on funds’ names, 13 December 2024 
303  Also  see  for  more  information:  A  Comparative  Study  of  European  Sustainable  Finance  Labels  by 
Karina 
at: 
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3790435,  and  Sustainable  investment  fund  labelling 
frameworks:  An  apples-to-apples  comparison  available  at:  https://qontigo.com/sustainable-investment-
fund-labeling-frameworks-an-apples-to-apples-comparison/ . Plus de 2 000 fonds labellisés aux promesses 
confuses 
labels 
(https://www.novethic.fr/financedurable/publications/etude/fonds-durables-labellises-en-europe.html ). 
304 CDP 
305 Umweltzeichen Richtlinie 

Liedekerke, 

available 

(October 

shows 

AuMs 

2023) 

table 

such 

with 

Van 

Luc 

of 

a 

153 

 
 
 
 
 
FNG-Siegel306 
(Germany) 

Funds 

Greenfin 
(France)307 

Climate 
oriented 
products 

ISR Label 
(France)308 (soon 
to be revised) 

Financial 
Products 

LuxFLAG309 

Financial 
products 

Nordic Swan 
Ecolabel310 

Funds & 
Investment 
Products 

- Exclusions relating to nuclear, armaments, fossil 
fuels, fracking and oil sand, tobacco, human 
rights violations, corruption lack of minimum 
commitment to labour standards. Note: separate 
criteria for public issuers - SFDR Art. 8 & 9, 
analysis of ESG criteria of all holdings - EuroSIF 
Transparency Codex - Enhancements through 
additional requirements including investment 
approaches, credibility of institution and product 
standards (research, communication) 

- Investment in EU issuers, Green bonds or 
certain other debt securities.  
- Detailed exclusions related to fossil fuel  
- Monitoring mechanism for ESG controversies  
- Measurement of positive impact 

Label does not set per se criteria of what is 
considered sustainable but is focusing on 
assessing policy vs. results as follows: - 
Assessment of the objectives targeted by the 
fund. - Assessment of the analysis and rating 
methodology used by the asset manager. - 
Assessment of inclusion of criteria in the 
portfolio construction - Engagement policy & 
Transparency. 

Diverse range of labels distinguishing between:  
- Impact: Microfinance, Environment, Climate 
Finance, Green Bond.  
- Sustainability Transition Labels: ESG, ESG 
Insurance Products, ESG Discretionary Mandate. 

- Exclusion relating to coal, oil, gas, nuclear, 
tobacco, weapons, and non-compliance with 
international norms.  
- Assessment of ESG & EU Taxonomy 
performance on all holdings  
- Investment in companies with high GHG 
emission only if company meets strict reduction 
requirements.  

306 Criteria – FNG Seal 
307 ecologie.gouv.fr/politiques-publiques/label-greenfin 
308 Label ISR - Pour des placements durables et responsables 
309 Investment funds and investment products 101 
310 Investment funds and investment products 101 

154 

 
 
 
 
Towards 
Sustainability 
Initiative 
(Belgium)311 

Financial 
products 

- Analysing biodiversity performance and 
engagement with companies performing poorly.  
- 70% in holdings with strong sustainability 
practices.  
- Promoting companies with clear environmental 
objectives.  
- Active Ownership. 

- Exclusion regarding weapons, tobacco, coal, 
unconventional oil & gas and laggard oil & gas 
and electricity utilities, non-violation of 
international norms and standards.  
- Investment is screened for potential positive or 
negative impact on sustainability issues. 
Additionally, the possible impact of sustainability 
events like climate change, social unrest or legal 
controversies is analysed.  
- Positive impact through additional strategy like 
best in class, sustainability themed, impact 
investing, outperforming a benchmark, 
overweighting and underweighting positions, 
engagement. 

C.  UK sustainability disclosure requirements (SDR) and investment labels 

The  UK  introduced  new  sustainability  disclosures  requirements  (SDR)  and  investment 
labels  which  began  applying  in  2024312.  This  covers  anti-greenwashing  rules  for  all 
authorised  firms,  requirements  for  sustainability-related  claims  to  be  fair,  clear  and  not 
misleading,  naming  and  marketing  rules  for  investment  funds  making  ESG  claims,  as 
well  as  four  labels  to  help  investors  navigate  the  investment  product  landscape:  (i) 
sustainability focus (products mainly investing in assets that are already sustainable); (ii) 
sustainability  improvers  (products  mainly  investing  in  transitioning  assets);  (iii) 
sustainability impact (products mainly aiming at a very targeted contribution); and (iv) a 
mixed category.  

Research published by the Investment Association in early 2025313 compared responses 
from 50 UK firms regarding implementation of the new rules. 

Key findings: 

311 Towards Sustainability Initiative | Towards Sustainability 
312 PS23/16: Sustainability Disclosure Requirements (SDR) and investment labels | FCA 
313  The  second  annual  SDR  Implementation  Survey  (April  2025):  Implementation  challenges  slow  SDR 
label adoption, despite transparency gains | Press Releases | The Investment Association 
SDR:  Investor  and  adviser  awareness,  understanding  and  expectations:  SDR  investor  and  adviser 
awareness, understanding and expectations 2025.pdf 

155 

 
 
 
 
 
 
•  Over a third (39%) of firms have adopted an SDR label for at least one of their 
funds, although the figure is less than anticipated in a prior survey (106 labelled 
funds in the market compared to the anticipated 216).  

•  Sustainability Focus is the most popular label, with 63 funds approved, followed 
by  Sustainability  Impact  (22),  Sustainability  Improvers  (17)  and  Sustainability 
Mixed Goals (4). 

•  Fund  labelling  process  has  improved  transparency.  Almost  all  (91%)  surveyed 
firms adopting an SDR label have updated the labelled fund’s investment policy 
or strategy to be more transparent on the fund’s sustainability approach, and 83% 
have  added  a  sustainability  investment  objective  for  at  least  one  fund.  39%  of 
firms  agree  that  the  SDR  regime  will  make  it  easier  for  investors  to  find  and 
compare  non-labelled  funds  with  sustainability  characteristics.  In  addition,  35% 
of  firms  agree 
to 
accommodate  different  types  of  sustainable  investment  approaches.  Further 
research  from  the  Investment  Association  and  The  Wisdom  Council  found  that 
almost  all  (94%)  retail  investors  with  a  propensity  for  sustainable  investing 
agreed that they would find the labelling regime helpful. 

the  SDR  framework  gives  sufficient  flexibility 

that 

•  Some challenges are however also noted. Almost half (49%) of firms have at least 
one  fund  that  they  considered  adopting  a  label  for  but  later  decided  against  it, 
with  a  third  (32%)  making  this  decision  after  going  through  the  authorisation 
process  (firms  who  successfully  applied  for  a  label  are  said  to  have  had  to 
resubmit applications on average three times for their first labelled fund). Firms 
are also unsure if SDR will lead to more money invested into these products. Just 
14%  of  firms  agreed  that  the  SDR  regime  will  result  in  more  capital  flows  into 
sustainable funds over the next three years. 

•  Beyond  the  labels,  naming  and  marketing  rules  are  said  to  have  had  a  broader 
impact,  as  non-labelled  funds  with  sustainability  characteristics  cover  a  larger 
market  share  than  labelled  funds.  80%  of  survey  respondents  have  non-labelled 
funds that are subject to additional disclosure requirements under the naming and 
marketing rules. At least 340 funds fall into this bucket, more than three times as 
many funds as those which have a label. The most common approaches taken by 
these  funds  are  negative/exclusionary  screening  (83%),  ESG  integration  (75%) 
and  positive  tilt  (55%).  Over  half  (55%)  of  firms  had  to  make  changes  to  their 
funds  as  a  result  of  the  naming  and  marketing  rules,  with  almost  a  third  (28%) 
replacing  a  restricted  term  with  a  non-restricted  term  in  the  fund  name,  and  a 
quarter (26%) removing a restricted term from a fund name. 

156 

 
 
 
 
 
 
ANNEX 10: FINDINGS FROM CONSUMER TESTING STUDIES  

Executive summary  

In  the  context  of  the  ongoing  SFDR  assessment,  we  have  analysed  existing 
studies/surveys  on  retail  investors’  sustainability  objectives  and  understanding.  This 
finding  should  support  our  impact  assessment  when  considering  potential  changes  to 
ESG disclosures and the potential set up of sustainability-related categories for financial 
products.  This  analysis  focuses  on  high  level  elements;  more  granular  aspects  of  retail 
investors’ preferences should be analysed in preparation of potential level 2 rules which 
are difficult to predict at this stage.  

Key  findings  include:  (1)  strong  appetite  for  sustainable  products;  (2)  main  drivers  for 
such  appetite  are  financial  returns/economic  outlook,  personal  values  and  wanting  to 
have a positive impact; (3) there are a wide range of sustainability objectives/themes that 
retail investors want to see reflected in sustainable products, covering both environmental 
and social issues; (4) main barriers to ESG investing today are the fear of greenwashing 
due to inadequate ESG disclosures (length, complexity, technical jargon).  

While the existing studies present some limitations (e.g. global samples rather than EU 
only,  small  samples,  targeted  populations  that  might  not  reflect  the  average  retail 
investors…), they already give us an idea of what EU retail investors might be interested 
in and their expectations. The below summarises all existing studies that we have found.  

1. 

Investors’ interest in sustainable investing is high  

Preliminary  conclusion:  recent  data  confirms  that  consumers’  interest  in  sustainable 
investment products remains strong. 

Global/EU statistics:  

•  Globally, more than three quarters (77%) of global investors are interested 
in  sustainable  investing.  57%  say  their  interest  increased  in  the  last  two 
years and 54% anticipate increasing their sustainable investments in the next 
year314.  
In  Europe  (UK,  France,  Germany,  Switzerland),  85%  individual  investors 
declared being interested in sustainable investing315.  

• 

•  55% of EU investors surveyed are interested in sustainable finance solutions316. 
•  More than 60% of Europeans find it important that their savings and investments 
do  not  fund  economic  activities  that  have  a  negative  impact  on  the  planet. 
However,  only  34%  knew  whether  their  private  savings  and  investments  were 

314  “Sustainable  Signals,  understanding  individual  investors’  interests  and  priorities”  Morgan  Stanley  institute  for 
sustainable investing and wealth management (2024) – responses from global sample (US, Europe – France,  Germany, 
UK, Switzerland -  and Japan) 
315  “Sustainable  Signals,  understanding  individual  investors’  interests  and  priorities”  Morgan  Stanley  institute  for 
sustainable  investing  and  wealth management  (2024)  –  responses from  European  sample.  How  interested  are  you  in 
sustainable  investing?”  Possible  answers:  Very  interested,  Somewhat  interested,  Not  too  interested,  Not  at  all 
interested. 
316 Survey from 2degrees investing (survey question A7r2)  “I am Interested in sustainable finance solutions” Possible 
answers: Strongly agree, agree, neither agree nor disagree, disagree, strongly disagree. 

157 

 
 
 
 
 
invested  into  sustainable  economic  activities,  and  29%  received  information  on 
the sustainability impact of financial products or services317. 

National statistics  

•  59%  of  Belgian  investors  would  include  sustainable  investments  in  a  mixed 
portfolio, while 28% would prefer a fully sustainable portfolio. 13% would invest 
only in traditional/non-sustainable investments.318 

•  66%  of  French  investors  say  that  sustainable  development  issues  are 
important for them. 75% of respondents say that the impact of investments 
on the environment is an important issue319. 

•  58%  of  German  investors  would  prefer  funds  that  take  some  ESG  criteria 
into  account,  while  8%  prefer  conventional  (no  ESG)  fund.  33%  of 
respondents prefer savings account over any investment fund.320  

•  EU investors321 in the survey were asked: “Compared to five years ago, how 

important has sustainable investing become to you?”.  

On average, EU investors responded: 77% more important, 20% no change, 
3% less important.  

Participants from different countries responded: 

-  Austria: 77% more important, 21% no change, 3% less important 
-  Belgium: 69% more important, 27% no change, 4% less important 
-  Denmark: 74% more important, 21% no change, 6% less important 
-  France: 79% more important, 19% no change, 3% less important 
-  Germany: 78% more important, 19% no change, 2% less important 
- 
Italy: 72% more important, 26% no change, 2% less important 
-  Netherlands:  72%  more  important,  25%  no  change,  3%  less 

important 

-  Poland: 81% more important, 17% no change, 2% less important 
-  Portugal: 85% more important, 14% no change, 2% less important 
-  Spain: 81% more important, 18% no change, 1% less important 
-  Sweden: 80% more important, 17% no change, 3% less important 

•  Furthermore, they were asked: “Compared to five years ago, how have your 
investments in sustainable investment funds changed?”. Responds follow: 

-  Austria: 55% Increase, 32% no change, 6% decrease 
-  Belgium: 54% Increase, 32% no change, 8% decrease 
-  Denmark: 54% Increase, 29% no change, 10% decrease 
-  France: 63% Increase, 26% no change, 7% decrease 

317 Retail Financial Services and Products - October 2022 - - Eurobarometer survey 
318 “Towards sustainable investing: how retail investors can create an impact”, Deloitte Belgium, 2024.  Sample only 
includes  Belgian  invests.  Question:  “Composition  of  new  portfolio”  Possible  answers:  Mix,  Only  sustainable,  Only 
traditional – non-sustainable. 
319 The French and responsible investments, July 2023, AMF. Only French sample. 
320 Eckert et al. (2022) responses from German sample of 3699 investors. Question was “Imagine you intend to invest 
in a fund. Which of the following funds would you personally prefer?  
a)Fund that does not take ESG criteria into account (8%) b) fund that takes ESG criteria into account (17%) c) fund 
that  not  only  takes  ESG  criteria  into  account,  but  actively  promotes  companies’  progress  toward  increased 
sustainability (impact fund) (41%) d) not choose a fund and prefer to have my money in my banking account (33%) 
321  Schroders_Report_Sustainable-Investing_Final.,  Schroders  (2019),  responses  from  22,000  participants  from  30 
countries (EU + others). The percentages extracted refer only to EU respondents. 

