FE fundinfo's Helen Slater: Five changes to look for in forthcoming SFDR review

This article by Helen Slater, Regulatory Manager at FE fundinfo, was published in Investment Week in August 2025.

The Sustainable Finance Disclosure Regulation (SFDR) has long been heralded as a cornerstone of the EU's sustainable finance strategy.

But as the European Commission prepares to announce its formal review of the framework in Q4, rumours are swirling this date may be pushed out further to Q1 2026.

This delay comes on the back of competing regulation in the ESG space, notably the Omnibus package and the European Sustainability Reporting Standards (ESRS), and their potential to have a knock-on effect for SFDR.

While many would agree the regime needs reform, there is some confusion and disquiet about where this work is heading and whether businesses will be ready for what comes next.

As we await the Commission's final rules, firms can look at five core changes likely to dominate SFDR 2.0. These developments could redefine how sustainability is communicated across financial markets in the EU and beyond.

1. Ending Article 8/9 confusion

The SFDR's most recognisable feature, its Article 8 and Article 9 classifications, was never intended as a labelling regime. Yet these classifications have become shorthand for investors and marketing teams alike, causing widespread misinterpretation and inconsistent application.

That is why the first and most anticipated change is whether the Commission will formally introduce product categories or sustainability labels, similar to those adopted in the UK under the Sustainability Disclosure Requirements (SDR).

As Eurosif notes in its response to the call for evidence, "the SFDR review must introduce product categories that better reflect the actual sustainability-related characteristics and objectives of financial products".

These categories should be "based on clear criteria, backed by minimum requirements", ensuring comparability and usability for investors and supervisors alike.

This recommendation aligns with the Commission's own consultative strategy, with a major focus on creating a more intuitive and investor-friendly classification system.

2. Tightening up on greenwashing

The credibility of SFDR hinges on how it handles greenwashing. Without a shared understanding of what constitutes misleading sustainability claims, and a system of proportionate enforcement, investor confidence will remain fragile.

The original SFDR has struggled here. Fund managers often under-disclose to play it safe or over-disclose to avoid reputational backlash, with neither approach fostering transparency. The review is likely to include a clearer legal definition of greenwashing, accompanied by enforcement guidance and potential penalties.

This will also require the Commission to define the threshold for "sustainable investments" more precisely, offering asset managers greater clarity on what qualifies, and how to substantiate those claims, without creating additional complexity.

3. Lowering 90% threshold for sustainable asset allocation

Another technical, but impactful, change expected is a reduction of the 90% threshold for sustainable asset allocations, which currently applies to Article 9 funds.

The proposed adjustment to 80% would make SFDR more flexible, enabling funds to better manage liquidity and hold non-sustainable assets, where necessary, without risking downgrades.

This brings SFDR closer in line with the UK's SDR, making it more interoperable across jurisdictions and easier to navigate for cross-border funds.

4. Simplifying principal adverse impact indicators and 'do no significant harm'

The SFDR's principal adverse impact (PAI) indicators and the 'do no significant harm' (DNSH) requirement have been widely criticised as too complex, academic and data-dependent. These obligations often leave fund managers struggling with limited or patchy data, particularly in less-developed markets.

The review is expected to streamline both concepts. Simplification could take the form of a reduced set of core PAIs, improved data availability guidance and more proportional DNSH tests.

The aim would be to reduce the compliance burden while preserving the substance of the framework's sustainability goals.

5. Enhancing accessibility and retail investor relevance

Perhaps the most overlooked, yet critical, area for improvement lies in how information is communicated. SFDR disclosures are typically technical, lengthy and difficult for retail investors to interpret.

The review may include proposals to integrate sustainability metrics into existing KIDs or other standardised formats to improve readability. Indeed, the UK's proposed replacement for PRIIPs KIDs, the Consumer Composite Investments (CCI) Product Summary, allows for the inclusion of such disclosures, where appropriate.

Doing so could enhance engagement, reduce confusion and allow sustainability data to become more actionable at the point of investment decision making.

As the Commission notes, "any future disclosure framework must strike a balance between reliability, comparability and usability for retail and professional investors alike".

What happens next?

The consultation period for the SFDR review has now closed, and the Commission has confirmed it will not seek further input before publishing its proposal. The revised framework is expected to align with the broader Omnibus legislative package, which is focused on simplifying and strengthening the EU's sustainable finance agenda.

The stakes are high. The current SFDR regime, while well intentioned, is seen by many as a case study in regulatory overreach; too complex to be effective, too vague to be trusted.

If the forthcoming review can deliver clearer product definitions, better guidance on greenwashing and more intuitive disclosures, the EU will be one step closer to a more transparent and credible sustainable investment market.