Daniele Cat Berro, Managing Director
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The European Commission’s SFDR Review Proposal marks a decisive pivot in the EU’s sustainable finance architecture. Yet for all its ambition, it is a reform that moves forward and backwards at the same time, simplifying what had become unwieldy, while re-opening perennial debates the market had hoped were settled.
1. Removing entity-level PAI disclosures: A step backwards?
The decision to eliminate entity-level PAI reporting may be efficient, but efficiency alone is not progress. For many Asset Managers and Wealth Managers, the PAI process, though far from perfect. had triggered internal improvements in data collection and impact assessment. Eliminating the requirement may interrupt this development at a moment when more consistency, rather than less, would be valuable.
Of course, nobody disputes that the process was cumbersome. Data inconsistencies across providers meant the final outputs were frequently useful only for internal assessment, not for the broader market. But that internal usefulness mattered.
2. Three-tier Product categorisation: Alignment with reality
Replacing Articles 8 and 9 with three product categories—Sustainable, Transition, and ESG Basics—corrects a long-standing mismatch between regulatory intention and market behaviour. Articles 8 and 9 were never meant to become de facto labels, yet the industry adopted them as such.
This clearer categorisation brings welcome structure, but it also demands far more. Wealth Managers, in particular, will need to deepen product due diligence to ensure alignment with the new thresholds and to guard against greenwashing. The categories allow ample flexibility in approach, so a fund’s strategy, methodology, and asset manager profile will matter more than ever.
For us, this holistic assessment has always been our core methodology, not just analysing holdings, but scrutinising strategy and manager behaviour. Our existing framework already includes a dedicated section evaluating ESMA naming alignment, and this work is now directly in step with what the market will increasingly require.
The interaction between the new SFDR product categories and ESMA’s existing naming guidelines will require careful consideration. Under the current ESMA rules, funds using “ESG” terminology must apply Paris Aligned Benchmark-level exclusions, while the ESG Basics category under the proposed SFDR framework would apply less stringent Climate Transition Benchmark-type exclusions. The two approaches are not fully aligned, and further regulatory clarification will be essential to ensure consistency across the framework and avoid operational uncertainty.
3. Removing “Sustainable Investment” definition: Necessary, yet not transformative
Removing the former definition of “Sustainable Investment” addresses the inconsistencies generated by its broad interpretation. However, embedding sustainability directly within product-category criteria may not fully resolve this issue. Without detailed thresholds and sector-level guidance, different market actors may still arrive at diverging interpretations of what constitutes a “sustainable” product.
Consistency, comparability, and clarity will depend entirely on the new product templates and disclosure rules.
4. Simplified product-level disclosure: Relief for some, headache for others?
With the removal of mandatory Sustainable Investment and Taxonomy disclosures—and with PAI metrics becoming less central—the foundations of the current suitability framework will need to be reconsidered. This transition is manageable but will require distributors to re-design questionnaires, product mapping methodologies, and internal processes once the new templates are finalised. Clarity from regulators will be particularly important to ensure a smooth and consistent implementation across the market.
As with the other reforms, the ultimate effects depend on the details of the forthcoming templates. But it is already clear that distributors will face significant operational and conceptual adjustments.
A Reform That Leaves Important Questions Open
The SFDR Review Proposal is a clear attempt to bring coherence to a system that had become unwieldy and, in parts, ambiguous. In many respects, it succeeds. Yet it also deconstruct mechanisms that, despite their flaws, were beginning to drive real progress.
As the market waits for final templates and implementation guidance, one thing is emerging: this reform could reshape not just disclosures, but the entire ecosystem of sustainable fund classification, selection, and distribution.
And whether the reform ultimately brings greater clarity will depend on the forthcoming technical standards and templates, which will determine how consistently the new framework is applied across the market.
