Changes Coming to EU Sustainable Finance Regulation

On November 20, 2025, the European Commission (EC) published its proposed revisions to the Sustainable Finance Disclosure Regulation (SFDR). Since its implementation in 2021, SFDR has provided transparency for sustainability-focused investment products to help prevent greenwashing.

In 2023, the EC began reviewing the SFDR to address various criticisms regarding the interpretation of its obligations and the use of SFDR as a labeling regime for financial products, for which it was not intended. Additional criticisms include the financial burden of compliance for market participants and inadequate investor protection.

In keeping with the EC's simplification initiatives, the proposed revisions to SFDR aim to simplify disclosures and introduce a clear product categorization system. This includes removing entry-level disclosure requirements for principal adverse impact (PAI) indicators to avoid overlaps with the requirements contained in the Corporate Sustainability Reporting Directive (CSRD), so that only large financial market participants (FMPs) under CSRD will need to disclose their adverse impacts. They also include a reduction in product-level disclosures to include only data that is available, comparable, and meaningful. Finally, a categorization system for sustainable financial products will include “sustainable,” “transition,” and “ESG basics” categories to help investors better understand the level of sustainability ambition of investments.