European ESG fund disclosure briefing

A) EU ESG disclosure latest

1. ‘SFDR II’ “potentially” delayed until 2026

Within the past few days, there are widespread reports of the EU Commission again postponing the results of their long-running Sustainable Finance Disclosure Regulation (SFDR) legal assessment.

Details of recast ‘EU-SFDR II’ regime were first expected mid-2025 and are currently re-scheduled for Q4-2025.

However, this is now likely to be delayed again to Q1-2026.

This is reportedly due to the EC’s extensive prior commitments with their ‘Omnibus package’, including radical simplification of the Corporate Sustainability Reporting Directive (CSRD) and Taxonomy Regulation (TR), a deferral of the Corporate Sustainability Due Diligence Directive (CSDDD), plus revised alignment with the European Sustainability Reporting Standards (ESRS).

One legal firm recently opined “the Omnibus package is intended to harmonise and rationalise sustainability reporting requirements across the EU, and its outcome will directly impact the shape and timing of the SFDR review”.

NB: A reminder that some in the industry also assume the UK Treasury’s long overdue consultation on extending UK-SDR scope to EU-UCITS (per Overseas Fund Regime) will stay on hold, until more details of the EU-SFDR II framework (including ‘product categories’) are officially published.

 2. ESAs update SFDR Level 3 Q&As

The EU Supervisory Authorities (ESAs) have updated their SFDR ‘Level 3’ Q&A document. This includes revisions to the ‘Financial Product disclosure’ chapter (p.53-54):

• Q no.29 Pre-contractual Disclosures: the ESA’s now recommend a ‘best practice’ of adding an explanation to the ‘Asset Allocation‘ section, if the ‘total minimum proportion of sustainable investments’ percentage does not equal the ‘minimum’ percentage(s) in the earlier ‘Tick-box‘ section (in both art.8/9 templates).

• Q no.30 Periodic Disclosures: the ESA’s “cannot impose a specific way of calculating information” disclosed in the ‘What were the top investments of the financial product?‘ section (in both art.8/9 templates). This is meant to “only complement” information specified / disclosed elsewhere (e.g. in the UCITS Directive annual report, the AIFMD annual report, etc).

NB: there are also ESA Q&A updates (p.29-30) relating to the Entity-level Principal Adverse Impact (PAI) statement.

3. EU-SFDR latest market trends

Morningstar Sustainalytics have published their new quarterly ‘SFDR Article 8 and Article 9 funds review’.

Latest EU fund trends as at end-Q2 2025 include:

a) ‘Sustainable’ product QTR inflow/outflow

• article 8 funds: +EUR 43 billion inflow
• article 9 funds: -EUR 1.3 billion outflow*
• article 6 funds: +EUR 82 billion inflow

 b) ‘Sustainable’ products: market share per total AUM

• article 8 funds: EUR 6.1 trillion [56.3%]
• article 9 funds: EUR 0.3 trillion [2.9%]
• article 6 funds: EUR 4.4 trillion [40.8%]

*NB: This is the 7^th consecutive quarterly net redemption for ‘dark-green’ SFDR article 9 EU products.

Overall, ‘actively managed’ SFDR art.8/9 funds recorded quarterly inflows of EUR 35 billion, while ‘passive’ sustainable products saw inflows of EUR 4 billion. By contrast, art.6 products saw a EUR 82 billion net inflow. This means ‘non-sustainable’ net fund flows have exceeded those of ‘sustainable’ funds, since Q2-2023 (inclusive).

Elsewhere, there was “accelerated fund re-naming”, ahead of the 21 May deadline for ESMA’s industry guidance.  In Q2-2025, over 600 x ‘sustainable’ funds were renamed; this included 382 products that “dropped” ESG-related naming terms, while 193 funds “swapped” terms. It is now estimated almost 1,300 funds [i.e. 28% of funds in scope**] have changed their fund names in the past 18 months.

**NB: MSCI previously computed that around 4,300 SFDR art.8/9 funds “would fall into scope of ESMA’s guidelines”.

B) UK ESG disclosure latest

1. FCA now considering SDR product-level updates

“As we take it forwards, we will consider sustainability reporting as a whole. This includes SDR, the ongoing endorsement of the ISSB standards (known as UK Sustainability Reporting Standards), and developments on transition plans. We also plan to engage further with industry to guide our next steps”.
‘Climate reporting by asset managers, life insurers and FCA-regulated pension providers’ (FCA website, 6 Aug 2025)

Last week, the Financial Conduct Authority (FCA) completed their multi-firm review of UK Task Force on Climate-related Financial Disclosures (TCFD) reporting requirements, faced by local asset managers and FCA-regulated asset owners.

Overall findings are summarised on a new webpage (quoted above).  The FCA also remind UK fund firms that the 2023 Sustainability Disclosure Requirements (SDR) policy statement had outlined their plans to consider:

• Updating SDR Product-level and Entity-level disclosures, to align with International Sustainability Standards Board (ISSB) global standards;
• Developing their UK transition plan disclosure expectations, in line with the Transition Plan Taskforce (TPT) Disclosure Framework.

The FCA now “consider sustainability reporting as a whole”, as they begin to consider “how to streamline and enhance our sustainability reporting framework”, covering local SDR, TCFD and TPT disclosure regimes.

NB: the FCA also “plan to engage further with industry to guide our next steps.”

2. UK-SDR latest market trends

We previously covered Morningstar’s current ‘SDR labelled & Non-Labelled Fund’ report, from April 2025.

SRI Services have since produced a summary of more recent UK-SDR findings (dated as at end-Q2 2025). This is sourced from their ‘Fund EcoMarket’ database of UK retail sustainable product information, designed for UK financial services intermediaries.

This cites 135 SDR labelled funds* in total (i.e. including “options not yet published” by fund firms):

• ‘Sustainable Focus’ label: 80 funds
• ‘Sustainable Impact’ label: 31 funds
• ‘Sustainable Improvers’ label: 19 funds
• ‘Sustainable Mixed Goals’ label: 5 funds

*NB: This figure chimes with the FCA’s claim of over 130 funds having adopted an SDR product label (as of early-June).

It is also said that 285 UK ‘sustainable’ fund name changes have occurred since the FCA’s SDR ‘naming and marketing’ rules were applied in December 2024; moreover, 95 various UK products have been removed from their database.

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Article written by Mark Kilbride