Introduction

On 20 November 2025, the European Commission (Commission) published a proposal for a Regulation amending Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector (SFDR).

The SFDR has applied since March 2021. It sets out a disclosure framework providing detailed sustainability disclosures for financial market participants and financial products on the extent to which they consider various environmental, social and governance (ESG) factors. The SFDR is part of the EU’s sustainable finance framework, which aims at channeling more funds towards sustainable investments and ensuring a transparent and effective sustainable finance landscape.

Commission review

In 2023, the Commission took stock of how the SFDR was working in practice and reached a clear conclusion: stakeholders view the regime as overly complex, difficult to implement, and ineffective. In addition, the Commission identified inconsistencies in relation to other pieces of sustainable finance-related legislation.

Against this backdrop, the Commission’s review proposal is to streamline and recalibrate the regime so it is more efficient, simpler and proportionate. The proposed amendments pursue two core objectives: simplify and reduce the sustainability-related administrative and disclosure requirements, and improve the ability of end-investors to understand and compare sustainability-linked financial products. 

Proposed amendments to the SFDR

The Commission’s proposed amendments to the SFDR include:

  • Scope: Limiting the scope of the SFDR to financial market participants who manufacture, make available or manage financial instruments. As a consequence, financial advisors who do not carry out this activity would no longer fall within scope.
  • Entity-level disclosures: Entity-level disclosure requirements regarding principal adverse impacts and remuneration policies would be removed.
  • New categories for sustainability-related financial products: The current disclosures under Articles 7, 8 and 9 SFDR are removed and replaced with specific categories of sustainability-related financial products. The proposed categories are:
    • Financial products with transition feature
    • Financial products with ESG features
    • Financial products with sustainable features

A financial product can fall under one of the above categories if it meets certain criteria. The criteria include a threshold for underlying investments that have clear and measurable objectives related to sustainability factors. In addition, the proposal identifies a number of underlying investments of a given financial product that prevent the inclusion of that financial product in one or more of the categories. Each category of financial product is subject to tailored disclosure requirements.

  • Combining categories: The Commission proposes a new article catering for the instances in which financial products claim to combine multiple financial products that are categorised as different sustainability-related financial products. The new provision lays down criteria under which these claims can be made, and what disclosures should be made.
  • Voluntary disclosures: A new provision that ensures that financial market participants are not prevented from including information in their pre-contractual disclosures on whether a financial product considers sustainability factors, if this financial product does not fall under one of the three sustainability-related categories. This is permitted on condition that the information is not a central part of the pre-contractual disclosures, and that the information does not claim that it falls within one of the three sustainability-related categories.
  • Use of data: New provisions clarifying how financial market participants should use data and estimates for SFDR purposes and sets out what information they must provide to investors, upon request, regarding the relevant data sources and the assumptions underlying those estimates.
  • Do no significant harm (DNSH) criteria: Removing the DNSH criteria from the SFDR framework. The proposal contains a provision that repeals Commission Delegated Regulation (EU) 2022/1288, which contains regulatory technical standards specifying the details of the content and presentation of the information in relation to the principle of DNSH.

Next steps

The Commission’s proposal has now been submitted to the European Parliament and the Council for consideration. The legislative review is expected to take at least one year. Under the Commission’s proposal the amendments to the SFDR would become applicable eighteen months following the entry into force of the draft amending Regulation.