Following widespread confusion and misuse of Articles 8 and 9 as de facto “labels”, the European Commission launched a public consultation to review and reform the Sustainable Finance Disclosure Regulation, with the aim of restoring SFDR to its original purpose: a disclosure framework that is clearer, more comparable and less prone to greenwashing.
Article 7 “Transition” could become one of the most meaningful evolutions of SFDR 2.0: by introducing a category for funds investing in assets that are not yet sustainable but are on a credible transition path, it creates the potential to pursue impact at scale without materially narrowing the investment universe, subject to how thresholds and methodologies are ultimately defined.
The simplification of SFDR disclosures is expected to reduce compliance costs by around 25%, according to the Commission’s proposal: if effectively implemented, this could allow asset managers to rebalance efforts away from reporting mechanics towards deeper analysis of business fundamentals, transition economics and value creation drivers.
In a lighter entity-level framework, credibility is likely to hinge more on execution: transition strategies may increasingly be assessed based on the quality of ex-ante analysis (e.g. at due diligence stage) and the ability to deliver tangible progress during the holding period, rather than on the volume of entity-level disclosures.
By Paul Gronner, Manager Private Equity chez Blunomy
