EP adopts negotiating mandate on SFDR reform

The European Parliament's Economic and Monetary Affairs Committee (ECON) has announced it has adopted its negotiating mandate for proposed reforms to the Sustainable Finance Disclosure Regulation (SFDR). The proposals are intended to simplify the framework and make sustainable financial products more transparent, comparable and credible, while reducing administrative burden. The text has not yet been made available.

The mandate supports the European Commission's proposal, adopted in November 2025, to introduce three standard product categories (sustainable, transition and ESG basics), each of which would be required to disclose the main adverse impacts of its investments on sustainability. However, Members of the European Parliament insisted that transition products should exclude investments in companies earning revenue from fossil fuel exploration, extraction, mining or refining, subject to limited exceptions, while ESG basics products would be required to disclose their exposure to the fossil fuel sector. All three categories would also exclude investments in companies that violate human rights or humanitarian law. The reforms would further limit sustainability impact disclosure requirements to the largest financial market participants, exempt professional investors, and remove financial advice and portfolio management from the regulation's scope.

In addition, firms offering categorised products would be required to maintain due diligence and monitoring processes, review them at least annually, and report on matters including fossil fuel exposure, greenhouse gas emissions and activities affecting biodiversity-sensitive areas, disclosing any adverse impacts on a product's ESG objectives. The proposed negotiating mandate is expected to be announced at the October I plenary session before interinstitutional negotiations with the Council of the EU commence.

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