• The European Parliament’s ECON Committee backed a narrower SFDR scope that could exempt some products sold to professional investors from disclosure requirements.
• Its position would allow fossil fuel companies expanding production to qualify for the proposed transition category if they meet specified green investment thresholds.
• Inter-institutional negotiations are expected to begin in October, with the final rules set to shape how sustainable and transition funds are classified across the EU.

European lawmakers have backed changes to the EU’s Sustainable Finance Disclosure Regulation that would narrow its reach and reshape the criteria for transition-focused investment funds.

The European Parliament’s Committee on Economic and Monetary Affairs, known as ECON, adopted its negotiating position on the SFDR review on September 10.

The committee supports exempting some investment products sold to professional investors from SFDR categorisation disclosures. It also backs rules that could allow companies expanding fossil fuel production to appear in the regulation’s proposed transition category.

The changes could have significant consequences for asset managers, pension funds and institutional investors seeking comparable sustainability information across the European market.

“Climate science is largely absent from ECON’s position. They have narrowed who the rules apply to and loosened what counts as a credible transition to sustainability,” said Thibault Girardot, Sustainable Finance Policy Officer at WWF EU. “This undermines what the SFDR is meant to achieve and puts Europe’s sustainability goals at risk.”

Disclosure rules could apply to fewer products

SFDR governs how investment products communicate environmental and social characteristics to investors.

ECON’s position introduces an exemption similar to one proposed by the Council in June. Investment firms could avoid disclosing whether certain products sold to professional investors fall within an SFDR category.

Supporters of such exemptions argue that professional investors have greater resources and expertise to assess sustainability claims without retail-style disclosure requirements.

However, the professional investor category also includes smaller institutions. Local pension schemes, for example, may have limited internal sustainability expertise and depend on common disclosure frameworks when comparing investment products.

A narrower scope could therefore produce different levels of transparency across the market.

ECON has proposed another measure aimed at improving comparability. Investment firms would need to disclose annually what proportion of their funds and financial assets falls within each SFDR category.

RELATED ARTICLE: EU Approves $335 Million Dutch SAF Aid

Fossil fuel expansion enters transition debate

The committee also broadly aligned itself with the Council on criteria for the proposed transition category.

Under the position, fossil fuel companies expanding production could qualify if they direct at least 20% of annual investment towards environmentally sustainable activities aligned with the EU Taxonomy.

ECON added a further condition. Over a rolling three-year period, fossil fuel companies included in transition funds would need to invest more in green activities than in new fossil fuel projects.

The approach places capital expenditure at the centre of determining whether a company can credibly qualify as transitioning.

WWF argues that the threshold is too weak for a category designed to identify companies moving towards a sustainable economic model.

“Companies opening new oil and gas fields or building new coal plants have no place in a category designed to help Europe shift to a sustainable economy,” added Girardot, “The SFDR is meant to reduce greenwashing, but if policymakers continue on the current trajectory, it will only make it harder for investors to identify companies moving away from coal, oil and gas.”

Investors face a critical classification debate

For asset managers, the negotiations will determine both the compliance perimeter of SFDR and the credibility of its sustainability categories.

A narrower framework could reduce reporting obligations for some financial products. It could also leave investors with less standardised information when assessing products marketed to professional clients.

The transition category carries a different risk. If criteria are perceived as too permissive, investors may struggle to distinguish companies genuinely shifting capital away from high-carbon activities from those continuing to expand them.

That distinction matters as transition finance becomes a larger part of European climate policy and private capital allocation.

ECON now has a mandate to enter trilogue negotiations with the Council and European Commission. Talks are expected to begin in October.

The final compromise will determine how much of Europe’s investment market remains within the SFDR framework and where policymakers draw the line on credible transition activity.

For global investors, the outcome will reach beyond EU disclosure compliance. Europe’s sustainable finance rules continue to influence fund classification, product design and transition finance standards across international capital markets.