158 

 
 
 
 
-  Germany: 61% Increase, 31% no change, 5% decrease 
- 
Italy: 55% Increase, 32% no change, 7% decrease 
-  Netherlands: 56% Increase, 33% no change, 6% decrease  
-  Poland: 59% Increase, 32% no change, 7% decrease 
-  Portugal: 63% Increase, 27% no change, 6% decrease 
-  Spain: 61% Increase, 32% no change, 4% decrease 
-  Sweden: 70% Increase, 21% no change, 5% decrease 

•  Another survey322 explored the interest in sustainable finance solutions among 

European investors: 
-  55%  of  Belgian  investors  are  interested  in  sustainable  finance  solutions, 

18% are not interested, and 27% are indifferent. 

-  55%  of  Spanish  investors  are  interested  in  sustainable  finance  solutions, 

16% are not interested, and 29% are indifferent. 

-  55%  of  Italian  investors  are  interested  in  sustainable  finance  solutions, 

18% are not interested, and 26% are indifferent. 

-  49%  of  Dutch  investors  are  interested  in  sustainable  finance  solutions, 

23% are not interested, and 29% are indifferent. 

-  65%  of  Polish  investors  are  interested  in  sustainable  finance  solutions, 

14% are not interested, and 22% are indifferent. 

-  65% of Swedish investors are  interested  in  sustainable finance solutions, 

10% are not interested, and 25% are indifferent. 

2.  Drivers of the demand 

investors  do  not  necessarily  associate  sustainable 

Preliminary conclusion: while financial returns remain the bigger driver for investing, 
retail 
lower 
return/compromise  on  return.  Main  drivers  for  investing  include  financial  performance, 
risk management, supporting green objectives and creating a positive impact. Investors’ 
willingness-to-pay  for  sustainable  investments  depends  on  the  impact  of  such 
investments.323 

investing  with 

Global/EU statistics:  

•  Globally,  investors  believe  strong  ESG  practices  can  lead  to  higher  returns. 
Financial  returns  are  the  main  priority  for  global  individual  investors,  and  70% 
believe strong ESG practices deliver them324.  

•  When  asked  about  reasons  for  interest  in  sustainable  investing,  European 
investors  (UK,  France,  Germany,  Switzerland),  mentioned,  in  order  of 
preferences:  (1)  financial  performance  of  sustainable  investment  (57%),  (2) 
inflation (56%), (3) market dynamics and broader economic performance (54%) 
and new climate science findings (53%)325.  

322  Survey  from  2degrees  investing  (survey  question  A7r2)    “I  am  Interested  in  sustainable  finance  solutions” 
Possible answers: Strongly agree, agree, neither agree nor disagree, disagree, strongly disagree. 
323 Do Investors Care about Impact? | The Review of Financial Studies | Oxford Academic 
324  “Sustainable  Signals,  understanding  individual  investors’  interests  and  priorities”  Morgan  Stanley  institute  for 
sustainable investing and wealth management (2024) – responses from global sample (US, Europe – France,  Germany, 
UK, Switzerland -  and Japan) 
325  “Sustainable  Signals,  understanding  individual  investors’  interests  and  priorities”  Morgan  Stanley  institute  for 
sustainable  investing  and  wealth management  (2024)  –  responses from  European  sample.  How  interested  are  you  in 
sustainable investing?”  

159 

 
 
 
 
National statistics:  

•  When  asked  why  to  consider  sustainability  in  the  portfolio,  Belgian  investors 
highlighted  different  drivers:  37%  cited  personal  values  as  their  primary 
motivation,  30%  were  driven  by  the  desire  to  create  a  positive  impact,  29% 
focused on risk management, and 22% would not include sustainability326. 

•  When  Austrian  investors  were  asked  about  their  reasons  for  investing  in 
sustainable  investment  funds,  31%  cited  potential  profit  as  their  primary 
motivation, 36% pointed to the positive social, societal, or environmental impact, 
and 33% expressed that both factors were equally important. 

•  When  Belgian  investors  were  asked  about  their  reasons  for  investing  in 
sustainable  investment  funds,  33%  cited  potential  profit  as  their  primary 
motivation, 31% pointed to the positive social, societal, or environmental impact, 
and 36% expressed that both factors were equally important. 

•  When Danish investors were asked about their reasons for investing in sustainable 
investment  funds,  34%  cited  potential  profit  as  their  primary  motivation,  33% 
pointed  to  the  positive  social,  societal,  or  environmental  impact,  and  33% 
expressed that both factors were equally important. 

•  When French investors were asked about their reasons for investing in sustainable 
investment  funds,  29%  cited  potential  profit  as  their  primary  motivation,  40% 
pointed  to  the  positive  social,  societal,  or  environmental  impact,  and  31% 
expressed that both factors were equally important. 

•  When  German  investors  were  asked  about  their  reasons  for  investing  in 
sustainable  investment  funds,  31%  cited  potential  profit  as  their  primary 
motivation, 32% pointed to the positive social, societal, or environmental impact, 
and 38% expressed that both factors were equally important. 

•  When Italian investors were asked about their reasons for investing in sustainable 
investment  funds,  27%  cited  potential  profit  as  their  primary  motivation,  38% 
pointed  to  the  positive  social,  societal,  or  environmental  impact,  and  35% 
expressed that both factors were equally important. 

•  When Dutch investors were asked about their reasons for investing in sustainable 
investment  funds,  33%  cited  potential  profit  as  their  primary  motivation,  33% 
pointed  to  the  positive  social,  societal,  or  environmental  impact,  and  33% 
expressed that both factors were equally important. 

•  When Polish investors were asked about their reasons for investing in sustainable 
investment  funds,  31%  cited  potential  profit  as  their  primary  motivation,  35% 
pointed  to  the  positive  social,  societal,  or  environmental  impact,  and  34% 
expressed that both factors were equally important. 

•  When  Portuguese  investors  were  asked  about  their  reasons  for  investing  in 
sustainable  investment  funds,  32%  cited  potential  profit  as  their  primary 
motivation, 38% pointed to the positive social, societal, or environmental impact, 
and 31% expressed that both factors were equally important. 

326 “Towards sustainable investing: how retail investors can create an impact”, Deloitte Belgium, 2024.  Sample only 
includes Belgian invests. Question: “Why consider sustainability in your portfolio?” Possible answers: personal values, 
positive impact, risk management, would not include sustainability.   

160 

 
 
 
 
 
•  When  Spanish  investors  were  asked  about  their  reasons  for  investing  in 
sustainable  investment  funds,  31%  cited  potential  profit  as  their  primary 
motivation, 35% pointed to the positive social, societal, or environmental impact, 
and 34% expressed that both factors were equally important. 

•  When  Swedish  investors  were  asked  about  their  reasons  for  investing  in 
sustainable  investment  funds,  36%  cited  potential  profit  as  their  primary 
motivation, 32% pointed to the positive social, societal, or environmental impact, 
and 32% expressed that both factors were equally important.327 

•  Even among those who do expect a reduction in financial returns from sustainable 

investments (30%), the majority (69%) wants to put their pension money to 
promote sustainability.328 

3. 

Specific sustainability objectives/themes  

Preliminary  conclusion:  Data  confirms  an  interest  for  both  environmental  and  social 
issues.  Commitment  to  transition  efforts  seems  to  be  important  for  retail  investors. 
Overall,  data  shows  a  wide  range  of  sustainability-related  interests  amongst  retail 
investors. Data shows support for both exclusion-based criteria and positive contribution 
based criteria. 

Global/EU statistics:  

•  When  asked  about  specific  themes,  global  investors  favor  environmental 
solutions  for current  and planned investments,  while interest  in  social  themes is 
tempered by uncertainty on how to invest. Water solutions, healthcare and climate 
action  are  top  themes  for  investors,  but  there’s  broad  interest  across  many 
environmental and social areas329. 

•  82% of global investors believe companies should address environmental issues, 

77% of them believe companies should address social issues.330 

•  The  top  themes  for  sustainable  investing  among  surveyed  European  investors 
(UK,  France,  Germany,  Switzerland)  are:  Climate  action  (17%),  Healthcare 
(12%),  Water  solutions  (11%),  Circular  economy  (9%),  Nature  &  biodiversity 
(9%),  Education  (8%),  Financial  Inclusion  (7%),  UN  SDGs  (5%),  Multicultural 
Diversity  (5%),  Just  Transition  (5%),  Gender  Diversity  (4%),  Community 
Development (4%), Faith-Based Values (3%).331  

•  Another survey on the popularity of sustainable topics among European investors 
(Denmark,  Estonia,  Germany,  Greece,  Ireland,  and  Romania)  shows  that  most 

327  Schroders_Report_Sustainable-Investing_Final.,  Schroders  (2019),  responses  from  22,000  participants  from  30 
countries (EU + others). Question: “If you invest in, or were to invest in sustainable investment funds, to what degree 
would this be for the potential investment return/profit versus the positive social, societal or environmental impact that 
the fund could have?”. 
328 Get Real! Individuals Prefer More Sustainable Investments by Rob Bauer, Tobias Ruof, Paul Smeets, Bauer et al. 
Real-life experiment with dutch pension fund. N=1699 
329  “Sustainable  Signals,  understanding  individual  investors’  interests  and  priorities”  Morgan  Stanley  institute  for 
sustainable investing and wealth management (2024) – responses from global sample (US, Europe – France,  Germany, 
UK, Switzerland -  and Japan) 
330  “Sustainable  Signals,  understanding  individual  investors’  interests  and  priorities”  Morgan  Stanley  institute  for 
sustainable investing and wealth management (2024) – responses from global sample (US, Europe – France,  Germany, 
UK, Switzerland -  and Japan) 
331“Sustainable  Signals,  understanding  individual  investors’  interests  and  priorities”  Morgan  Stanley  institute  for 
sustainable investing and wealth management (2024) – responses from European sample..

161 

 
 
 
 
 
popular remain: Clean water (64%), Health and safety (62%), Education (53%), 
Climate change (51%),  Renewable  energy  and energy efficiency  (50%),  Human 
rights (45%).332  

•  European respondents (UK, France, Germany, Switzerland) are the most likely to 
consider climate change when investing in traditional energy companies, at 77% 
(vs 71% for the US and 69% for Japan).333  

•  Global retail investors have certain preferences regarding ESG investing strategy: 
47% of them prefer exclusionary screening or values-based exclusions, 37% best-
in-class selection, while 16% prefers impact investing.334 

•  72%  of  European  value-oriented  retail  investors  are  found  to  prefer  both 
exclusion (negative) and contribution (positive) screening criteria for investments, 
20% were only interested in exclusion and a minority of 9% were only interested 
in positive screening. Human rights and other governance violations were found 
as  the  most  important  exclusion-based  criteria,  with  various  social  and 
environmental metrics as the preferred positive criteria335. 

•  EU investors have been asked “Which of these phrases describe what you think a 

“sustainable investment fund” is?” 

a.  Fund  that  invests  in  companies  that  are  likely  to  be  more  profitable 
because  they  are  proactive  in  preparing  for  environmental  and  social 
changes 

b.  Fund  that  invests  in  companies  that  are  best-in-class  when  it  comes  to 

environmental or social issues or how the company is managed 

c.  Fund that specifically avoids controversial companies 
d.  All three descriptors 
e.  Don’t know 336  

On average, EU investors predominantly responded: 

- 

a) Fund that invests in companies that are likely to be more profitable because 
they are proactive in preparing for environmental and social changes. (47%) 
-  b)  Fund  that  invests  in  companies  that  are  best-in-class  when  it  comes  to 

environmental or social issues or how the company is managed. (42%) 

National averages: 

o  Austria: a) 44%, b) 56%, c) 18%, d) 18%, e) 7% 
o  Belgium: a) 48%, b) 47%, c) 23%, d) 23%, e) 7% 
o  Denmark: a) 43%, b) 48%, c) 28%, d) 28%, e) 10% 
o  France: a) 51%, b) 46%, c) 24%, d) 24%, e) 7% 
o  Germany: a) 49%, b) 50%, c) 19%, d) 19%, e) 9% 

332 What do your clients actually want?, 2DII (2022), survey run in 6 European countries (Denmark, Estonia, Germany, 
Greece, Ireland and Romania). Participants were able to choose maximum of 6 among 30 sustainability topics. 
333  Sustainable  Signals,  understanding  individual  investors’  interests  and  priorities”  Morgan  Stanley  institute  for 
sustainable investing and wealth management (2024) – responses from European sample. 
334  The  Investing  Enlightenment,  State  Street  (2018)  –  responses  from  global  sample  (Europe,  Asia,  Americas, 
Australia) 
335 SFO_Mind-the-Gap-Why-EU-retail-investors-dont-get-what-they-want_2025.pdf, Sustainable Finance Observatory 
(2025) – based on surveys, interviews, mystery shopping visits etc. in 14 Member States 
336  Schroders_Report_Sustainable-Investing_Final.,  Schroders  (2019),  responses  from  22,000  participants  from  30 
countries (EU + others). The percentages extracted refer only to European (EU, UK, Switzerland, Russia) respondents. 

