EU Sustainable Finance Disclosure Regulation (SFDR): the route to sustainable financial decisions

​

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Sustainable Finance Disclosure Regulation (SFDR) requires financial sector participants to disclose how they factor sustainability risks into their investment decisions and what adverse impacts those decisions have on the environment and society. Since it began to apply in 2021 it has become the central reference framework for sustainable financial products in Europe. It is currently undergoing a fundamental revision, and the final text is not yet settled.

 

Who is covered?

​

The SFDR applies to financial market participants and financial advisers in the EU, meaning asset managers, insurers, fund managers, investment firms and the providers and distributors of financial products. It distinguishes two levels of disclosure, each to be met independently of the other.

​

Entity level: Financial market participants disclose how they factor sustainability risks into their investment decisions and what they do to limit adverse impacts. Those with more than 500 employees additionally publish an annual statement on the principal adverse impacts of their investment decisions on sustainability factors, known as the PAI statement. Smaller participants operate on a comply-or-explain basis.

​

Product level: Every financial product has to disclose the extent to which it takes sustainability factors into account. Products are classified under Article 6, 8 or 9, where Article 8 promotes environmental or social characteristics and Article 9 pursues an explicitly sustainable investment objective. Article 8 and Article 9 products face further obligations, among them disclosure of how far the sustainability goals they promise are actually being met.

​

As a regulation, the SFDR is directly applicable EU law. Unlike the CSRD it therefore never required national transposition, and it has applied unchanged in all member states since 10 March 2021.

​

The current requirements in detail

​

The SFDR itself sets out the obligation; what it means in practice follows from Delegated Regulation (EU) 2022/1288, the regulatory technical standards or RTS. These have applied in full since 1 January 2023 and specify which indicators are to be reported and in what form.

 

The PAI indicators: Annex I of the RTS contains three tables. Table 1 holds the 18 mandatory indicators: 14 for investments in investee companies, two for sovereigns and supranationals, and two for real estate assets. At least one further environmental indicator must be selected from Table 2 and at least one social indicator from Table 3. The first and most important mandatory indicator is the greenhouse gas emissions of investee companies, supplemented by the carbon footprint and GHG intensity of the portfolio as a whole. The entire PAI disclosure rests on those figures.

​

The disclosure templates: For Article 8 and Article 9 products the RTS prescribes fixed templates, separately for pre-contractual disclosure and for the periodic report. Apart from the actual figures the content is largely standardised. That makes products easier to compare, and it also means that gaps and inconsistencies in the underlying data are immediately visible.

​

The annual cycle: The entity-level PAI statement covers four reference dates in the calendar year and has to be published on your website by 30 June of the following year. Pulling together the data for the year just ended also lays the groundwork for the next cycle, since the calculation methodology and the data sources can usually be reused.

​

SFDR 2.0: the reform process

​

On 20 November 2025 the European Commission tabled a proposal for a fundamental revision of the SFDR. This remains a legislative proposal. Until the procedure concludes and a subsequent transition period ends, today's SFDR continues to apply unchanged.

​

The proposal replaces the classification under Articles 6, 8 and 9 with three new product categories. Sustainable covers products that already make a demonstrable contribution to sustainability objectives. Transition covers products channelling capital into companies or projects that are on a credible transition pathway but are not yet sustainable. ESG Basics covers products that take ESG aspects into account without meeting the criteria of the other two categories.

​

For Sustainable and Transition, at least 70 per cent of the portfolio would have to be aligned with the relevant sustainability strategy.

 

Entity-level PAI disclosure under Article 4 would be dropped entirely to avoid duplication with the CSRD. At product level PAI information remains, though in considerably slimmed-down form.

​

The Council of the EU agreed its negotiating position on 24 June 2026. It supports the category architecture but proposes adjustments, among them a transition period of 24 rather than 18 months and a requirement to use at least three PAI indicators for products in the Sustainable and Transition categories. The European Parliament's Committee on Economic and Monetary Affairs adopted its position on 10 September 2026, giving Parliament its mandate for the trilogue negotiations. The main point of contention is which companies may qualify for the Transition category, in particular those with fossil fuel production.

​

The timeline therefore remains open. Depending on whether the Commission's 18-month period or the Council's 24-month period prevails, the new rules can be expected to apply in practice from 2028 at the earliest, and more realistically from 2029.

​

What already applies: the ESMA guidelines on fund names

​

Separately from the reform process, a tighter rule is already in force that is often confused with SFDR 2.0. The ESMA guidelines on the use of ESG and sustainability-related terms in fund names have applied to newly launched funds since November 2024 and to existing funds since 21 May 2025.

​

Under them, at least 80 per cent of the portfolio of a fund with an ESG term in its name has to reflect the characteristics that term advertises. Funds using the word "sustainable" in their name face additional, stricter criteria.

​

How implementation works

​

An SFDR implementation touches several levels at once and repeats itself with every new product and every reporting cycle.

​

1. Classification. For each financial product you need to establish which category it falls into and which disclosure obligations follow. For existing Article 8 and Article 9 products there is the added question of where they would land under the future categories, so that the transition does not start only once the reform enters into force.

2. Data collection. The PAI indicators, above all greenhouse gas emissions, have to be available for every investee company. Data gaps are the norm, particularly for unlisted or smaller companies. They need to be documented in a way others can follow and, where necessary, closed using recognised estimation methods.

3. Pre-contractual and periodic disclosure. Article 8 and Article 9 products require pre-contractual disclosures and periodic reports setting out how far the promised characteristics or objectives were actually achieved. These documents are updated regularly and have to be consistent with the prospectus and with what appears on your website.

4. Website disclosure. Alongside the product documents, your website has to carry information on your sustainability strategy and on the individual products. Consistency matters here too, all the more so under the fund name guidelines once a product name makes a sustainability claim.

5. Ongoing maintenance. These disclosures are not a one-off project. Changes in portfolio composition, new data sources and regulatory developments call for continuous updating, and SFDR 2.0 is already the next major adjustment on the horizon.

 

Our services

 

• Classification and gap analysis: We assess your current practice against the SFDR requirements in force, identify the gaps and show where your existing products would land under the future categories.
   

• Emissions and PAI data management: We calculate the greenhouse gas emissions of your investee companies in line with the GHG Protocol and PCAF, build a robust process for collecting and estimating the remaining PAI metrics, and document data gaps and assumptions so that others can follow them.
   

• Integrating sustainability risks: We embed sustainability risks systematically into your investment decision processes and risk management systems.
   

• Ongoing support: We keep your SFDR disclosures current and prepare you for SFDR 2.0 in good time, as soon as the final text is settled.
   

• Workshops and training: We show your team in practical terms how to apply the SFDR requirements in day-to-day investment activity.
   

Contact us

Whether it is classification, emissions and PAI data management or preparing for SFDR 2.0, we will work out with you where you stand and which step makes sense next.