SFDR reform moves forward: What financial institutions need to know

On 10^th September, the European Parliament's Economic and Monetary Affairs Committee (ECON) adopted its position on the review of the Sustainable Finance Disclosure Regulation (SFDR). This gives Parliament a mandate to enter trilogue negotiations with the Council and the European Commission.

The reform was initiated following concerns that investors increasingly interpret the current Article 8 and Article 9 classifications as sustainability labels, even though they were originally designed as disclosure categories. The European Commission concluded that this has created confusion among retail investors and increased greenwashing risks. In response, it proposed a clearer, more investor-friendly framework based on defined product categories rather than disclosure classifications.

A new product labelling framework is taking shape

The proposed reforms would replace today's Article 8 and Article 9 categories with a new labelling framework consisting of three labels: Sustainable, Transition and ESG Basics.

Sustainable	Transition	ESG Basics
Products that pursue a sustainability objective and invest predominantly in assets that meet high sustainability standards.	Products that support the transition towards a more sustainable economy by investing in companies, assets or activities that are not yet fully sustainable but are following a credible transition pathway	Products that integrate sustainability factors and ESG considerations but do not meet the higher thresholds required for the Sustainable or Transition categories.

Fossil fuel rules remain a key point of debate

One of the most closely watched aspects of the reform concerns the treatment of fossil fuel investments. The European Commission originally proposed restrictions that would prevent funds investing in companies expanding coal, oil or gas production from qualifying as Transition or Sustainable products. However, the Council of the European Union subsequently adopted a more flexible position, allowing certain fossil fuel companies to be included within Transition products where they can demonstrate credible transition plans and significant investments aligned with the EU Taxonomy.

The European Parliament ultimately aligned with the Council's more flexible approach.

The European Parliament ultimately aligned with the Council's more flexible approach. Under its position, fossil fuel companies may be included in Transition-labelled products, provided they can demonstrate a credible transition strategy. Parliament also introduced a safeguard requiring these companies to invest more in green activities than in new fossil fuel projects over a rolling three-year period.

What does this mean for Belgian financial institutions?

The impact on Belgian financial institutions could be significant. Asset managers, private banks and insurers will need to review their product ranges to determine whether products qualify for the Sustainable, Transition or ESG Basics labels. As there is no direct mapping between the current Article 8 and 9 classifications and the proposed framework, some products may require substantial reassessment. For example, a fund currently classified as Article 8 could ultimately fall within either the Transition or ESG Basics category, depending on its investment strategy and portfolio composition. This may affect how firms position sustainable investment products, meet investor preferences and communicate sustainability characteristics to clients.

Asset managers, private banks and insurers will need to review their product ranges to determine whether products qualify for the Sustainable, Transition or ESG Basics labels.

Belgian institutions will also need to consider the interaction between SFDR and other regulatory frameworks, including MiFID II sustainability preferences, the EU Taxonomy Regulation and evolving expectations around sustainable product governance. Product categorisation under SFDR increasingly influences investment advice, client disclosures and reporting obligations. Any reclassification of funds may therefore have implications beyond product documentation and marketing materials.

Why firms should start preparing now

The ECON committee now has a mandate to enter inter-institutional negotiations with the Council and the European Commission, which are expected to begin in October. These discussions will determine the final shape of the new framework, including the detailed criteria for each label and the treatment of Transition investments.

These discussions will determine the final shape of the new framework

While the final rules remain under negotiation, financial institutions may already want to assess how their existing sustainable product ranges could fit within the proposed labelling framework.

Comment Projective Group peut aider

At Projective Group, we are closely monitoring developments in the SFDR review and the broader sustainable finance agenda. We work with financial institutions to assess the implications of regulatory change across product governance, disclosures, distribution and sustainability frameworks. As the legislative process progresses, firms have an opportunity to evaluate how potential changes could affect product strategies and operational processes. We continue to support clients in translating evolving requirements into practical actions.

A propos de Projective Group

Established in 2006, Projective Group is a leading financial services consultancy.

We are recognised across the European industry for turning complex challenges and emerging themes into clear, pragmatic solutions. With deep roots and trusted relationships in financial services, we bring hands-on expertise across key domains. We support the full journey of change: shaping strategy, delivering complex transformation or building long‑term capability through managed services, staffing and training. Our purpose is simple: to empower financial services to drive future wellbeing, prosperity and innovation.