162 

 
 
 
 
o  Italy: a) 41%, b) 50%, c) 17%, d) 17%, e) 10% 
o  Netherlands: a) 47%, b) 50%, c) 24%, d) 24%, e) 5% 
o  Poland: a) 41%, b) 41%, c) 30%, d) 30%, e) 8% 
o  Portugal: a) 56%, b) 37%, c) 15%, d) 15%, e) 9% 
o  Spain: a) 46%, b) 43%, c) 13%, d) 13%, e) 10% 
o  Sweden: a) 49%, b) 45%, c) 34%, d) 34%, e) 10% 

•  Participants from 12 EU countries were asked a series of questions regarding their 
financial  or  sustainability  objectives.  Three  overarching  objectives  were 
considered: impact, values, and return. Average results for 12 EU countries show 
the  following:  6%  pure  impact,  9%  pure  values,  16%  pure  return,  4%  mix  of 
impact and return, 16% mix of values and return, 6% mix of values and impact, 
34% mix of all three, 11% no clear profile.337 

•  Strong interest for transition finance:  

-  80%  of  global 

investors  stated 

that  a  company’s  reporting  on 
sustainability  practices,  carbon  footprint  and  commitments  to  reduce 
greenhouse  gas  emissions  over  time  are  important  when  making 
investment decisions.338 

-  Commitment to transition is important for global investors when consider 

investing in energy companies339: 

▪  25%  would  not  invest  in  traditional  energy  companies  (e.g.  coal, 

oil and gas) due to climate concerns.  

▪  52%  would  only  invest  in  traditional  energy  companies  with 
robust plans to reduce their greenhouse gas emissions and address 
climate change.  

▪  23% would not consider climate change when making investments 

in traditional energy companies.  

▪  On  average,  70%  of  EU  retail  investors  would  either  like  to,  or 
the  energy 

financial  products 

finance 

that 

already  own 
transition.340 

•  BEUC341 presents the following findings on retail investors’ 

-  Description  of  the  different  motives  for  sustainability-conscious  retail 
  value  coherence  (excluding  from  your  portfolio  what 

investors: 

337 Moving the blockers of retail sustainable finance, 2DII, 2023. 
338  Sustainable  Signals,  understanding  individual  investors’  interests  and  priorities”  Morgan  Stanley  institute  for 
sustainable  investing  and  wealth  management  (2024)  –  responses  from  European  sample.  Question:  “when  thinking 
about  new  investments,  how  important  is  a  company’s  reporting  on  sustainability  practices,  carbon  footprint,  and 
commitments to reduce greenhouse gas emissions over time?” 19% responded ‘very important and a top priority’; 24% 
responded  ‘very  important  but  not  a  top  priority’,  27%  responded  ‘somewhat  important’,  13%  responded  ‘not  too 
important’, 6% responded ‘not at all important’. 
339  Sustainable  Signals,  understanding  individual  investors’  interests  and  priorities”  Morgan  Stanley  institute  for 
sustainable investing and wealth management (2024) – responses from European sample. Question: “Choose one of the 
three statements”. Possible response: ‘I would not invest in traditional energy companies (e.g., coal, oil and gas) due to 
climate concerns’; ‘I would only invest in traditional energy companies with robust plans to reduce their greenhouse 
gas emissions and address climate change’; ‘I do not consider climate change when I make investments in traditional 
energy companies.’ 
340  Moving  the  blockers  of  retail  sustainable  finance,  2DII,  2023,  responses  from  6000  participants  from  6  EU 
countries. 
341  A  consumer  agenda  for  sustainable  retail  finance  and  banking,  BEUC  (2024),  section  2.1.1.  what  do  consumers 
want from sustainable investment products? 

163 

 
 
 
 
 
- 

contradicts  your  value,  i.e.  avoiding  harm),  impact  investing,  transition, 
and financial return.  
“However,  what  can  be  said  for  certain  is  that  retail  investors  who  shop 
for sustainable investment products do not expect to be sold ‘best in class’ 
products  or  other  investment  approaches  that  pick  companies  whose 
sustainability  performance  is  merely  better,  or  less  bad,  compared  to 
others in the same sector. No retail investor will see relative sustainability 
as genuine sustainability.”  

•  2Dii presents what respondents believe should constitute an impact fund to avoid 

misleading investors: 

o  42%  believe  it  should  be  a  fund  that  intends  to  have  an  impact  on  the 
environment or the society AND deploys impactful actions in accordance 
AND can provide evidence supporting that it actually achieved a positive 
impact in the past. 

o  25%  believe  it  should  be  a  fund  that  intends  to  have  an  impact  on  the 
environment or the society AND deploys impactful actions in accordance. 

o  18% don’t know. 
o  15%  believe  it  should  be  a  fund  that  intends  to  have  an  impact  on  the 

environment or the society. 

•  Natixis342 presents in what specific companies are advised and non-advised retail 

investors prone to invest. 

o  Investing in companies that have a positive social impact. 

-  Advised: 72% 
-  Non-advised: 64% 

o  Investing in companies with good environmental records. 

-  Advised: 73% 
-  Non-advised 67% 

o  Investing in companies that are ethically run. 

-  Advised: 80% 
-  Non-advised: 74% 

o  Investing in companies that reflect my personal values. 

-  Advised: 77% 
-  Non-advised: 72% 

o  Knowing my investment is doing social good. 

-  Advised: 73% 
-  Non-advised: 67% 

o  Funding advancements in areas such as healthcare and education. 

-  Advised: 74% 
-  Non-advised: 64% 

•  Value-oriented  investors  are  highly  supportive  of  companies  engaged  in 
sustainable  economic  activities,  with  79.6%  expressing  willingness  to  invest  in 
such businesses. Additionally, 74.7% favor excluding certain corporate activities 
that may not align with their values.343 

342  mind-shift-getting-past-the-screens-of-responsible-investing,  Natixis  (2017),  Natixis  Investment Managers,  Global 
Survey of Individual Investor. Responses from 7,100 investors from 22 countries (EU + others). 
343 MyFairMoney - Questionnaire (2024), Global Survey of individual investors. Sample size = 550  

164 

 
 
 
 
National statistics:  

•  French  investors344  who  had  indicated  that  their  primary  objectives  when 
investing  was  to  contribute  to  or  act  for  sustainable  development  (representing 
7%  of  respondents)345  have  ranked  their  specific  sustainability-related  priority 
objective:  

o  46%  responded  ‘to  finance  the  energy  transition  or  the  preservation  of 

biodiversity’. 

o  30% responded ‘to give preference to transparent companies. 
o  28%  responded  ‘to  invest  in  companies  that  care  about  their  employees, 

diversity or equal opportunities’. 

•  New evidence of German investors show they would expect an average of 49.5% 
of  sustainable  investment  depending  on  the  category  of  the  product  and  would 
expect exclusions to cover notably: 

•  Human rights violations (63.5%) 
•  Expansion of coal-fired power generation) (54.4%) 
•  Controversial weapons (58%) 
•  While  the  figures  are  lower  for  e.g.  tobacco  (28%)  and  natural  gas 

(27%)346    

•  Prior  survey  of  German347  retail  investors  outlines  the  following  as  reasons  to 

invest sustainably: 

o  38% Contribution to environmental and climate protection. 
o  28% personal values 
o  13% sustainale investments are better than non-sustainable. 
o  3% social status 
o  12% fear of the negative effects of non-sustainable investments. 
o  30% leaving a better world for children and grandchildren. 

4.  Current challenges/barriers to sustainable investing in the EU 

Preliminary  conclusion:  top  challenges  (factors  potentially  preventing  retail  investors 
from  investing  sustainably)  include  fear  of  greenwashing  risks  and  the  lack  of  a  clear 
overview  of  the  (climate-aligned)  investment  opportunities  available.  The  complexity 
and length of the SFDR reporting templates put off investors.  

Global/EU statistics: 

•  Globally,  more  than  60%  of  investors  are  concerned  about  greenwashing  risks 

and the lack of ESG transparency348.  

344 The French and responsible investments, July 2023, AMF. Only French sample. 
345 Main objectives chosen by respondents were: ‘to have precautionary savings for unforeseen events’ (61%); ‘build 
up capital’ (46%) and ‘prepare for retirement’ (31%) 
346  Consumer  Testing  for  SFDR  2.0  (2025),  BaFin  Centre  Sustainable  Finance  (ZSF),  sample  of  1000 
German  investors.  BaFin  -  Current  topics  -  Survey  on  sustainable  financial  products:  Consumers  expect 
clear rules 
347 Eckert et al. (2022) responses from German sample of 3699 investors. Question was “Why would you invest in a 
sustainable investment”. Percentages show the share of ‘yes’ answers. 

165 

 
 
 
 
 
•  Only 20% of European investors (EU only) understand ‘the step they can take to 
invest and how to invest in a way that aligns with their values’. 48% answered to 
some extent, 13% no, and 16% unsure349. 

•  Only  5%  of  European  investors  (EU  only)  believe  that  they  ‘have  a  clear 
overview  of  the  climate-aligned  investment  opportunities  that  are  available  in 
their  country’.  24%  said  to  some  extent,  53%  answered  no  and  19%  said  they 
were unsure350. 

•  Only 12% of European investors (EU only) said that they know ‘how to identify 
opportunities and mitigate risks before making an investment decision’. 44% said 
to some extent, 28% said no and 18% were unsure.351 

•  Only  6%  of  European  investors  (EU  only)  said  they  can  ‘understand  how  to 
protect  themselves  from  greenwashing  and  what  to  do  if  they  see  it  occurring’. 
31% said to some extent, 43% said no and 21% were unsure.352 

•  46% of global retail  investors raised the issue of  lack of ESG performance data 
reported by both the companies and other sources as a barrier to ESG integration. 
39% consider lack of standards for measuring ESG performance as a barrier. 29% 
are  concerned  about  under-performance  of  ESG  investments,  while  21%  about 
costs associated with ESG integration.353 

National statistics (FR, IT, NL, PL):  

•  Consumer studies conducted on behalf of the European Supervisory  Authorities 
in four EU countries (FR, IT, NL, PL) in spring 2023 confirmed that the current 
SFDR disclosures templates present a lot of information to digest and that much 
of it is too hard to understand or interpret correctly.354 

o  AMF findings355: documents not appearing to be aimed at retail investors  
▪  “Investors  felt  put  off  by  the  form  of  the  document,  its  compact 

presentation, its length and the lack of a summary”.  

▪  “Complexity,  due  to  the  use  of  technical  terms  and  a  lack  of 
simple  explanations”,  “full  of  jargon”,  “concepts  are  hard  to 
identify”. 

o  Università Cattolica del Sacro Cuore findings356: the differences between 
‘sustainable  investments’  and  the  ‘EU  Taxonomy’  is  a  source  of 
confusion.  

348  “Sustainable  Signals,  understanding  individual  investors’  interests  and  priorities”  Morgan  Stanley  institute  for 
sustainable investing and wealth management (2024) – responses from global sample (US, Europe – France,  Germany, 
UK, Switzerland -  and Japan). 
349 Invest for Better Climate EU, Better Finance, 2024 
350 Invest for Better Climate EU, Better Finance, 2024 
351 Invest for Better Climate EU, Better Finance, 2024 
352 Invest for Better Climate EU, Better Finance, 2024  
353  The  Investing  Enlightenment,  State  Street  (2018)  –  responses  from  global  sample  (Europe,  Asia,  Americas, 
Australia). Respondents were asked about the barriers to ESG integration. They could select more than one option.  
354  Final  Report  on  draft  RTS  on  the  review  of  PAI  and  financial  product  disclosures  in  the  SFDR  Delegated 
Regulation: consumer testing in Italy, Poland, Netherlands, AMF  
355 AMF consumer testing on financial product disclosures in pre-contractual disclosures under the SFDR, June 2023. 
Study lasted 5 days and targeted 27 savers 
356  Consumer  testing  on  financial  product  disclosures  under  the  SFDR,  Università  Cattolica  del  Sacro  Cuore,  July 
2023/. Survey was delivered to three classes of graduate students attending the university. 

166 

 
 
 
 
o  AFM  findings357:  (1)  the  understanding  of  the  document  is  low;  (2)  the 
aim  and  context  of  the  document  are  not  clear,  most  readers  were 
confused  about  its  purpose;  (3)  the  texts  and  concepts  are  difficult  to 
understand,  the  language  level  is  too  high,  especially  regarding  the 
concept  of  Taxonomy  and  sustainable  investment;  (4)  the  design  (both 
textual and visual) of the document is not attractive.  

•  AMF study highlighted that the understanding of ‘European Taxonomy’ was very 
low: 4% knew exactly that it means; 10% knew the main outlines, 19% knew it 
just by name; and 67% declared not knowing it at all.358 

•  AMF study also shows a pick in mistrust in responsible investment. Respondents 
were faced with different statement about responsible investments. The statement 
that  was  the  most  of  them  agreed  with  was  ‘responsible  investments  are  never 
totally responsible’ with 17% agree totally, 41% agree, 15% disagree, 4% totally 
disagree,  and  23%  don’t  know.  Meaning  than  53%  French  investors  agree  that 
responsible investment are never totally responsible359. 
•  Moderate level of trust in the labels in the French market:360  

o  Label  ISR  (FR):  64%  completely  or  moderately  trust  the  label  validates 

the responsible orientation of a savings or investment product.361  

o  Greenfin  label  (FR):  72%  completely  or  moderately  trust  the  label 
validates the responsible orientation of a savings or investment product.362 
o  When  asked  ‘why  don’t  you  fully  trust  these  labels’,  the  most  picked 
answers  is:  ‘existence  of  several  labels,  which  makes  them  confusing’ 
(33%).363 

SOURCES 

•  Morgan Stanley institute for sustainable investing and wealth management, 
“Sustainable Signals, understanding individual investors’ interests and priorities” 
(2024).  Sample  of  Respondents:  US  (1002  individual  investors),  Europe  (1025, 
including  289  in  the  UK,  273  in  France,  285  from  Germany  and  178  from 
Switzerland) and Japan (793). 

