European ESG fund disclosure catchup

A) EU ‘sustainability’ disclosure latest

1. EU-level SFDR updates

a) EC’s latest SFDR ‘call for evidence’

The EU Commission (EC) recently held a Call for Evidence on how to ‘simplify’ the Sustainable Finance Disclosure Regulation (SFDR) framework to “enhance usability” and “prevent greenwashing”.

Calls for Evidence [‘CfEs’] are used by the EC to define the scope of an evaluation of an existing law or policy. This latest discussion was held ahead of the future ‘SFDR II’ Level 1 legal changes, to be revealed in Q4-2025.

The EC cited a “large majority of stakeholders” observing “limitations in the SFDR”, including “lack of legal clarity on key concepts”, “limited relevance of certain disclosure requirements”, and persistent lack of data required.

Industry feedback was requested on revised SFDR policy options now under consideration:

• Targeted changes and clarifications to existing disclosures; or
• More far-reaching changes establishing a number of product categories  [→ i.e. underpinned by common criteria: contributing to a Sustainability Objective, Transition, or other ESG strategy].

The EC confirmed either option “should interact coherently” with EU fund investor distribution rules.

Building on their parallel “Omnibus” package to rationalise EU corporate sustainability rules, the EC now intend to “simplify key SFDR concepts” to remove inconsistencies, address data availability issues, while streamlining disclosure rules “to focus on the most essential information for investors”.

Both the European Supervisory Authorities (ESAs, in June 2024) and the Platform on Sustainable Finance (Dec 2024) had previously supplied their views on ‘SFDR II’.

NB: Latest ‘CfE’ opinion will now “inform the EC’s SFDR impact assessment”, with “no further public consultation” to be held on this subject.

b) Key feedback to EC’s SFDR Call for Evidence

The EC’s SFDR ‘CfE’ attracted 195 responses. Of particular note:

• EFAMA: the European Fund and Asset Management Association call for “smarter sustainable finance disclosures… investor-friendly, focused, pragmatic and aligned with corporate reporting.” Their members prefer “targeted refinement” of the current regime, based on a “balanced and workable” product category framework, ongoing.  However, they say all SFDR Level 1 reforms “should be built on evidence of what improves investor understanding, product innovation, and market clarity”, including market impact assessments and consumer testing.
• Eurosif: the European Sustainable Investment Forum state that funds currently classed as “light-green” SFDR ‘article 8’ products should not be able to claim automatic ‘sustainability’ status under the EC’s new EU product classifications (e.g. ‘ESG collection’ category). They say all financial products should disclose “easy-to-understand information on their sustainability risks and impacts. This is key for facilitating the comparability of financial products and for ensuring retail investors can make informed decisions”.

NB: Both EFAMA and Eurosif agree SFDR Entity-level disclosures should be retained (i.e. despite those claiming EU corporate sustainability disclosure “duplication”, per CSDR regime).

c) SFDR Level 2 RTS status

There is still no news regarding the EC’s approval (or rejection) of the draft SFDR Level 2 RTS, delivered by the EU Supervisory Authorities back in December 2023.

As mentioned before, the EC’s current mission to radically simplify and streamline EU-ESG disclosure rules, seems contrary to any decision to impose 127-pages of comprehensive, high-impact changes on fund firms (i.e. ahead of a landmark EU Level 1 regime ‘reset’, later this year).  However, the wait continues for an official statement.

NB: Meantime, another reminder the new European Single Access Point [ESAP] legally applies to SFDR on 10 January 2028, with firms then obliged to provide machine-readable public information to their appointed  data collection bodies (i.e. presumably aligned with the latest SFDR Level 2 technical standards then in place).

2. Other UK-ESG activities

a) Omnibus latest: Taxonomy, EU Ecolabel

The EC’s quest to “cut red tape” and “make sustainability reporting more accessible and efficient” continues elsewhere:

• 11 July: the EC adopted their “quick-fix” Delegated Act to defer (until 2027) the first set of European Sustainability Reporting Standards (ESRS) facing larger “wave one” financial companies.
• 4 July: the EC adopted a set of measures to simplify the application of the EU Taxonomy regulation (TR). These greatly reduce Taxonomy reporting data points (89% for financial companies; 64% for non-financial companies), simplify ‘Do No Significant Harm’ criteria and defer specific KPI reporting until end-Q4 2027.

b) EC publish towards ‘Nature Credits’ roadmap

"Nature credits are emerging as an innovative mechanism to channel private finance into biodiversity and ecosystem restoration, helping bridge the significant financing gap for achieving EU environmental and climate objectives.” EU Commission ‘Nature Credits’ press release (7 July 2025)

On 7 July, the EC published a new ‘Roadmap towards Nature Credits’.

Nature credits are ‘nature-positive actions’ investments by a company, a financial institution or retail investor; they channel private finance into biodiversity-positive projects, such as restoring wetlands, or extending forest areas. Nature credits that improve or protect natural ecosystems are also tradeable on financial markets.

