Isabella Ritter, Senior EU Policy Officer at ShareAction, commented:
"This proposal is another dangerous step backwards for Europe’s sustainability agenda, effectively throwing another crucial law under the deregulation bus. Instead of fixing the weaknesses of the current SFDR, the Commission has stripped away key safeguards that help investors and consumers understand the real-world impact of their investments.
“Without the disclosure requirements on how financial institutions affect people and the planet, investors and consumers are left in the dark, without the information needed to steer capital towards investments that genuinely support environmental and social goals.
“Engagement, a standard practice investors use to press companies to reduce the harm associated with their investments, has also been neglected. Making it optional for only one product category, and ignoring it for all others, is short-sighted and slows down the transition to a more sustainable economy.
“The new ‘transition’ category could have been a real game changer. Excluding fossil fuel developers is a step in the right direction and clearly acknowledges that companies expanding fossil fuels cannot be labelled as transitioning. But given its loose requirements and major gaps across the rest of the framework, the risk of greenwashing remains high unless more stringent criteria are put in place.
"Europe needs consistent leadership on climate and sustainability, yet this proposal weakens the SFDR framework, fails to protect investors and consumers, and risks undermining the EU’s credibility on the global stage.
“Therefore, we call on the EU to restore effective entity-level reporting, mandatory stewardship requirements, and robust criteria to ensure the financial system truly supports a fair and sustainable transition."
Notes to editors:
The SFDR review proposal:
- Removes Article 4, eliminating entity-level disclosures from the framework. This means financial market participants won’t be required to disclose the Principal Adverse Impacts (PAIs) of their investments at firm-level or any stewardship and due diligence disclosures.
- Proposes three categories: transition (Article 7), ESG basics (Article 8), and a sustainable category (Article 9). Minimum criteria and exclusions vary, with the most stringent ones for the sustainable category (notably the full list of PAB exclusions and new fossil fuel projects) and much weaker ones for the ESG basics category.
- Sets a minimum threshold of 70% alignment with the stated objective for the relevant category, lower than the 80% percentage foreseen by the ESMA Fund Guidelines.
- Defines the transition category as excluding prohibited weapons, tobacco, companies violating international standards, and fossil fuel expansion, and requiring an additional element between a credible transition plan, science-based targets, or a sustainability engagement strategy, among others.
- Removes stewardship requirements entirely from entity-level reporting and leaves it an optional engagement element for the transition category.