•  Deloitte,  “Towards  Sustainable  Investing:  How  retail  investors  can  create  an 

impact” (2024). Sample of 1000 Belgian investors  

•  2 degrees investing, Summary table of surveys. Sample of 6105 investors from 

Belgium, Spain, Italy, Netherlands, Poland, and Sweden 

357  Consumer  testing  on  financial  product  disclosures  in  pre-contractual  disclosures  under  the  Sustainable  Finance 
Disclosure  Regulation,  AFM,  June  2023. Study used  online  tools  on  collect  qualitative  insight  on  the  template.  The 
sample was a representative group of 239 Dutch people ages 18 or above. 
358 The French and responsible investments, July 2023, AMF. A survey of a representative sample of 2,001 individuals 
of  the  national  population  aged 18  and  over. The  sample  was  interviewed  using  a  questionnaire  administered online 
(CAWI), based on a panel and a questionnaire lasting an average of 20 minutes. 
359 The French and responsible investments, July 2023, AMF. Only French sample. 
360 The French and responsible investments, July 2023, AMF. Only French sample. 
361 20% don’t know, 16% not at all  
362 12% don’t know and 16% not at all 
363  Other  top  answers:  “they  are  not  very  transparent”  (31%);  “don’t  trust  labels  in  general”  (26%)  and  “selection 
criteria are not clear” (23%). 

167 

 
 
 
 
 
 
•  2 degrees  investing,  “What  do your clients  actually want". Sample of investors 
from Denmark, Estonia, Germany, Greece, Ireland, and Romania. Approximately 
1000 people per country 

•  2  degrees  investing,  “Moving  the  blockers  of  retail  sustainable  finance  in 
Belgium". Sample of 12000 investors from Denmark, Estonia, Germany, Greece, 
Ireland,  Romania,  Belgium,  Spain,  Italy,  Netherlands,  Poland,  and  Sweden. 
Approximately 1000 people per country 

•  AMF  and  opinion  way,  “The  French  and  responsible  investment”  (2024). 
Sample  of  2001  French  individual  above  18  years  old.  The  sample  was 
interviewed using a questionnaire administered online (CAWI) based on a panel 
and a questionnaire lasting an average of 20min.  

•  AMF,  consumer  testing  on  financial  product  disclosures  in  pre-contractual 
disclosures under the SFDR, (2023). Study targeted 27 savers and lasted 5 days.  
•  Better  Finance,  “Invest  for  Better  Climate  EU:  assessing  retail  investor 
sustainability knowledge and preferences EU” (2024). Sample of 854 participants 
from France, Germany, Poland and Spain 

•  Università  Cattolica  del  Sacro  Cuore,  consumer  testing  on  financial  product 
disclosures  in  pre-contractual  disclosures  under  the  SFDR,  (2023).  Survey  was 
delivered to three classes of graduate students attending this university.  

•  AFM,  consumer  testing  on  financial  product  disclosures  in  pre-contractual 
disclosures  under  the  SFDR,  (2023).  The  sample  was  a  representative  group  of 
239 Dutch people aged 18 or above.  

•  BEUC, “A consumer agenda for sustainable retail finance and banking” (2024). 

Sample unknown.  

•  Eckert  et  al.  (2022)  New  evidence  on  German  retail  investors:  The  desire  to 

make an impact. Responses from German sample of 3699 investors 

•  State Street (2018), The Investing Enlightenment, responses from global sample 

(Europe, Asia, Americas, Australia).  

•  Natixis  (2017),  Natixis  Investment  Managers,  Global  Survey  of  Individual 

Investor. Responses from 7,100 investors from 22 countries. 

•  Schroders  (2017),  Global  Investor  Study  Global  Perspectives  on  Sustainable 

investing. 22,000 respondents from 33 countries 

•  Sustainable Finance Observatory (2025), Mind the Gap Why EU retail investors 
don’t get what they want. Based on surveys, interviews, mystery shopping visits 
etc. in 14 Member States 

•  BaFIN Centre for Sustainable Finance (ZSF) (2025), Consumer Testing for 

SFDR 2.0. Online survey in Germany of 1,000 people 

168 

 
 
 
 
ANNEX 11: EVALUATION 

1. 

Introduction 

1.1.  Context 

Regulation  (EU)  2019/2088  of  the  European  Parliament  and  of  the  Council  of  27 
November  2019  on  sustainability‐related  disclosures  in  the  financial  services  sector  (or 
the ‘Sustainable Finance Disclosures Regulation’ (SFDR)) has been in application since 
March 2021. It is part of a broader package of sustainability disclosure rules, tools and 
the 
standards  for  non-financial  and  financial  companies  adopted  pursuant 
Commission’s  2018  Action  Plan  on  Financing  Sustainable  Growth364,  recalled  and 
reinforced  within  the  objectives  of  the  European  Green  Deal365  and  the  Commission’s 
2021 Strategy for Financing the Transition to a Sustainable Economy366.  

to 

The  SFDR  level  1  Regulation  is  complemented  by  a  level  2  Delegated  Regulation367 
which lays down detailed disclosure rules for how financial market participants, such as 
asset  managers  and  pension  funds,  and  financial  advisers  should  disclose  sustainability 
information about their investment activities toward investors, in order to help the latter 
make  informed  choices.  The  Delegated  Regulation  specifies  notably  the  details  of  the 
information to be disclosed to investors in pre-contractual documents, on websites and in 
periodic reports regarding key parameters and indicators set out in the level 1 Regulation 
both  for  financial  market  participants  as  entities  as  well  as  for  the  financial  products 
which  they  make  available.  This  includes  notably  regarding  how  products  may  be 
considered to promote environmental or social characteristics under Article 8, to pursue 
sustainable investment as an objective under Article 9, and to consider principal adverse 
impacts to sustainability, including adherence to the principle of ‘do no significant harm’.  

While  the  level  1  Regulation  is  applicable  since  March  2021,  the  detailed  level  2 
Delegated  Regulation  applies  only  since  early  2023.  Overall,  the  rules  both  across  the 
level 1 and the level 2 are closely linked with other parts of the EU sustainable finance 
framework,  notably  the  Taxonomy  Regulation368  and  the  Corporate  Sustainability 
Reporting  Directive369,  including  their  respective  implementing  measures  which  have 
entered into application in various steps between 2022 and 2025370.  

The comprehensive assessment of the SFDR was announced in December 2022371 as per 
Article  19  of  the  regulation  to  assess  potential  shortcomings  with  the  framework, 
focusing on legal certainty, the usability of the regulation and its ability to play its part in 

364 COM(2018) 97 final 
365 COM(2019) 640 final 
366 COM(2021) 390 final 
367 Commission Delegated Regulation (EU) 2022/1288  
368 Regulation (EU) 2020/852 
369 Directive (EU) 2022/2464 
370 And at present subject to amendment pursuant to the February 2025 Commission  proposals to simplify 
sustainability reporting 
371 finance-2023-sfdr-implementation - European Commission 

169 

 
 
 
 
 
tackling  greenwashing.  The  assessment  was  carried  forward  notably  via  two  public 
consultations in autumn 2023372 as well as the other steps outlined in Annex 1.  

The  assessment  has  been  predicated  on  gathering  feedback  on  the  functioning  of  the 
framework  and  assessing  any  shortcomings  with  regard  to  how  well  it  is  achieving  its 
ultimate objectives. Notably this concerns how the rules are working in terms of helping 
to  attract  private  funding  to  facilitate  the  transition  of  the  European  economy  towards 
greater  sustainability  by  setting  out  a  common  framework  for  disclosures  by  financial 
market participants regarding their investment activities and the sustainability-features of 
various  financial  products  and  empowering  investors  to  better  understand  and  compare 
the products on offer.   

This  annex  summarises  the  assessment  of  the  extent  to  which  the  existing  SFDR  rules 
have met their main objectives and in particular whether they have worked in a way that 
is  efficient,  effective,  coherent,  relevant  and  have  provided  EU  added  value.  The 
assessment  has  largely  been  conducted  prior  to  the  impact  assessment  work,  and  its 
results have been incorporated in the problem definition of the impact assessment. 

1.2. 

Scope of the evaluation 

This  annex does not  constitute a full  evaluation  of the SFDR. The detailed rules  in  the 
Delegated  Regulation  date  from  2023,  which  together  with  their  interplay  with  the 
detailed concurrent implementing measures under the Taxonomy and CSRD noted above 
(dating  from  2022  to  2025),  make  a  full  evaluation  of  their  effect  in  accordance  with 
better regulation principles premature. As such, this annex provides an assessment of the 
functioning  of  the  SFDR,  to  the  extent  possible  in  accordance  with  the  five  evaluation 
criteria set out in Better regulation guidelines, and informing also the problem definition 
in section 2 of this impact assessment.  

1.3.  Background to the initiative 

The  Commission  proposal  for  the  SFDR  was  adopted  in  May  2018373.  It  set  out  to 
overcome  “a  lack  of  transparency  on  how  institutional  investors,  asset  managers  and 
financial  advisors  consider  sustainability  risks  in  their  investment  decision-making  or 
advisory processes (as a result of which) their clients do not get the full information they 
need to inform their investment decisions or recommendations.” Together with the other 
measures  in  the  EU  sustainable  finance  framework,  the  SFDR  was  part  of  the  steps  to 
help reorient capital towards sustainable investments and mainstream sustainability into 
financial risk management374.  

The expected impacts of the SFDR were that end-investors would be provided with more 
clear and coherent information, with lower information asymmetries and search costs, on 
how financial market  participants and financial advisors integrate sustainability  risks in 
their investment  decision-making or advisory processes. This  was also  foreseen to  help 
incentivise  innovation,  competition  and  ultimately  market  efficiency  due  to  a  better 
integration  of  ESG  risks  and  consideration  of  higher  sustainability  standards  in  the 
decision-making  processes  of  investors  and  financial  market  participants  and  advisers 
alike.  It  was  anticipated  that  additional  costs  under  the  framework  for  financial  market 

372 Sustainability-related disclosure in the financial services sector - European Commission 
373 COM(2018) 354 final 
374 COM(2018) 97 final 

170 

 
 
 
 
participants  and  financial  advisers  would  largely  be  incurred  as  part  of  existing  and 
emerging organisational and operating procedures, which were already tending towards a 
better  consideration  of  sustainability  risks.  Costs  were  also  anticipated  to  be  offset  by 
gains from higher volumes of client business interested in sustainable investments. While 
the final SFDR adopted by co-legislators and published in December 2019 amended the 
Commission  proposal  in  several  respects  and  key  details375,  the  fundamental  objectives 
of the framework remained the same. 

1.4. 

State of play 

As noted above, the SFDR Level 1 began applying in March 2021 but the detailed rules 
in  the Level  2 regulation  only  began applying in  early 2023. Together with subsequent 
Level  3  guidance  from  the  Commission  and  ESAs,  this  meant  that  the  early 
implementation of the SFDR  entailed periodic adjustments for FMPs notably  regarding 
the appropriate treatment and disclosures of certain products (outlined in sections 1 and 2 
of the impact assessment and further in section 3.1.2 below).  

Nonetheless, the feedback on the SFDR shows continued widespread support for both its 
objectives and the added value of a common sustainability disclosure framework at EU 
level.  Some  stakeholders  consider  that  it  has  been  effective  in  increasing  transparency 
and giving investors access to detailed ESG information.  

Nevertheless, a large majority of stakeholders note that there are limitations in the SFDR 
which have prevented the objectives of the framework from being fully achieved. These 
limitations include a lack of legal clarity on key concepts, the limited relevance of certain 
disclosure requirements, overlaps and inconsistencies with other parts of the sustainable 
finance framework, and challenges linked to data availability.  

Overall,  these  limitations  have  led  to  various  implementation  challenges  and  undue 
operational costs for financial market participants. They have also led to a lack of clarity 
and  comparability  regarding  the  sustainability  of  different  financial  products  offered  to 
investors in  the EU. This  in  turn has given rise to both  a risk of greenwashing and the 
unwarranted  exclusion  of  some  sectors  because  of  how  some  rules  are  applied  in 
practice. This has made the rules less effective in helping to mobilise private investment 
into the transition toward sustainable business practices and the EU’s strategic objectives.  

2.  Methodology 

This evaluation annex summarises the input and analysis which have gone into informing 
the  assessment  of  the  functioning  of  the  SFDR  recapped  above,  to  the  extent  possible 
through the lens of the five evaluation criteria set out in Better regulation guidelines. It is 
based on the feedback to the consultations and outreach activities outlined in Annexes 1 
and  2,  as  well  as  other  publicly  available  studies  and  inputs  received  by  Commission 
services. An analysis of the costs arising from the current regime is presented separately 
in Annex 3.   

375 E.g. split into disclosures as per Articles 8 and 9, notion of ‘principal adverse impacts’ and addition of 
entity-level disclosures in this regard, changed definition of ‘sustainable investment’ etc  

171 

 
 
 
 
3.  Evaluation questions 

The first part (section 3.1) below – looking at effectiveness, efficiency and coherence – 
explores the extent to which the SFDR has been successful. The second and third explore 
its continued relevance (section 3.2) and added value (section 3.3).  

3.1.  To what degree has the SFDR been successful, in terms of effectiveness, 

efficiency and coherence?  

3.1.1. 

Effectiveness and efficiency 

Has  the  SFDR  been  overall  effective  in  delivering  on  its  objectives  and  if  not,  what 
factors have rendered it less effective than intended? 

Has the SFDR been cost-efficient?  Is there scope to  increase  efficiency e.g. via  further 
simplification or making the rules more proportionate? 

The  feedback  to  the  consultations  shows  continued  support  for  the  objectives  of  the 
SFDR  but  mixed  views  on  how  the  implementation  of  the  regulation  has  delivered 
against its specific objectives376. A majority considered that the SFDR has not effectively 
strengthened protection for end-investors or made it easier for them to compare financial 
products  with  sustainability  claims  nor  that  it  has  successfully  directed  capital  towards 
investments deemed sustainable, including transitional investments. In detail, in terms of 
the effectiveness  and efficiency of the SFDR in  delivering on its objectives,  the  entity 
level  disclosure  requirements  for  FMPs  and  financial  advisers  (jointly  referred  to  as 
‘FMPs’  below)  and  product  level  disclosure  requirements  for  financial  products  in 
scope377  on  how  they  consider  sustainability  risks,  are  widely  perceived  as  complex, 
unduly long and lacking in clarity. The requirements are also said to require a level of 
ESG data which is not fully and effectively available, with inadequate guidance on 
how to treat resulting ESG data gaps. The disclosure regime is also being used by the 
market as a de facto labelling system despite the lack of common criteria that could 
underpin such labels and be fit for this purpose. 

