The European Commission has released proposals for changes to the Sustainable Finance Disclosure Regulation (SFDR), the European Union’s disclosure regime for financial products claiming sustainable characteristics. The goal is to make the rules simpler, more efficient and “better aligned with market realities.
According to the commission, the changes will cut costs for financial product providers and “will bolster the EU’s leading role in sustainable finance”. Europe accounts for as much as 84% of global sustainable fund assets.
The commission acknowledged that current sustainability disclosures “are too long and complex”, especially when comparing financial products.
It also notes that the SFDR “has effectively been used as a de facto labelling system”, leading to risks of misselling and greenwashing.
Financial products under Articles 8 and 9 of the SFDR comprise almost 50% of EU assets under management, or more than 60% of EU funds. The proposal seeks to replace the articles with three new categories: sustainable, transition and environmental, social and governance.
The sustainable category covers products investing in companies, assets, activities or projects that are already sustainable or have sustainability objectives.
The transition category is for products investing in transition towards sustainability. And the ESG basics category is for products targeting selected sustainability factors.
According to a recent report from the Global Sustainable Investment Alliance sustainable and responsible investment has moved from a “niche practice to a systemic consideration”, crediting this to the influence of sustainability disclosures that began in the EU.
Investors riding the sustainable investing momentum appear to be benefitting.
In the first half of this year, sustainable funds posted a median return of 12.5% versus 9.2% for traditional funds, according to the Morgan Stabley Institute for Sustainable Investing.
Morningstar data shows that global sustainable fund assets increased nearly 10% to US$3.5 trillion in the second quarter of 2025 from $3.2 trillion in the first three months. And the Morningstar Global Markets Renewable Energy Index posted a 13.6% gain in the second quarter compared to a 2.6% drop the Morningstar Global Energy Index.
If the SFDR and Europe’s sustainable finance push has had such an influence and delivered such results in their imperfect form, it will be very interesting to see what they achieve with a more perfected structure.
