Sustainable finance needs clarity, not weaker rules

In an opinion adopted at its March plenary on the review of the Sustainable Finance Disclosure Regulation (SFDR), the European Economic and Social Committee (EESC) calls for the EU’s sustainable finance framework to remain robust and aligned with the Green Deal. While supporting simplification, the Committee warns that the revision must preserve transparency, prevent greenwashing and keep capital flowing towards the green and social transition.

Introduced in 2021, the SFDR was the first EU framework requiring financial institutions to disclose how environmental, social and governance (ESG) risks are integrated into their investments. After implementation challenges, the European Commission proposed a revision in late 2025. Although originally designed as a transparency tool, the regulation has often functioned as a de facto labelling system for ‘green’ financial products, creating legal uncertainty and greenwashing concerns. The Commission now proposes a clearer product categorisation system and simpler disclosures. The EESC welcomes this approach but warns that simplification must not weaken credibility or ambition.

‘Simplification should help investors and markets work better, not dilute the EU’s sustainability goals’, said EESC rapporteur Javier Doz Orrit. ‘The SFDR must continue to send a clear signal that Europe is firmly committed to steering capital towards sustainable and transition-aligned activities’.

Simplification without weakening ambition

The EESC supports the introduction of clear product categories, including a dedicated transition category designed to support companies moving towards more sustainable business models.

However, it stresses that strong safeguards are essential for maintaining trust in sustainable finance markets. In particular, the EESC calls for the EU to maintain strict exclusions and credible environmental and social standards, which are crucial for preventing greenwashing and ensuring comparability between financial products.

The Committee also highlights the importance of maintaining a limited but meaningful set of disclosures at company level, ensuring that financial institutions continue to report key sustainability information that cannot be derived solely from product-level reporting.

Strengthening the role of stewardship and transition finance

A central element of the EESC’s recommendations is strengthening the role of stewardship, meaning the active engagement of investors with companies to improve their sustainability performance.

The Committee believes that engagement strategies and escalation plans should become mandatory criteria – rather than voluntary features – for financial products marketed as transition investments. This would ensure that transition-labelled products genuinely contribute to real-world change, rather than simply investing in companies with weak or unclear transition strategies.

The EESC also stresses that transition plans must be credible and aligned with international climate objectives, including the Paris Agreement, and should address both environmental and social objectives.

Ensuring coherence across EU sustainability rules

The Committee emphasises that the revised SFDR must remain fully aligned with other elements of the EU sustainable finance framework, including the Corporate Sustainability Reporting Directive (CSRD) and the EU taxonomy for sustainable activities.

Greater consistency between these instruments would improve data availability, reduce administrative burdens and strengthen the overall effectiveness of the framework.

At the same time, the EESC warns that recent changes to some EU sustainability rules risk creating data gaps and inconsistencies, which could undermine the ability of investors to assess sustainability risks and opportunities.

Mobilising finance for Europe’s green transition

The stakes are high. Achieving the EU’s climate and environmental objectives will require massive additional investments, estimated at more than 4% of EU GDP annually until 2030. In this context, the EESC stresses that the financial system must remain a central driver of the transition.

‘Europe needs a financial system that actively supports the green and social transition’, said Mr Doz Orrit. ‘Clear rules, reliable data and credible standards are essential for directing investment where it is needed most’.

By ensuring that simplification strengthens rather than weakens the EU sustainable finance framework, the revised SFDR can continue to play a key role in mobilising private capital for Europe’s climate and sustainability goals.