The European Commission has set out plans for the most sweeping reform of the Sustainable Finance Disclosure Regulation (SFDR) since the rules first came into force, reshaping how sustainable investment products are categorised, labelled and marketed across the EU.
Published on 20 November 2025, the proposal would formally move SFDR away from its original disclosure-only model toward a structured product-labelling framework.
Zeidler Group, which provides compliance tools for investment firms, recently delved into what the proposed SFDR reform means for compliance.
The reform package also includes targeted amendments to the PRIIPs Regulation and repeals the current SFDR Level 2 Delegated Regulation. The scope of product disclosure rules is narrowed, with financial advisers and portfolio managers no longer covered, while certain alternative investment funds sold solely to professional investors are exempt from the new categorisation system.
The proposal follows extensive consultation triggered by widespread concerns about the existing regime. Since 2021, the market has struggled with lengthy templates, unclear definitions, data limitations, and the unintended use of Articles 8 and 9 as de facto labels, Zeidler said. These issues sit at the heart of the Commission’s effort to simplify requirements and introduce more proportionate rules.
A central element of the reform is the introduction of three sustainability-related product categories: Transition, ESG Basics and Sustainable. Each category would require at least 70% of investments to be aligned with the stated objective, comply with a common set of exclusions, and invest only in permitted asset types. Firms will need to review how their products align with the new system and consider whether strategies, naming conventions or marketing approaches require adjustment.
The reform also streamlines disclosure obligations. Entity-level principal adverse impact reporting would be removed, while product disclosures would be shortened and standardised into two-page templates for both pre-contractual and periodic information..
Alongside this, the proposal strengthens marketing and naming rules and introduces new requirements for the use of third-party data, aiming to improve transparency and reduce greenwashing risk. The final rules are expected to apply from late 2027 or 2028, subject to negotiations.
For more insights into the SFDR reform, read the story here.
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