Together, these pose difficulties both for FMPs in preparing the required disclosures and 
navigating  the  uncertainty  surrounding  key  sustainability-related  obligations  and 
concepts, as well as for investors and distributors in understanding and comparing ESG 
claims made as part of financial products. While not fully cancelling out the ability of the 
SFDR  to  deliver  on  some  of  its  objectives,  these  challenges  hamper  its  overall 
effectiveness  and  efficiency  in  ensuring  a  more  integrated  single  market  for  credible 
ESG-linked  products  helping  to  mobilise  private  investment  into  the  transition  toward 
sustainability and for the EU’s other strategic objectives.  

➢  The SFDR is considered to rely on ambiguous terminologies and un-defined 

concepts which have led to unclear requirements.  

82%  (247  out  of  301)  of  respondents  to  the  public  consultations  flagged  that  the  legal 
requirements  and concepts  in the SFDR, especially  the ones linked to  the  definition of 

376 The relevant specific objectives in the original impact assessment (SWD (2018)265 final) were notably 
to “ensure clarity and a coherent approach across sectors and Member States as regards the integration of 
ESG factors by relevant entities in their investment/advisory process” and “increase transparency towards 
end-investors by improving ESG-related disclosure requirements”. 
377 The scope of SFDR includes funds, insurance and pension products.   

172 

 
 
 
 
‘sustainable  investment’,  are  not  sufficiently  clear378.  The  sustainable  investment 
definition leaves a lot of room for interpretation, especially when it comes to the ‘do 
no  significant  harm’  (DNSH)  concept379.  The  regulation  has  not  specified  what  the 
requirements linked to the ‘consideration’ of  ‘principal adverse impacts’ (PAIs) means, 
which is left to the discretion of asset managers (e.g. setting specific thresholds for each 
PAI, engaging with investee companies to  reduce PAIs, screening the  companies based 
on  the  best  performers  against  each  PAI,  etc).  In  addition,  77%  of  respondents  to  the 
public  consultation  find  it  unclear  when  FMPs  should  consider  that  the  PAIs  are  to  be 
considered  as  material  in  the  context  of  the  product  disclosures  for  DNSH380.  The 
concept of ‘good governance’ is also noted not to be sufficiently defined, leaving room 
for  interpreting  the  related  requirements  (e.g.  exclusion  policies  and  standards,  setting 
due  diligence  processes  and  policies  for  the  detection  and  remediation  of  potential 
violations, etc.). See section 3 of Annex 2 for further details and breakdowns per types of 
respondents and stakeholders.  

Another  aspect  left  to  the  discretion  of  managers  relates  to  the  way  sustainable 
companies are counted in portfolios. Firms are free to choose whether they count the 
entirety  of  a  sustainable  company  (beyond  a  certain  level  of  revenue  derived  from 
sustainable activities), or whether they count only the proportion of revenue attributed to 
those activities381. Box 9 illustrates this point how FMPs are responsible for conducting 
their  individual  assessments  for  each  investment  and  disclosing  the  underlying 
assumptions  and  methodologies  they  rely  on.  Depending  on  the  method,  considerable 
differences  can be noted in  the  share of sustainable investment  disclosed for a product, 
i.e. with the right-hand approach signalling a far higher proportion, yet based on a similar 
investment in an equivalent company. 

Box  9:  Explanation  of  the  two  main  approaches  to  calculating  ‘sustainable 
investment proportion’, Morningstar382  

378  European  Commission,  Summary  Report  of  the  open  and  targeted  consultations  of  the  SFDR 
assessment, published May 2024 
379  The  SFDR  definition  of  sustainable  investment  adopted  by  co-legislators  changed  compared  to  the 
initial Commission proposal which notably did not include the horizontal DNSH concept.  
380  European  Commission,  Summary  Report  of  the  open  and  targeted  consultations  of  the  SFDR 
assessment, published May 2024 
381  Morningstar,  SFDR  Article  8  and  Article  9  funds:  Q4  2022  in  review  (26  January  2023)  and  blog 
Sustainable  Investment  calculations  under  MiFID  II  and  SFDR  remain  perplexing  for  ESG  investors  (6 
July 2022) 
382 Morningstar,  SFDR Article 8 and 9 in review, Q4 2022  

173 

 
 
 
 
This  contributes  to  the  effect  that  the  disclosures  made  under  the  SFDR  often  lack 
comparability.  Different  interpretations  of  the  regulation  have  led  FMPs  to  adopt 
different  approaches  when  applying  key  SFDR  concepts,  especially  the  calculation  of 
sustainable investment exposure (see box 10).  

As a result, products with similar mandates and portfolios will report divergent exposures 
to  sustainable  investments  depending  on  the  methodology  chosen.  The  lack  of 
transparency regarding the approach taken and the underlying methodologies is making it 
impossible for end-investors to compare competing products. The discretion in reporting 
on  PAIs  also  does  not  ensure  comparability,  while  reporting  on  products’  Taxonomy-
alignment is limited and only gives a partial account of their overall footprint.  

Box 10 below illustrates the wide range of numbers that investors are facing. It builds on 
an  analysis  conducted  by  Morningstar383  looking  at  the  differences  in  the  reported 
sustainable  investment  exposure  between  11  global  large-cap  ETFs  that  track  a  Paris-
aligned benchmark and have similar portfolios. 

Box  10:  minimum  %  of  sustainable  investments  for  11  funds  tracking  large-cap 
Paris-Aligned Benchmarks384   

Other concepts which are considered to be unclear include the term ‘promotion of ESG 
characteristics’ (on which the Article 8 disclosures are based), which is  very broad and 
lacks  minimum  conditions385,  and  specific  indicators  such  as  the  ones  linked  to  the 
violations  of  UN  Guiding  Principles  (UNGP)  and  the  OECD  Multinational  Enterprises 

383 SFDR_Article_8_and_Article_9_Funds_Q4_2022.pdf 
384 SFDR_Article_8_and_Article_9_Funds_Q4_2022.pdf 
385  ICMA,  A  time  for  change  in  the  sustainable  fund  –  reflections  and  recommendations  in  a  new 
regulatory environment, March 2025 

174 

 
 
 
 
 
 
 
 
(OECD MNEs) (where FMPs note that they lack the clarity needed on what is a relevant 
divestment signal)386. 

In addition, some of the interactions between the different SFDR requirements and 
concepts also are considered to lack clarity. This is particularly the case in the way the 
entity-level disclosures obligations and the product level disclosures should interact. 61% 
of FMPs387 who responded to the public consultation flagged that the legal implications 
of disclosing PAI indicators at the product level on the related disclosure obligations at 
the  entity  level  is  not  clear  (i.e.  whether  disclosing  certain  indicators  at  product  level 
triggers a legal obligation to disclose at the level of entity). 66% of FMPs and financial 
advisers388  who  responded  to  the  public  consultation  also  flagged  that  the  interactions 
between the product level disclosure requirements under Article 7 and the ones under the 
Article 8 are not clear. As a result, it is not clear which obligations apply at which stage 
of the product disclosures389.  

➢  Disclosures are seen as very lengthy and to rely on complex, unintuitive and 
technical terms regarding FMPs’ consideration of sustainability risks at both 
entity and product level 

The  SFDR  aims  to  enhance  transparency  on  ESG  characteristics  of  financial  products 
and  ESG  processes  implemented  by  FMPs  through  its  entity  and  product  level 
disclosures.  However,  several  limitations  are  seen  to  undermine  their  usefulness  in 
fighting greenwashing and providing relevant information to end-investors.  

FMPs need to gather and report a significant amount of data both at the entity level 
and the product levels. At the entity level, FMPs need to provide information on their 
integration  of  sustainability  risks  into  their  investment  decision-making  processes  and 
remuneration  policies,  and  on  how  they  consider  the  principal  adverse  impacts  of  their 
investment  decisions  on  sustainability  factors  (requirement  for  large  firms,  small  firms 
follow  a  comply  or  explain  approach).  However,  there  is  considerable  evidence  that 
much  of  this  information  is  not  really  used  by  investors,  therefore  reducing  its 
effectiveness and efficiency in achieving the objectives of the framework390. At the level 
of  their  investment  products,  FMPs  need  to  disclose  whether  and  how  they  consider 
sustainability  risks  as  well  as  additional  ESG  disclosures  for  products  promoting 
environmental or social characteristics (Article 8) and for products pursing a sustainable 
objective  (Article  9).  The  length  of  the  disclosure  requirements  was  compounded  by 
some regulatory duplication of transparency obligations, notably between the SFDR 
and  the  CSRD.  Based  on  the  current  scope  of  the  CSRD,  some  FMPs  are  facing 
duplicative  entity  level  disclosure  requirements,  i.e.  having  to  report  on  their  principal 
adverse  impact  indicators  under  the  SFDR  and  to  disclose  sustainability  information 

targeted  consultation  regarding  SFDR 

386  Platform  for  Sustainable  Finance,  Briefing  on  EC 
implementation, December 2023 
387  European  Commission,  Summary  Report  of  the  open  and  targeted  consultations  of  the  SFDR 
assessment, published May 2024 
388 66% (119 out of 180) 
389 European Supervisory Authorities, Joint ESAs opinion on the SFDR, June 2024.  
390 According to EFAMA, ‘the demand for entity-level disclosures is relatively low, as (investors’) primary 
concern lies with the details of the individual investment products themselves’. In the consultation, entity-
level disclosures were considered useful by 31% of respondents.  

175 

 
 
 
 
according  to  the  European  sustainability  reporting  standards  (ESRS)  under  the  CSRD, 
which can both refer to the same information, but using different terminology391.  

The legal concepts used in investors-facing disclosures are also seen as too complex and 
not retail friendly392. The references to terms such as ‘sustainable investment objective’, 
‘environmental  or  social  characteristics’,  ‘principal  adverse  impacts’,  ‘taxonomy-
aligned  investment’,  and  ‘do  no  significant  harm’  are  argued  by  many  to  demand  an 
excessively high level of familiarity with environmental and social metrics, performance 
data  and  the  regulatory  framework393.  Further,  the  SFDR  disclosures  are,  given  their 
different locations (pre-contractual documents, periodic reports, websites), challenging to 
navigate394. 

➢  Disclosures  are  considered  to  lack  comparability  and  to  fail  in  providing 

transparency on the methodology used  

As noted above, there is no uniform methodology to date for calculating the proportion of 
sustainable  investment  of  a  product,  or  for  taking  into  consideration  principal  adverse 
impact. This allows for a variety of methodologies. 

Giving FMPs a certain level of flexibility is necessary to allow the market to implement 
a  wide  variety  of  ESG  strategies  and  innovate  in  their  approach  to  sustainability. 
However,  such  flexibility  must  be  accompanied  by  transparency  on  the  approach  and 
underlying methodology to inform end-investors. 

However,  current  product  disclosures  are  regarded  as  failing  to  offer  sufficient 
transparency  on  proprietary  methods  or  even  to  evaluate  the  effectiveness  of 
products’ performance against the sustainability characteristics or objectives established. 
In  particular,  there  is  little  transparency  on  how  the  DNSH  principle  is  applied.  Box  8 
below provides some example of product disclosures lacking sufficient transparency on 
methodology, impeding scrutiny and evaluation of the effectiveness of the sustainability-
related approaches.  

Box 11: Examples of missing data on methodology from recent study395 

-  Among 43 analysed products, 32 stated that they address the DNSH principle in 
their  methodology.  Out  of  these,  15  claim  to  assess  the  DNSH  principle  using 
PAIs. Only 6 products disclose that thresholds are applied to determine harm, but 
none disclosed specific thresholds for identifying harmful activities. 

-  No product provides transparent qualitative or quantitative criteria or threshold to 

391 Fit for Future Platform Opinion, October 2024. 
392  European  Parliament,  study  requested  by  the  ECON  committee,  The  implementation  of  the 
Sustainability-related Financial Disclosures, July 2024. 
393  Platform  for  Sustainable,  Briefing  on  EC  targeted  consultation  regarding  SFDR  implementation, 
December 2023. 
394 Frank Bold, SFDR review : analysis of current practices and future directions for investors, December 
2024.  This  research  seeks  to  provide  insight  into  how  influential  FMPs  have  implemented  the  SFDR 
requirements.  It  examines  entity-level  disclosures  of  15  FMPs  and  product-level  disclosures  of  three 
investment  funds  per  FMPs,  totalling  43  investment  products.  List  of  investors:  BlackRock,  JP  Morgan, 
Credit  Agricole/Amundi,  Goldman  Sachs,  Allianz,  UBS,  Morgan  Stanley,  BNP  Paribas,  Deutsche 
Bank/DWS, Natixis, AXA, Generali, Federated Hermes, Sumitomo 
395 Frank Bold, SFDR review : analysis of current practices and future directions for investors, December 
2024.  

176 

 
 
 
 
define when an activity harms environmental or social objectives or targets high-
risks activities.  

-  Similarly,  15  products  claim  to  address  good  governance  (12  being  products 
disclosing  under  Article  8  and  3  under  Article  9),  but  only  5  provide  detailed 
processes  or  policies,  usually  referencing  FMPs’  responsible  governance 
principles or international standards.  

