PRI reaction to European Commission's revision of the SFDR

The new text introduces several key changes:

• Simplified disclosure rules, including the removal of certain entity-level and product-level disclosure requirements;
• Three new product categories – sustainable, transition, and ESG basics – replacing the Article 8/9 regime;
• Stricter labelling and marketing rules; and
• Stronger alignment with other EU regulations, notably Taxonomy, CSRD and PRIIPs.

PRI welcomes the Commission’s efforts to simplify and clarify the framework. The creation of three new product categories, in line with the Platform on Sustainable Finance proposal, will provide clarity to investors on the criteria for application. The revision also promotes greater coherence within the EU sustainable finance regulatory framework and ensure consistency with fund naming and distribution rules, which will reduce greenwashing risks.

However, there are also missed opportunities in some key areas:

• While the removal of Principal Adverse Impact (PAI) reporting at entity-level will help reduce burden, information on due diligence and stewardship policies should be maintained to provide transparency to end-investors
• Maintaining disclosures of a small set of PAI indicators for categorised products would strengthen comparability and support their use for steering investment decisions
• Only including stewardship criteria for transition funds overlooks its wider role as a key lever for responsible investment
• The proposed criteria for the ESG category fail to provide the detail and clarity needed to promote credible ESG integration practices and address existing issues with Article 8

Elise Attal, PRI’s Head of Europe Policy, comments:

“We welcome the European Commission’s efforts to simplify the Sustainable Finance Disclosure Regulation, and we are broadly supportive of this initial proposal.

”Considering increasing CSRD thresholds under the Omnibus proposal, maintaining streamlined yet robust entity-level disclosures will be essential to ensure meaningful, high-quality information from financial institutions and product end-users. This is crucial for supporting institutional investors’ decision-making in fund manager selection and enhancing market transparency.

“The same principle applies at the product level: the work financial actors have done to gather Principal Adverse Impact data must be safeguarded to ensure comparability across different financial products and maintaining a level playing field.

”For sustainable funds, maintaining the use of the Taxonomy-aligned criteria would strengthen the integrity and credibility of environmental strategies and claims marketed within the category.

”We encourage co-legislators to consider how to define simple but meaningful entity-level disclosures, identify more robust criteria for ESG funds to avoid a catch-all category, and maintain mandatory core indicators based on PAI. The introduction of a mandatory stewardship policy at the entity level and stewardship criteria across product categories should also be considered to reinforce the framework. We are continuing to consult our signatories to finalise our proposals.”