EC Will Not Introduce Minimum Criteria For Sustainability Funds Under SFDR

The European Commission has rejected suggestions that it introduce minimum environmental standards for Article 8 or Article 9 funds under the EU Sustainable Finance Disclosure Regulation (SFDR). On April 14, 2023, the Commission confirmed that it will not provide a definition for "sustainable investment," nor will it introduce minimum qualifying sustainability criteria.

The clarifications, published by financial services commissioner Mairead McGuinness, come after European Supervisory Authorities asked the Commission in September last year for further guidance on the interpretation of the SFDR. This was against the backdrop of asset managers downgrading approximately ?175 billion ($193 billion) of assets from Article 9 funds (i.e. those holding the SFDR's highest sustainability classification) to the broader, less demanding Article 8 label (which requires sustainability to be only one of the factors informing investment decisions) due to uncertainty over the rules.