The EC’s new ‘strategic approach’ seeks to “stimulate private investment in nature-positive actions across the EU”.

They have now committed to allocating 10% of its budget to biodiversity by 2026-2027 and doubling its external biodiversity spending to €7 billion. Their roadmap “sets out key steps to establish a credible and effective framework for these credits, including the development of robust methodologies, transparent monitoring systems, and strong governance structures.”

NB: the EC’s official communication says EU disclosure frameworks such as SFDR “can contribute to expanding this trend.”

3. ESMA ESG activities

a) ESMA consult on ESG Rating Regulation, amid SFDR disclosure concerns

The ESG Rating Regulation [‘ESGRR’] was published last November. It seeks to introduce consistent transparency into the activities of ‘ESG rating providers’, to boost EU investor confidence in ‘sustainable’ financial products.

The ESGRR will legally apply from 2 July 2026. Article 2(2) contains an exemption for ESG ratings incorporated in a product or service already regulated by EU law (e.g. SFDR, UCITS and / or AIFMD regimes).

ESMA recently consulted on their initial set of ESGRR draft ‘Level 2’ technical standards, covering the likes of ESG rating providers’ authorisation process, permitted business / activity separation, and various disclosures. These must be finalised and delivered to the EC before 2 October 2025.

However, other unpublished draft RTS (assigned to the joint ESAs*) are now worrying some fund firms.

This arises from the ESGRR amendment to SFDR Level 1 art.13 [‘Marketing communications’]. Despite the ESGRR ‘exemption’, it is also stated fund firms or advisers who issue/disclose an ESG rating to third parties (e.g. via factsheets) will be obliged to:

• update their SFDR product website disclosure with additional information (cited per ESGRR Annex III);
• include a link to those extended SFDR website disclosures in all product marketing communications.

*NB: The revised SFDR art.13 does not specify a date for the ESAs to deliver their draft ESGRR-related criteria. It remains to be clarified what data (standardised, or otherwise) is now expected of firms who currently disclose ESG ratings in their fund marketing materials.

b) ESMA publish Final Report on ‘integration of sustainability risks and disclosures’

“It is important to highlight that the concrete changes coming out of a future review of the SFDR will not be applicable in the near future. It is important that NCAs remain vigilant on the supervision of the current framework and supervised entities continue applying the current provisions.”
ESMA Final Report on the integration of sustainability risks and disclosures (30 June 2025)

ESMA recently published a report summarising their previous SFDR ‘Common Supervisory Action’ (CSA) with EU regulators, covering ‘integration of sustainability risks and disclosures’.

Launched back in July 2023, this exercise set out to evaluate EU fund firms’ compliance with their legal obligations (i.e. SFDR/TR disclosures and UCITS/AIFMD sustainability risk management).

ESMA concluded there is “room for improvement in the level of managers’ compliance” with the EU sustainability risks and disclosure framework. Although a “majority” of EU NCAs found “an overall satisfactory level” of fund manager compliance, local regulators did find “several vulnerabilities”, including:

• SFDR product-level pre-contractual, periodic disclosures (PCD, PD):
  • “Vague and overly general language, missing or inadequate details and difficult to locate”;
  • Inconsistency: across precontractual, periodic, website disclosures and/or marketing materials;
  • Discrepancies: in sustainability information per PCD, PD and ‘granular’ website sections;
  • PCD environmental or social characteristics information: “not clearly disclosed, making it unclear how the characteristics were measured and fulfilled”.
  • “Too generic” claims of ‘sustainability’ promoted features/objectives (e.g. “The product promotes environmental features.”;
  • 10 x NCAs: found evidence of “incorrect or misleading disclosures” in more than 20% of funds sampled.

• Product-level website disclosures: several SFDR ‘article 6’ product websites showed images “suggestive of the environment, such as pictures of windmills, images of recycling, circular economy, nature and wildlife”.
• Entity-level principal adverse impact (PAI) statements: inadequate level of details, unsatisfactory explanation of non-consideration, inconsistent calculations.
• ESG data: lack of third party data provider verification/review process, with data “sometimes incomplete or inaccurate”.

Going forward, ESMA encourages EU regulators to “continue proactive engagement with market participants and follow up with those cases where vulnerabilities were detected, including enforcement, where appropriate”.

NB: ESMA also remind stakeholders the current SFDR framework will remain in place for a significant period of time; they expect strict continuity from regulators and fund firms alike, meanwhile.

c) ESMA publish Thematic notes on clear, fair & not misleading sustainability-related claims

On 1 July, ESMA also published ‘thematic notes’ on “clear, fair & not misleading sustainability-related claims”.

This was prepared “with an educational objective” and seeks to ‘address greenwashing risks in support of sustainable investments’. It covers ‘sustainability claims’ made by firms across the Sustainable Investment Value Chain (SIVC), with SFDR frequently mentioned.

