Ahead of the first political trilogue, industry body calls for six critical adjustments
This week, the European Fund and Asset Management Association (EFAMA) published its priorities for the review of the Sustainable Finance Disclosure Regulation (SFDR 2.0), which policymakers will discuss in trilogues starting today. The review began as a simplification exercise and should end as one: three distinct product categories that are easy for an end investor to understand and a distributor to explain, with a few criteria that are clear and workable with the data that exists today.
Every extra criterion added by Member States or MEPs is a data point an asset manager would have to source for every stock holding, a supervisor would have to check, and a distributor would have to explain. And narrowed CSRD reporting from corporates means the data needed is often not available. It is also crucial that the new SFDR 2.0, its technical standards, and revised rules on sustainability preferences in MiFID and IDD, should all apply at the same time. Otherwise, we risk further market confusion if new categories are applied before all the new rules are in place.
Regarding the new SFDR 2.0 framework, EFAMA has six main asks for policymakers:
Transition category exclusions: Build on the Council text by treating its two carve-back conditions as alternatives rather than cumulative (e.g. a company needs either 20% capex in Taxonomy-aligned activities or a Scope 1 or 2 emissions reduction plan). If policymakers adopt the Parliament’s four cumulative conditions, the ‘transition’ category would be impossible to populate.
Sovereign and public-sector debt: Non-EU government bonds should be allowed in the ‘transition’ category, using the manager's documented methodology as the safeguard rather than the issuer's address. Climate transition is a global challenge, and blocking foreign sovereign bonds forces managers to ignore major transition opportunities outside European borders.
ESG basics: The final text should explicitly allow outperformance to be measured at portfolio level, keep the "proven positive track record" route, drop the Parliament’s extra Taxonomy-alignment disclosures, and require outperformance on just one indicator. This cuts out redundant red tape and aligns the rules with existing market practices.
Engagement: Drop the Parliament's proposed requirement to apply and report engagement strategies at the product level, keeping engagement as a flexible tool that products can rely on and disclose where used.
Product-level PAI disclosure: Managers should be allowed to select the Principal Adverse Impact (PAI) indicators that best fit their product’s objectives and strategy, as long as they provide a clear justification. A rigid, one-size-fits-all checklist ignores the reality that different funds target different sustainability goals.
Opt-out for AIFs sold only to professional investors: "Professional investor" should retain its AIFMD meaning and there should be no ban on sustainability claims when a fund opts out, which would prevent that fund from describing its sustainability features to its investors.
Tanguy van de Werve, Director General at EFAMA, commented: “This review set out to make sustainable investing simpler for end investors, and that must be the ultimate test of the final text: three clear categories built on data companies actually disclose. The different pieces of legislation must also work together. Introducing a new product framework while retaining outdated suitability rules at the point of sale would only confuse the very investors the reform is meant to help.”
Anyve Arakelijan, Senior Regulatory Policy Advisor at EFAMA, commented: “The transition category is where the trilogues have the most to get right. If policymakers treat the rules as a rigid checklist, transition funds won't be able to invest in the very carbon-intensive companies they are meant to transform. Instead of driving change from the inside, strict EU hurdles will simply push these companies -and the influence over them- into the hands of foreign investors who face no such restrictions.”
- ENDS -
Notes to Editors
Read our full position paper here.
Find out more about EFAMA’s work on SFDR here.
For further information, please contact:
Hayley McEwen
Head of communications and membership development
