When simplification rhymes with clarification: Impact France welcomes the structuring reform of the SFDR

^{Mouvement Impact France welcomes the proposed revision of the SFDR regulation published by the European Commission last week. This new version finally meets the expectations that the financial players in our movement have been expressing for years. It marks a major step forward in effectively redirecting capital towards sustainable activities, combating greenwashing and recognizing impact investing.}

Since it came into force in 2019, the SFDR (Sustainable Finance Disclosure Regulation), which requires financial players to publish information on the risks and impacts of their activities, had been widely criticized for its lack of clarity and complexity. The revision proposed by the European Commission last week provides pragmatic answers to the needs of investors and entrepreneurs.

A revision that meets the long-awaited needs of investors and entrepreneurs

This revision provides a pragmatic response to the needs of investors and entrepreneurs (particularly small businesses), as we have been advocating for years. Disclosure requirements concerning negative impacts at entity level have been abolished, and the recasting of Articles 8 and 9 with the introduction of three categories - "sustainable", "transition" and "ESG basics" - will help clarify sustainable product offerings. 

Putting an end to greenwashing and exclusions to meet the need for credible and transparent sustainable finance 

Impact France welcomes this text, which also tackles greenwashing: from now on, non-categorized products will no longer be able to use the terms ESG or sustainable in their name or marketing, a crucial step forward for transparency.

The proposed criteria, such as the threshold of 70% of the portfolio aligned with the sustainable strategy and the exclusion of activities such as fossil fuel financing applicable to all categories, reinforce the credibility of sustainable finance.

At last, a definition of impact investing!

Finally, the proposal introduces a clear and demanding definition of impact investing:

• Intentionality: explicit desire to produce measurable positive change;
• Documented theory of change ;
• Measurement of real effects ("outcomes") using appropriate indicators;
• Strict control of the use of the term "impact": reserved for sustainable or transitional products demonstrating the materiality and measurability of their impact.

For Impact France, this official recognition responds to a request made by players in the sector for years, and is a decisive step towards distinguishing impact investing from purely declarative approaches. However, we call for the legal definition of impact investing to be combined with recognition of more rigorous tools, such as the IFD's impact assessment grid or recognized labels such as Finansol or SRI. 

"By revising the SFDR regulation, Europe is assuming its role as world leader in sustainable finance and choosing a path of simplification made of transparency and consistency, thus offering a robust framework to protect investors and support companies innovating for transition. This reform marks a long-awaited turning point and finally gives European finance the means to massively direct flows towards the activities on which our future depends." - Caroline Neyron, Managing Director, Impact France^‍

Impact France calls on co-legislators to continue along this path

Impact France is now calling on the European Parliament and the Council to maintain the ambition of the reform: although exclusions are planned, we will remain vigilant to ensure that they are implemented and enforced.

What's more, effective control mechanisms need to be guaranteed, to ensure that ESG promises don't remain just words, like impact investing. As it stands, these qualifications could easily be used for products that are not very ambitious in terms of sustainability. 

Impact France remains mobilized and ready to collaborate with European institutions, national authorities, financial players, businesses and civil society to make this reform a credible driver of sustainable transition.

See our press release