ESMA say ‘ESG credentials’ should follow four principles*: sustainability claims must be ‘accurate’, ‘accessible’, ‘substantiated’ and ‘up to date’.  They outline specific Do’s and Don’ts (with examples of ‘Good’ and ‘Poor’ practices), covering:

• Claims about all forms of ESG credentials;
• Claims about industry initiatives;
• Claims about labels and awards;
• Claims about comparisons to peers.

 *NB: ESMA state these principles do not create new SFDR disclosure requirements; they aim “to remind market participants about their responsibility to make claims only to the extent that they are clear, fair and not misleading”. ESMA also say “other thematic notes will follow, as judged necessary”.

B) UK ‘sustainability’ disclosure latest

1. UK-SDR updates

 a) SDR milestones remain unchanged

There have been no recent changes to the UK firms’ SDR website by the Financial Conduct Authority (FCA).

• The next milestone faces ‘early adopters’ of the SDR product labels (available since 31 July 2024); firms must publish their first ongoing annual product-level disclosure no more than 16 months after the first use of their SDR product label;
• ‘Eligible clients’ of unauthorised ‘sustainable’ AIFs are entitled to ‘demand’ their ongoing product-level disclosures from 2 Dec 2025;
• Entity-level SDR disclosure reports (from firms with above GBP50bn in AUM) are also due on 2 Dec 2025.

NB: The UK Treasury dialogue on extending UK-SDR to the Overseas Fund Regime (OFR) is now one year overdue.

b) SDR labelled product estimates

How many funds have now adopted an SDR product label? Recent estimates vary.

On 4 June, an FCA spokesperson claimed over 130 funds had adopted one of the four SDR product labels.

The latest Investment Association (IA) annual SDR Implementation Survey results (published on 10 June) calculated 110 funds now using a SDR labels. This was less than half the number (216 funds) forecast one year earlier.

Earlier on 18 April, Morningstar Sustainalytics ‘SDR labelled & Non-Labelled Fund Landscape’ report identified:

• 94 labelled funds [→GBP35bn AUM]
• 376 non-labelled funds [→ GBP297bn AUM]

Together: these equated to around 12% of the total number of UK domiciled funds, or 24% of the total AUM.

NB: so far, the ‘Sustainability Focus’ label remains the clear winner, accounting for 60-62% of all labelled funds.

c) Other key IA survey findings

The IA’s latest SDR survey results are required reading, with other notable highlights including:

• 56% of firms have amended their fund names, as a result of the SDR ‘naming and marketing’
• 50% of firms do not expect to adopt any product label in the next 1-2 years; 22% remain ‘unsure’.
• 69% of firms who had planned to adopt labels over the next 1-2 years, have yet to do so.
• 50% of firms have at least one fund where they considered adopting a label, but later decided against it.
• 80% of respondent members have non-labelled funds with sustainability characteristics.

NB: in terms of recent SDR sentiment, “a vast majority of firms” [circa 85%] “strongly disagree that the UK-SDR regime is compatible with the current EU-SFDR framework”.

2. Other UK-ESG updates

a) HMT abandon local ‘Green Taxonomy’

Last week, the UK Government finally decided they would not develop a local ‘Green Taxonomy’.

Responding to last November’s consultation, reasons given include:

• A UK Taxonomy “would not support the current government’s policy landscape for the sector”;
• A “significant amount of work” would be needed to “navigate interoperability challenges”;
• Consultation responses show that “other policies were of higher priority to accelerate investment into the transition to net-zero and limit greenwashing”.

Although 67% of respondents wanted the future “UK Taxonomy to be aligned with the EU Taxonomy”, a large number also expressed “significant concerns” with the latter, while acknowledging the “ongoing work to address this through the EU Omnibus process”.

NB: This decision means that SDR product-level disclosures will no longer require specific updates regarding a future UK Taxonomy, as indicated in the FCA’s 2023 SDR Policy Statement (p.18).

b) GovUK launch trio of ESG disclosure consultations

“The FCA has said that, as next steps under its Sustainability Disclosure Requirements (SDR) and investment labels regime, it will consider updating disclosure requirements for asset managers in line with the UK SRS standards and the TPT Disclosure Framework.”
Department for Energy Security and Net Zero, Transition plan requirements consultation (25 June 2025)

The UK Government also recently published three interlinked sustainability-related consultations, on the same day. These cover:

• Climate-related transition planning: the Department for Energy Security and Net Zero seek views on “implementation routes” for local transition plan requirements. This includes a reminder of the FCA’s future plans for SDR disclosures.
• UK Sustainability Reporting Standards exposure drafts: this outlines UK-SRS proposals, as part of the first phase to modernise the UK’s corporate reporting framework.
• Oversight of third-party sustainability financial reporting services: the Department for Business and Trade present a voluntary oversight regime for assurance of sustainability-related financial disclosures.

All of these will close on 17 September 2025.

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Article written by Mark Kilbride