According to Jan Saalfrank and Lous Vervuurt at Pinsent Masons, the Commission’s long-awaited SFDR reform introduces sharper definitions, stronger disclosures and stricter greenwashing safeguards, a step set to reverberate across Europe’s sustainable finance industry and Luxembourg.
On 20 November 2025, the EU Commission (EC) published its final legislative proposal to amend Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector (SFDR).
The final legislative proposal to amend SFDR brings several important changes, reflecting feedback from stakeholders and lessons learned since its implementation.
1. Clarification of key concepts and definitions
The proposal seeks to clarify certain definitions within the SFDR, such as “sustainable investment” and “adverse sustainability impacts.” This aims to provide greater legal certainty and consistency in application across member states, reducing ambiguity for financial market participants and investors.
2. Enhanced disclosure requirements
The amendment strengthens disclosure obligations for financial market participants and advisers. It introduces more granular and standardised reporting on how sustainability risks are integrated into investment decisions, as well as the actual or potential adverse impacts of those investments on environmental and social factors.
Product-level disclosures must now include detailed information on sustainability objectives, methodologies, and performance metrics.
Entity-level disclosures will require more comprehensive reporting on the principal adverse impacts of investment decisions.
3. Addressing greenwashing risks
A key focus of the proposal is to tackle greenwashing by imposing stricter requirements on the marketing and labelling of financial products claiming sustainability characteristics. There will be clearer criteria for when products can be labelled as “sustainable” or “ESG,” and more rigorous verification of sustainability claims.
4. Harmonisation with other EU legislation
The proposal aligns SFDR with other relevant EU regulations, such as the Taxonomy Regulation (EU 2020/852) and the Corporate Sustainability Reporting Directive (CSRD). This ensures consistency in sustainability reporting and information flows between financial and non-financial sectors, facilitating better comparability and integration.
5. Proportionality and flexibility
Recognizing the diversity among financial market participants, the proposal introduces proportionality measures. Smaller firms and entities with limited resources will benefit from simplified reporting requirements, reducing administrative burden while maintaining transparency.
6. Strengthened supervision and enforcement
The proposal provides for enhanced supervisory powers for national competent authorities. It introduces more robust enforcement mechanisms and penalties for non-compliance, aiming to improve overall adherence to the regulation.
Conclusion
The final legislative proposal to amend Regulation EU 2019/2088 (SFDR) represents a significant step towards a more transparent, harmonized, and robust framework for sustainable finance in the EU. By clarifying definitions, strengthening disclosure requirements, addressing greenwashing, and ensuring alignment with other sustainability legislation, the amendments are designed to build trust and credibility in sustainable investment markets.
Europe continues to lead sustainable finance, holding 85 percent of global sustainable funds’ net assets. The recent European Sustainable Investment Funds Study 2024, produced by ALFI in partnership with Morningstar and Tameo, concluded that the net assets in sustainable fund products, based on Morningstar’s definition of sustainable investment products, have reached almost 2,200 billion euro at the end of 2023.
Luxembourg remains at the forefront, hosting 34 percent of these assets. Consequently the impact of this reform needs to be closely followed in Luxembourg as the grand duchy established a significant position as a hub for sustainable finance within the EU. By number of funds, approximately 48 percent of Luxembourg-domiciled Ucits disclose as Article 8, and a combined 53 percent are either Article 8 or Article 9. The remainder are Article 6 (44 percent) or have no SFDR disclosure (3 percent). ESG private market funds saw also remarkable growth in Luxembourg, reaching 36.5 percent of total private market AIF assets in Luxembourg in 2023.
Jan Saalfrank is a funds partner at Pinsent Masons Luxembourg. Lous Vervuurt is a lawyer at Pinsent Masons, advising clients on financial regulation and anti-money laundering compliance. The law firm is part of Investment Officer’s expert panel.