-  Dedicated  KPIs  or  targets  are  largely  absent  (mainly  due  to  lack  of  clarity  in 

disclosure requirements) 

-  The Platform  for Sustainable Finance (PSF) also  highlighted in its  report396 that 
most  product  disclosures  lack  information  about  tolerance  levels  (the  tolerated 
level  of  exposures  to  the  mandatory  principal  adverse  impact  indicators)  set  by 
FMPs.  

➢  Lack  of  data  compared  to  what  is  required  by  the  SFDR  and  inadequate 

guidance on estimates 

The  mismatch  in  some  of  the  datapoints  expected  under  the  SFDR  and  those  provided 
under  other  parts  of  the  EU  framework  is  assessed  under  the  question  on  coherence 
below. Besides this, FMPs notably lack granular data for investments in entities and 
assets that fall outside of the CSRD scope (a challenge set to increase with the changes 
pursuant  to  the  omnibus).  This  is  particularly  the  case  for  certain  types  of  assets  (e.g. 
infrastructure, sovereigns, certain private assets etc) and for international investments.  

Due  to  the  lack  of  publicly  available  data  from  underlying  investments,  FMPs  have  to 
rely  on  additional  sources  to  complement  company  reported  data,  mainly  estimates 
generated either in-house or by third party providers.  

The  SFDR  permits  their  use  when  the  information  needed  is  not  readily  available,  but 
does not provide for any rules, guidance or minimum safeguards on how to generate such 
ESG estimates. The level 2 and 3 rules only provide for some transparency expectations. 
The  ESAs  clarified  that  it  would  be  good  practice  for  FMPs  to  disclose  for  each  PAI 
indicator  the  proportion  of  investments  for  which  data  was  obtained  directly  from 
investee  companies  and  the  proportion  of  investments  for  which  data  was  obtained  by 
carrying out additional research, cooperating with third party data providers or external 
experts or making reasonable assumptions397. 

However,  no  further  guidance  has  been  provided  so  far  on  how  such  estimates 
should  be  produced  and  whether  they  should  follow  minimum  requirements.  In 
addition,  FMPs  largely  rely  on  non-EU  third  party  providers  for  such  estimates.  These 
actors are not subject to any EU rules regarding the way they conduct their businesses, 
how they set their fees, on prevention on conflict of interest etc.  

Findings  from  Sustainalytics398  (analysing  approximately  12,000  issuers)  confirm  the 
lack of available data on principal adverse impacts (see box 12). The analysis shows that 

396  Platform  for  Sustainable,  Briefing  on  EC  targeted  consultation  regarding  SFDR  implementation, 
December 2023 
397 ESMA30-1668416927-2548 Concept of estimates across the EU Sustainable Finance framework 
398 Sustainalytics, Filling in the Data Gaps: The Current State of Reporting on Principal Adverse Impacts 
Disclosures for the SFDR, February 2023.  

177 

 
 
 
 
 
companies in the sample were largely able to report data for over half of the mandatory 
PAIs but no single issuer reported data across all. (see Graph 1). Further, less than 10% 
of issuers have reported data on, for example, gender pay gap and emissions to water (see 
Graph 2).  

First  reporting  by  companies  in  2025  under  the  (pre-Omnibus)  CSRD/ESRS  signals 
some change but largely appears to confirm the trend. An analysis by EFRAG of the first 
reporting in 2025 for a sample of 656 companies notes that, while topics such as climate 
change  mitigation  and  social  topics  such  as  business  conduct  and  own  workforce  are 
considered  material  and  reported  on  in  accordance  with  ESRS  by  over  80-90%  of 
companies, topics such as biodiversity and water are considered material and reported on 
by 30-40% of companies399.  

A recent Bloomberg study400 (see box 13) describes the extent of the data gaps per types 
of  entities  and  highlight  the  very  low  coverage  for  small  companies.  Also,  while  the 
coverage for large EU and large EU PIE401 companies is currently estimated at 40%, this 
is  set  to  be  reduced  in  the  future  by  the  upcoming  changes  to  the  reporting  landscape 
announced by the simplification omnibus. In addition, the lack of regulatory obligations 
for benchmark providers creates additional data challenges for FMPs relying on indices.  

As  a  result,  FMP  struggle  to  collect,  measure  or  quantify  certain  indicators,  which  are 
often sourced either internally or commercially from third party providers402. The over-
reliance  on  the  use  of  estimates,  coupled  with  the  lack  of  guidance  on  how  to  produce 
such  estimates  and  the  lack  of  regulatory  framework  on  third-party  providers  of  such 
estimates, results in additional operational, regulatory and reputational risk for managers. 
When  asked  about  the  cost  of  disclosures,  58%  (167  out  of  287)  of  total  respondents 
answered that they do not consider it to be proportionate to the benefits generated. This 
figure increases to 71% (133 out of 186) among FMPs and financial advisers. FMPs and 
financial advisers indicated that the main components of the costs of disclosures are the 
costs of personnel and of external advisory services. 

399 EFRAG_State of Play 2025 Report_0.pdf 
400 Input sent bilaterally 
401  “Public-interest  entity”  as  defined  in  Article  2(1)  of  Directive  2013/34/EU  (Accounting  Directive), 
namely  listed  companies,  credit  institutions,  insurance  companies  and  others  designated  as  PIEs  by 
Member States   
402 EFAMA responses to EC targeted consultation on the implementation of the SFDR, 20 December 2023 

178 

 
 
 
 
 
 
 
 
 
 
 
Box  12:  Availabilities  of  PAI-related  information  from  investee  companies 
(Sustainalytics403) 

Graph 1 – Number of companies covering the mandatory PAI indicators 

Graph 2 - Issuers’ data for mandatory PAI reporting 

403 Filling in the Data Gaps: The Current State of Reporting on Principal Adverse Impacts Disclosures for 
the SFDR 

179 

 
 
 
 
 
 
 
Box 13: SFDR mandatory environmental PAI coverage by type of company (against 
16,000 companies)  

Source: Bloomberg   

➢  Observed misuse of the framework as a labelling regime  

The trend that the three sets of products’ disclosures under the SFDR have been used 
as ‘de facto’ categories/labels has been widely  observed: (i) Article 6 for all managed 
funds404;  (ii)  Article  8  for  products  which  promote  environmental  or  social 
characteristics;  and  (iii)  Article  9  for  funds  which  have  a  sustainable  investment 
objective405.  These  articles  have  been  effectively  used  in  the  market  in  line  with 
distribution and client appetite as if they were investor facing labels, yet with none of the 
criteria or procedural steps which normally underpin widely used and accepted categories 
and  market  labels  (e.g.  compliance  with  externally  drawn  up  criteria,  independent 
certification, validation by a third party etc.)406.  

The responses to the public consultations confirmed this trend, with 83% of respondents 
(245 out of 296) agreed that the SFDR is currently not being used solely as a disclosure 
framework as intended but is also being used as a labelling and marketing tool.  

This was partly due to implied differences in the ambition level of products where Article 
8  and  Article  9  products  have  been  commonly  referred  to  as  ‘light  green’  and  ‘dark 

404  Article  6  applies  to  all  SFDR  financial  products,  requiring  general  information  on  whether  and  how 
sustainability considerations are relevant for them.  
405  ICMA,  A  time  for  change  in  the  sustainable  fund  –  reflections  and  recommendations  in  a  new 
regulatory environment, March 2025 
406  Some  common  features  of  categories  vs.  labels  are  set  out  in  Annex  E  in  Categorisation  of  products 
under the SFDR: Proposal of the Platform on Sustainable Finance, December 2024 

180 

 
 
 
 
 
 
 
green’ products, respectively. Collectively, Article 8 and Article 9 constitute nearly 60% 
of the universe of EU funds in scope of the SFDR by assets, which have totalled around 
EUR6 trillion, and 50.1% by number of funds.407 Another explanation for the misuse of 
the  disclosure  articles  is  the  demand  and  market  pressure  to  classify  products  into 
different sustainability-related categories408. 

3.1.2. 

Coherence  

Is  the  framework  coherent  with  other  parts  of  the  sustainable  finance  framework?  Are 
existing provisions coherent with each other? 

In  terms  of  coherence,  the  SFDR  has  introduced  multiple  layers  of  sustainability-
related requirements that are considered complex to apply, including in tandem with 
other parts of the sustainable finance framework. The bulk of the complexities mainly 
comes  from  the  three  steps  underlying  the  definition  of  ‘sustainable  investment’  (as 
described  at  the  beginning  of  section  3.1.1  above,  i.e.  contribution,  DNSH  and  good 
governance) that need to be conducted as part of the sustainability assessment for funds 
disclosing  under  Article  9.  Certain  legal  misalignments  between  these  concepts  and 
other obligations  required from other pieces  of the sustainable finance framework 
have been signalled as increasing the complexity of the SFDR implementation.  

The SFDR and the other sustainable finance rules are closely interlinked and are intended 
to complement each other to form a coherent set of disclosures, criteria and investment 
tools. The frameworks were conceived to work well together to ensure that the different 
pieces and  criteria provide legal  certainty to  users, including  to  help  FMPs define their 
approach  to  sustainability  and  to  ensure  they  have  access  to  the  necessary  data  from 
underlying  investments  to  comply  with  their  reporting  obligations  and  conduct  their 
sustainability assessments.  

However, despite the need to work well together, some unintended legal misalignments 
have  led  to  some  inconsistencies  and  mismatches  in  the  definition  of  sustainability-
related concepts and disclosures.  

➢  Misalignments  between  ‘environmentally  sustainable  economic  activities’ 
under the EU Taxonomy and ‘sustainable investment’ under the SFDR  

The  coexistence  between  the  SFDR  definition  of  ‘sustainable  investment’  and  what 
constitutes  an  ‘environmentally  sustainable’  activity  under  the  EU  Taxonomy  is 
considered  problematic  due  to  the  absence  of  a  clear  legal  link  between  these  two 
concepts and technical differences.  

The SFDR definition is entirely based on disclosure requirements and offers flexibility to 
FMPs to  calibrate their  approach.  It  is  designed  to  be broader than the approach of the 
EU  Taxonomy,  which  establishes  a  robust  and  science-based  classification  system  by 
providing a set of criteria to identify economic activities substantially contributing to the 
EU’s  six  environmentally  objectives.  The  Taxonomy  was  therefore  meant  to  act  as  an 
efficient  measuring  tool  for  investors  for  certain  types  of  assets  while  the  sustainable 

407 Morningstar, Q4 2024 Morningstar - SFDR_Article_8_and_Article_9_Funds_Q4_2024_.pdf 
408  Platform  for  Sustainable,  Briefing  on  EC  targeted  consultation  regarding  SFDR  implementation, 
December 2023 

181 

 
 
 
 
investment  definition  was  meant  to  enable  FMPs  to  disclose  other  methodologies  and 
approaches to define sustainability.  

This  has  the  effect  that  investments  in  Taxonomy  aligned  economic  activity  are  not 
automatically deemed as sustainable investments under the SFDR. This is mainly due to 
technical differences between the DNSH test under the SFDR and the DNSH test under 
the  Taxonomy  Regulation409  (e.g.  a  taxonomy-aligned  investment  could  fail  the  DNSH 
test under the SFDR if it is not aligned with the approach taken by the FPMs regarding 
the  consideration  of  social  principal  adverse  impacts).  This  lack  of  clarity  hindered  the 
objective of the EU Taxonomy,  i.e. setting  a common language to  define sustainability 
throughout the whole regulatory framework. It also further rendered more complex in the 
implementation  of  these  concepts,  especially  in  cases  where  FMPs  are  applying  both 
concepts simultaneously.  

In addition, the fact that different sustainability-related concepts and processes under 
the SFDR and the EU Taxonomy are using the same or similar terms has led to further 
confusion  and  complexities  for  investors  (i.e.  two  different  DNSH  tests  under  the  two 
pieces  of  regulation, 
to  ‘(substantial)  contribution’,  ‘minimum 
safeguards’ under the Taxonomy vs ‘good governance’ under the SFDR) regarding what 
are, in fact, sustainable economic activities and investments410.  

two  approaches 

Despite  the  clarification  provided  by  the  Commission  in  June  2023  regarding  the 
assessment  of  Taxonomy-aligned  investments  under  the  SFDR  framework411,  many 
respondents  to  the  public  consultation  suggested  that  more  effort  should  be  made  to 
simplify the interactions between the SFDR and the Taxonomy412. 

➢  Misalignments  between  ‘sustainable  investment’  under  the  SFDR  and  the 

Benchmarks Regulation  

Despite the legal  link between the  SFDR and the EU climate benchmarks under SFDR 
Article 9(3), there are a few technical differences between the requirements for PAB 
and CTBs and the definition of ‘sustainable investment’ under the SFDR which have 
caused  confusion  among  market  participants  regarding  the  status  of  passive  financial 
products tracking a PAB/CTB under the SFDR and make their use more complex.  

Only 7% of respondents (19 out of 261) of the public consultation agreed that the SFDR 
approach to DNSH and good governance are consistent with the ESG exclusions under 
the PAB and CTB, against 34% (88 out of 261) who totally or mostly disagreed while the 
rest of the respondents ‘partially disagreed and partially agreed’ (24%, 62 out of 261) or 
indicated ‘don’t know/no opinion/not applicable’ (35%, 92 out of 261). 413. This refers to 
the  few  misalignments  between  the  principal  adverse  impacts  under  the  SFDR  (as 
defined in the Annex 1 of the Delegated Regulation (EU) 2022/1288) and the exclusions 
under  the  EU  Climate  Benchmarks  (as  defined  under  the  Article  12  of  the  Delegated 
Regulation (EU) 2020/1818).  

