The Sustainable Finance Disclosure Regulation (SFDR) has been applicable since March 2021.

It forms part of a broader package of sustainability disclosure rules adopted to help achieve the objectives of the European Green Deal.

The SFDR closely interacts with the Taxonomy Regulation and the Corporate Sustainability Reporting Directive.

More specifically, the SFDR sets out how financial market participants must disclose sustainability-related information to investors, in order to help them make informed investment decisions.

Accordingly, the SFDR has two broader objectives:

• to help attract private financing to facilitate the transition towards greater sustainability, and

• to support European businesses in seizing competitive opportunities in this field.

Many consider that the SFDR has enhanced transparency and improved investors’ access to detailed environmental, social, and governance (ESG) information.

However, financial market participants also report that implementing the SFDR is complex and burdensome.

Stakeholders have identified a number of challenges associated with implementing the SFDR and have suggested potential adjustments to improve the framework’s effectiveness and facilitate its application.

These suggested adjustments are currently being considered as part of the SFDR review process, which is scheduled in the Commission’s annual work programme for the fourth quarter of 2025, in line with the Commission’s proposals to streamline corporate sustainability reporting.

The overall aim of the review is to improve how the SFDR functions; particular attention will be paid to eliminating unnecessary burdens and simplifying and streamlining the requirements.

This includes reducing ESG disclosure burdens for financial market participants, instead focusing on the most meaningful information for investors.

The review should enhance legal clarity and ensure overall consistency of rules within the financing framework, including with the proposed measures to simplify corporate sustainability reporting.

As such, the review will aim to adapt the framework to potential changes in companies’ reporting obligations under the Corporate Sustainability Reporting Directive and the EU taxonomy rules, while also taking into account voluntary reporting standards for smaller companies.

Based on feedback collected to date, the European Commission considers that there is broad support for a revised SFDR that:

• takes into account different investor groups and types of financial products,

• helps retail investors understand investment products,

• better recognises the international scope and exposure of investments, and

• supports investment towards a range of sustainability-related objectives, while also avoiding greenwashing (including not only already-green activities but also investments in companies at earlier stages of transition, and investments supporting other objectives such as security).

To that end, the SFDR review should seek to clarify the framework for both financial market participants and end investors.

This involves:

• simplifying key concepts,

• streamlining and reducing disclosure requirements by focusing on the most essential information for investors, and

• exploring the possibility of categorising financial products making sustainability-related claims.

Any such product categories should:

• be easily understandable for retail investors,

• meet different sustainability objectives that reflect EU goals, and

• adequately reflect current market practices in terms of available data and the offering of sustainability-oriented financial products.

Our team is available should you require further information.