Since early 2025, the EU Commission has been on a mission to re-work several European sustainability regulations. The Sustainable Finance Disclosure regulation (better known by its acronym, SFDR) has not been spared by the Commission's (de)regulatory effort. On paper, the review aims to improve legal certainty, usability, and to better prevent greenwashing practices. In reality, like the rest of the Omnibus package, it looks like the emphasis is really on simplification. This is driven by stakeholder feedback (from public consultations, workshops, etc.) that the current regulation, while increasing transparency, is too complex and costly to implement.
Since November 4, a Draft of the amended regulation has been circulating online, with the official presentation planned for November 19. But what could really change, and what are the implications for the disclosure of nature-related finance information?
One of the central aspects of the former version of SFDR was the attempt to lay out a clear definition for sustainable finance, which was spelled out in Article 2 of the regulation. According to the released review Draft, it was however difficult for vigilance authorities to agree that this definition was indeed the one, among many possibilities. Moreover, it was also challenging in its “practical implementation”.
This new version replaces the old categorization of Article 6, 8 and 9 funds with a revised one for financial products:
To be able to use the label, these products will be subjected to strict exclusion criteria, specific to investments in most harmful activities, which correspond to the exclusions for the Climate Transition Benchmarks and Paris-Aligned Benchmarks.
Article 6 products will still stand, and it will apply to all other investment products in the retail market - obliging them to disclose certain sustainability risks on the fund return. Products destined to professional investors will not bear this obligation.
Another novelty is the attempt to regulate the use of “impact” terminology, which will be reserved only to products explicitly pursuing measurable social or environmental outcomes.
The most surprising update to SFDR is the proposal to remove PAI disclosures at the entity level and also at the product level. By scrapping PAI reporting and instead emphasizing minimum exclusion criteria (e.g., for certain sectors or business practices) and EU Taxonomy-alignment for certain financial products (in particular, in adherence with the Do No Significant Harm principle), the vision of the Commission is to streamline processes while achieving more clarity for investors and the general retail finance public. This translates into a stronger emphasis on risks.
One positive news about SFDR 2.0 is that it seems to attempt to mandate more transparency around data methodologies, and concerning the use of estimates (so-called “proxy data”) in financial disclosures.
With PAI disclosures being cut back (or removed at entity level), less mandatory information may be publicly disclosed about negative environmental impacts (including on biodiversity, land use, water, deforestation, etc.). This could make it harder for investors to assess adverse nature impacts unless voluntary or additional disclosures step in.
On the flip side, if minimum exclusions become stronger (e.g., excluding certain harmful activities), some nature risks might be better managed via exclusion rather than detailed PAI tracking.
Because more importance is given to the EU Taxonomy, and taxonomy criteria include “Do No Significant Harm” (DNSH) tests, funds may need to ensure their investments don’t significantly harm nature. However, ecosystem-level harm is notoriously hard and complex to assess. This might cause some products currently classified as Article 9 to be downgraded, if they do not adapt.
In the context of nature, the proposed segmentation into “transition,” “sustainability factors,” “sustainable,” and “mixed” may help investors pick funds more aligned with their individual nature-related goals.
If properly designed, such categories could also force funds to justify how they assess nature risk or impact.
In particular, more focus on a “nature risk” lens could translate in a stronger push to align with TNFD, especially in the retail investment market.
With increased demands for disclosure on sustainability risks, asset managers might need to more explicitly map nature-related financial risks (e.g., biodiversity loss, ecosystem degradation) into their risk frameworks. This could push more firms to adopt frameworks like the Taskforce on Nature-related Financial Disclosures (TNFD), which is gaining momentum.
Because the regulatory framework is changing, investors who rely on SFDR-based data now might face transition risk: their current assumptions about nature impact measurement might not hold under new rules. Investors will need to monitor these regulatory changes carefully and adjust their due diligence, particularly for nature-related risks, to ensure alignment with the revised SFDR regime. This task is not easy, especially given the complexity of nature-related risks - and it might result in some consumer-facing financial products being downgraded from their current SFDR category. The same goes for many so-called Impact funds. They may need to either stop calling themselves ‘Impact’ or make sure they fully comply with the rules, including a stronger scrutiny on nature risks.
It’s important to stress that the revised regulation is still in Draft form. However, given the pace at which the EU has been proactively re-shaping several of its landmark sustainability disclosure regulations, it is reasonable to expect that many of the leaked revisions will indeed be implemented. If you would like to screen your portfolio’s nature-related risks and impacts, but don’t know where to start yet, you can schedule a free consultation with our team of data scientists and ecologists. We’ll listen carefully to identify your current challenges and bottlenecks, and work together to identify the right solution for your specific needs, no strings attached.
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