409 DNSH criteria under the Taxonomy are under review as announced under documents accompanying the 
Omnibus proposals  
410 Fit for Future Platform Opinion, October 2024 
411  Commission  Notice  on  the  interpretation  and  implementation  of  certain  legal  provisions  of  the  EU 
Taxonomy Regulation and links to the Sustainable Finance Disclosure Regulation, June 2023  
412  Summary Report of the open and targeted consultations of the SFDR assessment, published May 2024 
413  Summary Report of the open and targeted consultations of the SFDR assessment, published May 2024 

182 

 
 
 
 
These unintended misalignments between the two frameworks have been noted to hinder 
the  objectives  of  the  EU  climate  benchmarks  within  financial  markets,  i.e.  to  provide 
comfort  and  certainty  to  their  users414.  Moreover,  the  disclosures  under  the  Benchmark 
Regulation for ESG benchmarks and the SFDR are not fully  aligned. As a result, many 
stakeholders have referred to the difficulties that this entails for passive fund managers, 
who  fully  rely  on  the  design  of  the  benchmarks  they  track  and  therefore  would  benefit 
from benchmark-level disclosures to perform their own fund-level disclosures. 

➢  Mismatch in data expected under the SFDR and provided under other parts 

of the EU framework  

FMPs  and  FAs  are  expected  to  report  sustainability-related  information  of  financial 
products  based  on  information  disclosed  or  communicated  by  the  issuers  of  the 
underlying  investments  of  the  product.  However,  such  data  is  often  lacking  (a 
challenge set to increase with the changes pursuant to the omnibus), with substantial data 
gaps in the information needed for FMPs to meet the reporting requirements outlined in 
the SFDR415.  

For example, respondents to the consultation regarding whether the SFDR disclosures are 
consistent  with  the  CSRD  requirements,  more  respondents  disagreed  (47%,  134  out  of 
285)  than  agreed  (15%,  42  out  of  285)416.  In  their  written  responses,  many  FMPs  and 
financial advisers welcomed the alignment between the PAI indicators of the SFDR and 
ESRS but referred to technical misalignment in the definitions and terminologies used.  

In  addition,  the  approach  to  materiality  has  created  a  gap  between  the  reporting 
obligations between the two regimes. Under the CSRD, reporting entities are allowed not 
to report against certain sustainability indicators if deemed ‘not material’ in the entities’ 
own materiality assessment. However, unlike investee companies, FMPs are required to 
consider all mandatory principal adverse impacts (PAIs) under the SFDR, regardless of 
whether these indicators are material to the FMPs’ investments417.  

To  alleviate  the  data  gap  created  with  this  difference  in  materiality  approach,  the 
European Commission published in November 2024 an FAQ418 clarifying that where an 
investee undertaking sets out that an indicator is non-material under CSRD reporting, a 
fund  manager  can  rely  on  this  to  determine  that  the  investee  undertaking  is  also  not 
contributing  to  the  corresponding  PAI  under  SFDR.  However,  the  issues  linked  to 
materiality continue to be flagged as an impediment for FMPs to access necessary data.  

Further,  FMPs  often  rely  on  sustainability  indices  to  measure  the  sustainability 
performance of a specific portfolio. This is especially the case for ETFs and other index-
tracking  products.  The  Benchmark  Regulation  introduced  ESG  disclosures  for  all 
benchmarks  with  ESG  factors,  mandating  administrators  to  disclose  whether  they 
integrate ESG in their benchmark design, and if so how. The Benchmark Regulation also 

414  European  Parliament,  study  requested  by  the  ECON  committee,  The  implementation  of  the 
Sustainability-related Financial Disclosures, July 2024  
415 Filling in the Data Gaps: The Current State of Reporting on Principal Adverse Impacts Disclosures for 
the SFDR 
416  Platform  for  Sustainable,  Briefing  on  EC  targeted  consultation  regarding  SFDR  implementation, 
December 2023 
417 EFAMA responses to EC targeted consultation on the implementation of the SFDR, 20 December 2023 
418Commission 
https://eur-lex.europa.eu/legal-
content/EN/TXT/HTML/?uri=OJ:C_202406792   

(C/2024/6792) 

Notice 

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requires  administrators  of  EU  Climate  Benchmarks  to  regularly  report  against  a  set  of 
ESG KPIs.  

However,  the  ESG  information  provided  by  benchmark  administrators  has  not  been 
sufficient for FMPs to comply with the information required from financial products by 
the  SFDR,  mainly  due  to  a  misalignment  between  the  ESG  KPIs  required  from 
benchmark  administrators  under  the  BMR  and  the  ones  required  from  FMPs  under  the 
SFDR.  Only  9%  of  respondents  (24  out  of  260)  totally  or  mostly  agreed  that  the  ESG 
information  provided  by  benchmark  administrators  aligns  sufficiently  with 
the 
information required by the SFDR for products referencing these benchmarks, compared 
to 33% who totally or mostly disagreed (87 out of 260)419. 

EFAMA  also  argued  that  ‘benchmark  administrators  lack  any  regulatory  incentive  to 
provide  the  data  to  support  asset  managers  to  meet  their  disclosure  and  product 
governance  requirements  without  the  potential  for  significantly  increased  costs  and 
where managers have no direct agency over the consistency, validity or quality of such 
data’420.  

This  issue  is  particularly  impactful  on  the  universe  of  SFDR  products,  as  reliance  on 
index providers is prevalent. For example, the Frank Bold’s study421 revealed that 26 of 
the  43  analysed  products  are  using  indices  for  portfolio  construction  or  performance 
assessment  (including  5  of  the  6  products  disclosures  under  Article  9).  Notably,  22 
products depend on a single provider, highlighting a monopolistic trend in the sector.  

Finally,  the  proposed  omnibus422  on  sustainability  reporting  foresees  considerable 
changes to  the landscape of sustainable  finance rules. The omnibus proposed to  reduce 
the scope of entities that will be reporting ESG information under the CSRD and the EU 
Taxonomy.  Depending  also  on  the  uptake  of  the  future  voluntary  sustainability-related 
information standard for those outside the CSRD scope, this is set to widen the existing 
ESG  data  gaps  as  fewer  entities  will  provide  FMPs  with  the  necessary  data  for  their 
reporting obligations under the SFDR.  

➢  The  SFDR  rules  are  seen  as  not  catering  sufficiently  for  certain  ESG 

strategies and assets and to be out of step with more recent guidance 

The  underlying  concepts  of  the  definition  of  sustainable  investment  also  does  not 
adequately capture the concept of transition finance or cater for transition finance 
strategies, hindering the possibility for financial products (especially the ones disclosing 
under  Article  9)  to  focus  sufficiently  in  investing  in  transitional  assets423  (e.g. 
decarbonisation objective or social transition). This is in part due to the DNSH test which 

419  Platform  for  Sustainable,  Briefing  on  EC  targeted  consultation  regarding  SFDR  implementation, 
December 2023 
420 EFAMA responses to EC targeted consultation on the implementation of the SFDR, 20 December 2023 
421 Frank Bold, SFDR review : analysis of current practices and future directions for investors, December 
2024.  This  research  seeks  to  provide  insight  into  how  influential  FMPs  have  implemented  the  SFDR 
requirements.  It  examines  entity-level  disclosures  of  15  FMPs  and  product-level  disclosures  of  three 
investment  funds  per  FMPs,  totalling  43  investment  products.  List  of  investors:  BlackRock,  JP  Morgan, 
Credit  Agricole/Amundi,  Goldman  Sachs,  Allianz,  UBS,  Morgan  Stanley,  BNP  Paribas,  Deutsche 
Bank/DWS, Natixis, AXA, Generali, Federated Hermes, Sumitomo 
422 Commission proposes to cut red tape and simplify business environment - European Commission 
423 78% - 231 out 298 – of respondents to the public consultations argued that the current SFDR rules do 
not  effectively  capture  investments  in  transition  assets.  European  Commission,  Summary  Report  of  the 
open and targeted consultations of the SFDR assessment, published May 2024 

184 

 
 
 
 
can  be  seen  at  odds  with  the  strategy  of  transition  finance  as  it  does  not  allow  for  the 
inclusion of assets that cannot be considered as sustainable at the time of the investment. 
Some  technical  misalignments  between  the  sustainable  investment  definition  and  the 
underlying  criteria  of  the  EU  Climate  Transition  Benchmark  (defined  under  the 
Benchmark  Regulation)  further  hindered  the  possibility  to  conduct  and  disclose 
transition-related investment strategies under the SFDR. The issue is linked more broadly 
to  the  absence  of  a  clear  definition  of  “transition  finance”  in  EU  legislation424  and  the 
limited use of the EU Taxonomy for this purpose425. 

Finally,  the  current  SFDR  rules  coexist  with  the  ESMA  guidelines  on  funds’  names, 
which aimed to partially (they only apply to investment funds) fill the perceived SFDR 
regulatory  gaps.  These  guidelines  have  recently  introduced  minimum  criteria  for  funds 
using  ESG  terms  in  their  names  (on  top  of  SFDR  disclosures  that  also  apply  to  these 
funds). The guidelines were largely an attempt to bring clarity for investors amid FMPs’ 
myriad  sustainability-linked  claims  through  the  introduction  of  minimum  criteria.  They 
constitute the latest regulatory guidance, after notably a prior reclassification of Article 9 
funds in  Q4 2022, having resulted in  some relabelling  and renaming of  EU sustainable 
finance funds.  

They became applicable in November 2024 for new funds. For funds existing before this 
date, there is a transition period extending until 21 May 2025. Funds using terms related 
to ‘environmental’, ‘impact’ (additional impact disclosures) and ‘sustainable’ must apply 
the  exclusions  in  the  EU  Paris-aligned  benchmark  (PAB)  implementing  rules  (among 
other  things),  and  funds  using  terms  related  to  ‘transition’  (additional  transition 
disclosures) ‘social’ or ‘governance’ must apply the exclusions in the implementing rules 
for Climate transition benchmarks (CTB). For CTB, these exclusions concern companies 
involved in controversial weapons, tobacco, or in violation of defined social safeguards, 
while for PAB they also include those involved in fossil fuels above certain thresholds. 
Funds  should  also  allocate  at  least  80%  of  investments  to  meeting  the  targeted  ESG 
objectives. 

3.2.  How relevant is the SFDR? 

Is the SFDR still relevant? (in terms of evolving objectives and needs)? How relevant is 
it in light of market developments and given political priorities? 

The  overwhelming  majority  (89%)  of  consultation-respondents  consider  that  the 
objective  to  strengthen  transparency  through  sustainability-related  disclosures  in 
the financial services sector is still fully relevant with over 90% considering that a 
disclosure  framework  at  EU  level  is  more  effective  and  efficient  than  measures  at 
Member  State  level.  While  the  consultation  predates  some  of  the  latest  policy 
realignments  and  geopolitical  shifts,  as  well  as  the  implementation  of  the  ESMA 

424 The Recommendation on facilitating finance for the transition to a  sustainable economy of June 2023 
provides  four, non-exhaustive,  examples  of  how  market  participants  can  use  the  existing  tools  under  the 
EU acquis to identify transition investment opportunities. 
425 The Commission has clarified in the Delegated Regulation part of the Omnibus Package that based on 
Article 8 of Regulation (EU) 2020/852, companies can be allowed to report on their activities which fulfil 
only  certain requirements  of Article  3  of  the  Taxonomy  Regulation.  Such  reporting on partial  alignment 
would provide more flexibility and foster a gradual environmental transition of activities over time, in line 
with  the  aim  to  scale  up  transition  finance.  The  information  on  partial  alignment  of  economic  activities 
with  the  EU  Taxonomy  may  be  a  useful  indication  to  investors,  financial  markets  or  policymakers  and 
other third parties about the current environmental performance of the activities concerned. 

185 

 
 
 
 
guidelines for fund names, broad support for a common regime in this area continues to 
be demonstrated in all recent stakeholder engagement and outreach, outlined in Annex 1. 
The feedback signals support for both the broad objectives of the SFDR in contributing 
toward the greater consideration of sustainability in investment practices, and to this end, 
the added value of a common sustainability disclosure framework at EU level.  

The Commission President’s mission letter for Commissioner Albuquerque thus asks to 
facilitate  implementation  of  the  sustainable  finance  framework,  to  scale  up  its 
impact and to ‘promote the development and transparent categorisation of financial 
products and services  with sustainability features’426. The revision of the SFDR  has 
been planned in the Commission work programme for Q4 2025, to ensure an appropriate 
simplification  of  the  rules,  commensurate  with  the  objectives  of  the  Commission’s 
proposals to simplify sustainability reporting for companies. 

After some initial pushback to the ESMA fund name guidelines427, anecdotal stakeholder 
feedback  increasingly  suggests  that  there  is  growing  acceptance  among  FMPs  for  the 
changes  which  they  have  introduced.  Nonetheless,  the  guidelines  do  not  apply  to  all 
products under the scope of the SFDR, do not constitute strict legal requirements428, and 
govern only the use of ESG terms in fund names and leave SFDR-related requirements 
and disclosures intact.    

Without  effective  EU-level  action  to  remedy  the  shortcomings  noted  above,  the 
challenges explained earlier would persist, and the necessary simplification to boost the 
effectiveness and efficiency of the single market for sustainable finance products would 
not be ensured. Conversely, a repeal of the SFDR would mean depriving financial market 
participants, distributors and investors of a common framework for sustainability-linked 
claims involving financial products, meaning the policy field would become unregulated 
again, contrary to the expressed preference of the large majority of stakeholders.  

Finally,  in  terms  of  coherence  of  the  overall  sustainable  finance  framework,  without 
commensurate  changes  in  other  linked  parts  of  the  framework,  repealing  the  SFDR 
would  render  some  provisions  in  these  other  areas  meaningless  (e.g.  links  to  SFDR-
specific  terms  in  sustainability  preferences  under  MiFID/IDD).  Without  a  defined  use-
case  for  financial  products,  the  purpose  of  other  parts  of  the  sustainable  finance 
framework, e.g. sustainability information required under CSRD and Taxonomy, would 
also be partially undermined. The Omnibus proposals also opted not to repeal the CSRD 
and Taxonomy, rather to pare back specific requirements. 

