Forum per la Finanza Sostenibile
Proposal of a categorisation system for sustainable finance products released. Voluntary sustainability reporting standard for SMEs published
2025 begins with the release of some key reports that will guide European institutions in refining and updating the sustainable finance framework over the year.
PSF | Report on the categorisation of products under SFDR
In December 2024, the EU’s Platform on Sustainable Finance (PSF) released a proposal for a categorisation scheme for sustainable finance products, as part of the European Commission’s review of the Sustainable Finance Disclosure Regulation (SFDR) framework. The proposal seeks to facilitate investments in sustainable activities while mitigating market fragmentation. The Platform underscores the importance of a gradual transition to the updated SFDR framework, emphasising the need to measure the proposal’s impact. Also, the proposal underlines the need to align sustainability preferences with the categories, enabling investors and advisors to easily identify products that match their sustainability preferences. The categories are structured around well-defined minimum criteria, clear objectives, and measurable KPIs to enable effective sustainability performance measurement and reporting. The three categories which the Report recommends are the following:
- sustainable: sustainable products would contribute through taxonomy-aligned investments or sustainable investments with no significant harmful activities or assets, following a more concise definition aligned with the taxonomy.
- transition: this category would include investments or portfolios that support the transition to net-zero and a sustainable economy while avoiding carbon lock-ins in accordance with the Commission's June 2023 recommendations on facilitating financing for the transition to a sustainable economy.
- ESG collection: products in the ESG category would exclude significantly harmful investments/activities and invest in assets with better environmental and/or social criteria or apply various sustainability features.
EFRAG | Voluntary reporting standard for SMEs
Moreover, the European Financial Reporting Advisory Group (EFRAG) has delivered its technical advice on the voluntary reporting standard for non-listed micro-, small-, and medium-sized undertakings (VSME). The VSME is designed for undertakings outside the mandatory scope of the Corporate Sustainability Reporting Directive (CSRD). The initiative aims to support non-listed SMEs in accessing sustainable finance and provide relevant information for businesses across all sectors. The VSME is structured into two modules: an entry-level Basic Module and a Comprehensive Module, which provides more extensive information beyond what is already offered in the Basic Module. These two modules are expected to satisfy many requests from business partners such as banks, investors and large corporates, which SMEs currently receive.
To further support SMEs, EFRAG plans to launch a series of initiatives in 2025. These include issuing support guides and educational materials, conducting outreach and awareness-raising events, and monitoring the development of emerging tools and platforms.
ESMA | Guidelines for funds’ names
Finally, the European Securities and Markets Authority (ESMA) published Q&As with further details on specific aspects of the practical application of the Guidelines on funds' names using ESG or sustainability-related terms. The objective is to ensure a smooth application of the Guidelines through a shared understanding of key concepts. The Q&A on green bonds (Q&A 2368 and 2370 on paragraphs 16-18 of the Guidelines) explains that investment restrictions related to the exclusion of companies do not apply to investments in European Green Bonds. For other green bonds, fund managers may use a look-through approach to assess whether the activities financed are relevant for the exclusions. The Q&A on controversial weapons (Q&A 2371 and 2372 on paragraphs 16-18 of the Guidelines) specifies that the reference for the exclusion related to controversial weapons should be SFDR’s principal adverse impact indicator 14. Therefore, controversial weapons include anti-personnel mines, cluster munitions, chemical weapons, and biological weapons, aligned with the SFDR Negative Impact Indicator 14. The Q&A on “meaningfully investing in sustainable investments” clarifies that funds with less than 50% sustainable investments cannot be considered as “meaningfully investing in sustainable investments”.