426 ac06a896-2645-4857-9958-467d2ce6f221_en 
427  For  example,  around  half  of  respondents  to  ESMA’s  consultation  on  the  fund  name  guidelines  were 
opposed to including quantitative thresholds and exclusions linked to fund names. 
428 Financial market participants are required to “make every effort to comply” with the guidelines as per 
Article  16(3)  of  Regulation  (EU)  No  1095/2010  establishing  ESMA.  One  Member  State  (CZ)  has  also 
signalled that they will not apply the guidelines. 

186 

 
 
 
 
 
 
3.3.  What is the EU added value of the SFDR? 

Has  the  SFDR  been  justified,  and  does  it  continue  to  be  justified?  What  has  been  the 
value-added compared to national rules? 

Notwithstanding the shortcomings enumerated in section 3.1, the continued relevance of 
the principles and objectives of the SFDR are not in question, as assessed in section 3.2. 
However, there is a need to address the detailed shortcomings, which can only be done at 
EU  level.  While  Member  State  level  action  could  partially  address  some  of  the 
shortcomings  (e.g.  through  national  sustainable  investment  labels),  the  likely  result 
would be further fragmentation of the single market, in a way which would not deliver a 
comprehensive, simplified, effective and efficient outcome for EU markets and investors, 
in line with the objectives of the regulation.   

Conversely,  remedying  the  shortcomings  at  EU  level  would  ensure  that  they  are 
addressed  in  a  harmonised,  effective,  efficient  and  coherent  manner  across  the  single 
market,  and  in  support  of  the  broader  strategic  objectives  of  the  Union,  including 
consistency with the climate-neutrality objective of the climate law429. Requirements and 
disclosures  could  be  simplified  across  the  board,  both  for  the  benefit  of  FMPs  and 
investors,  in  a  harmonised  way  throughout  the  Union.  Common  solutions  to 
transparency-related challenges regarding access to ESG datapoints could be designed in 
a  way  which  facilitates  the  business  of  financial  market  participants  in  an  even  way 
across  the  EU  and  protects  investors,  and  tackles  information  asymmetries,  equally 
regardless of which Member State they are located in. This could in turn better serve the 
objective of mobilising funds toward the competitive opportunities in the green transition 
and  other  evolving  strategic  priorities  in  line  with  Union  objectives,  including 
contributing to empowering the greater participation of investors in EU capital markets, 
in line with the objectives of the Savings and Investments Union430. 

4.  Conclusions and lessons learned 

The  conclusion  drawn  from  the  above  is  that,  despite  some  success  in  setting  up  a 
common framework for sustainability-related disclosures for investments, the SFDR falls 
short  of  realising  its  full  potential  in  terms  of  effectiveness  and  efficiency  in  achieving 
the  objectives  set,  and  in  terms  of  coherence  with  the  rest  of  the  sustainable  finance 
framework.  The  anticipated  benefits  in  terms  of  levelling  information  asymmetries, 
tackling  greenwashing  and  helping  to  boost  investment  toward  more  sustainable 
economic  practices  have  not  been  fully  met,  given  undue  complexity,  uncertainty  and 
excessive costs.  

The underlying reasons why this has turned out to be the case, for a framework which has 
only applied in full for a few years, can be summarised as follows. First, the SFDR began 
to apply in March 2021, before its detailed Level 2 implementing rules which specified 
its  novel  concepts  were  finalised  and  began  to  apply  in  2023.  Thus,  financial  market 
participants had to apply the new regime under considerable initial uncertainty in the first 
phase  and  make  adjustments  once  the  Level  2  rules  entered  into  force431.  Challenges 

429 Regulation (EU) 2021/1119 of 30 June 2021 establishing the framework for achieving climate neutrality  
(European Climate Law) 
430 Savings and Investments Union 
431 However, different parts of the rules, such as those with regard to the integration of sustainability risks 
in  the  investment  decision‐  making  process,  hinged  less  on  further  details  in  the  regulatory  technical 

187 

 
 
 
 
linked  to  the  unclarity  and  complexity  of  several  concepts  and  requirements  emerged 
from  the  outset432,  together  with  some  misalignments  with  the  rest  of  the  sustainable 
finance framework.  

Second,  the  lack  of  clarity  and  complexity  of  the  concepts  and  requirements  has 
necessitated successive additional pieces of guidance, provided by the Commission and 
European  Supervisory  Authorities  (ESAs),  in  response  to  numerous  interpretation  and 
implementation questions raised by market actors. These have not always been sufficient 
to help overcome the underlying complexity and to facilitate implementation for FMPs, 
and  have  entailed  further  adjustments  in  the  composition,  naming  and  disclosures  of 
various financial products, adding to the perceived implementation burden.  

Third, data gaps also became apparent in terms of the requirements of the SFDR on the 
one  hand,  and  scarce  available  market  data  on  the  other.  Given  that  the  SFDR  entered 
into application before other key pieces of the EU sustainable finance framework, namely 
detailed  sustainability  disclosures  from  companies  under  the  Corporate  Sustainability 
Reporting Directive/European Sustainability Reporting Standards and the EU Taxonomy, 
which were intended to increasingly inform product disclosures under the SFDR, a data 
challenge  for  products  to  be  able  to  demonstrate  their  sustainability  credentials  was 
present  from  the  beginning433.  That  said,  comprehensive,  reliable  and  comparable 
sustainability  information  from  investees  was  never  going  to  be  delivered  fully  (and 
cheaply)  through  these  disclosures  alone,  even  before  the  changes  under  the  Omnibus 
proposals.  For  one,  a  large  part  of  the  investments  by  financial  products  is  made  in 
companies not subject to these rules (e.g. non-EU companies or other assets outside the 
scope of the EU rules).  

Finally,  throughout  the  early  implementation  phase,  it  became  evident  that  most  of  the 
concepts  for  the  new  disclosures  for  investors,  in  particular  retail  investors,  were  not 
easily understandable or readily usable by them. Thus Article 8 and 9 became used as a 
way to convey a high-level message of products’ key features, but without the technical 
elements  designed  for  this  purpose.  Considerable  evidence  also  emerged  from  the 
consultations  that  the  vast  majority  of  end-investors  would  be  better  served  by  shorter 
and more focused information than the lengthy SFDR disclosures. 

Consequently, the following problem drivers are key starting points for the SFDR 
review to tackle:  

1.  Sustainability-related  concepts  and  disclosure  requirements  which  are 
unclear,  complex,  and  difficult  to  implement,  and  which  necessitate 
disclosures which are lengthy and difficult to compare for investors.   

2.  Misalignment and duplication between specific concepts and requirements in 

the SFDR and other EU sustainable finance legislation. 

standards, while for others such as financial products that qualify under Articles 8 and 9 of the Regulation, 
the  transparency  required  from  financial  products  on  how  levels  of  sustainability  are  achieved  applied 
irrespective of the Level 2, and based on available data. 
432 As an illustration, pending the final Level 2 measures and templates, some market operators took on the 
development  of  a  European  ESG  template  (EET)  to  facilitate  information  flow  on  products  under  the 
SFDR between product manufacturers and distributors. The template has since undergone several revisions 
to accommodate changes to the framework. See: FinDatEx 
433 Sustainability data published by investees began in 2018 under the Non-Financial Reporting Directive 
(Directive  2014/95/EU),  which  the  December  2019  Communication  on  the  European  Green  Deal 
committed to review in order to strengthen the foundations for sustainability data and investment. 

188 

 
 
 
 
3.  Data gaps in available ESG data, lack of harmonised guidance for the use of 

estimates. 

4.  Unintended  use  of  the  SFDR’s  disclosure  categories  as  de  facto  labels,  but 

without common criteria or other requirements fit for this purpose.  

The lessons learned for the review of the SFDR from the problem drivers and their root 
causes can be summarised as the need to (i) ensure a coherent implementation timeline 
for  the  future  changes,  (ii)  introduce  clearer,  simpler  and  more  proportionate  rules  and 
concepts  for  FMPs’  and  investors’  benefit,  (iii)  explore  the  case  for  formalising  and 
embedding these in a framework of product categories, in accordance with the revealed 
preference  of  markets  to  cluster  products  in  this  way,  and  (iv)  ensure  that  the  revised 
concepts, rules and possible categories rely on ESG data that is available and/or possible 
to reliably estimate. 

189 

 
 
 
 
ANNEX 12: SME CHECK 

OVERVIEW OF IMPACTS ON SMES 

Relevance for SMEs  

The  initiative  is  directly  relevant  for  FMPs  which  are  SMEs,  but  less  so  for  SMEs  as 
investees.    

(1) 

IDENTIFICATION OF AFFECTED BUSINESSES AND ASSESSMENT OF RELEVANCE 

Are SMEs directly affected? In which sectors? 

Yes, namely in the financial sector 

Estimated number of directly affected SMEs 

The vast majority of FMPs are SMEs, which can e.g. be concluded from the number of 
entities disclosing on a mandatory basis because of exceeding an employee threshold of 
500 that was estimated based on a sample by ESMA to at least 400 FMPs, whereas in the 
same  sample  about  3400  FMPs  were  not  subject  to  mandatory  disclosures  (i.e.  <500 
employees).434 

Estimated number of employees in directly affected SMEs 

Not available. 

Are SMEs indirectly affected? In which  sectors? What is  the estimated number of 
indirectly affected SMEs and employees? 

SMEs as investees can, together with the safeguards of the omnibus (as explained in the 
competitiveness  check,  Annex  5),  benefit  from  the  flow  of  funds  and  be  included  in 
products  under  a  simple  categorisation  system,  as  well  as  from  lower  reporting  and 
compliance costs incumbent on FMPs.  

(2) CONSULTATION OF SME STAKEHOLDERS 

How has the input from the SME community been taken into consideration? 

The  public  consultation  asked  whether  respondents  were  SMEs,  which  was  the  case  for 
128 out of 324 replies. 

Are SMEs’ views different from those of large businesses?  

434  According  to  the  ESAs  Annual  Report  to  the  Commission  under  Article  18  of  Regulation  (EU) 
2019/2088: JC 2024 68 Report on the Principal Adverse Impact disclosures under the Sustainable Finance 
Disclosure Regulation 

190 

 
 
 
 
 
 
 
No, in the sense that SMEs as well as large companies pointed out that the costs are 
significant for them. One stakeholder pointed out that smaller firms may not have the 
resources, in particular financial, to accommodate the increasing reporting demands, 
which can put them at risk and at a great disadvantage compared to larger firms.   

(3)  ASSESSMENT OF IMPACTS ON SMES 

What are the estimated direct costs for SMEs of the preferred policy option?  

Qualitative assessment 

FMPs  which  are  SMEs  are  expected  to  be  the  main  beneficiaries  of  the  overall  cost  savings 
detailed in Annex 3.  

Quantitative assessment 

In Annex 3, we summarise our estimations of the one-off and recurring costs for businesses in the 
baseline scenario, decomposed to large and SME in the baseline scenario as well as the changes 
for the preferred combination of policy options. For the removal of entity level disclosures, we do 
not  expect  additional  costs  and  for  the  simplification  of  product  level  disclosures  we  expect 
limited implementation costs as the one-off costs have been incurred in the past and the proposed 
simplified structure will remove burdensome disclosures. The costs for the product categorisation 
system  are  also  expected  to  be  limited  as  it  builds  to  a  maximum  extent  on  existing  structures 
such as  the minimum  safeguards from the  ESMA  guidelines on funds  names that have  already 
been implemented.  

What  are  the  estimated  direct  benefits/cost  savings  for  SMEs  of  the  preferred  policy 
option? 

Qualitative assessment 

FMPs  which  are  SMEs  are  expected  to  be  the  main  beneficiaries  of  the  overall  cost  savings 
detailed in Annex 3. 

Quantitative assessment 

Currently, we estimate SME to incur about EUR 163 million of annual recurring costs, of which 
about  EUR  43  million  are  for  entity-level  disclosures  and  EUR  120  million  for  product  level 
disclosures. While the reduction of entity-level costs  in the preferred combination of options is 
certain  with  only  minimal  one-off  costs,  and  we  estimate  that  more  than  50%  of  product-level 
costs can be saved thanks to the significant reduction of product-level disclosures, we were not 
able  to  collect  sufficient  evidence  for  the  one-off  impacts  of  the  introduction  of  a  product 
categorisation system. 

In addition, SMEs would benefit more than proportionally from simplification as we can observe 
pronounced cost digression effects, i.e. in relative terms SMEs incur much higher costs relative to 
their  AUM  than  larger  firms  due  to  certain  minimum  efforts  that  are  necessary  to  build  and 
maintain sustainability related disclosures.  

What are the indirect impacts of this initiative on SMEs?  

SMEs as investees can benefit from the flow of funds and be included in products under a simple 
categorisation system, as well as from lower reporting and compliance costs incumbent on FMPs.  

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(4) MINIMISING NEGATIVE IMPACTS ON SMES 

Are SMEs disproportionately affected compared to large companies?  

If yes, are there any specific subgroups of SMEs more exposed than others? 

Yes, notably FMPs which are SMEs, see section 3 above.  

Have mitigating measures been included in the preferred option/proposal?   

No  

CONTRIBUTION TO THE 35% BURDEN REDUCTION TARGET FOR SMES 

Are there any administrative cost savings relevant for the 35% burden reduction 
target for SMEs? 

The  reduced  administrative  requirements  linked  to  the  removal  of  entity-level 
disclosures (option 1.2) would eliminate burdens estimated to account for 25% of the 
costs under the current rules, largely incumbent on FMPs which are SMEs. In addition, 
the simplification of product-level disclosures (option 2.2) and introduction of product 
categories  (option  3.1)  in  line  with  market  practices,  which  overall  are  estimated  to 
allow  cost  savings  as  outlined  in  Annex  3,  are  estimated  to  facilitate  further  overall 
burden reduction for SMEs toward the 35% target. 

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