Anne Kuijken (AF Advisors): Do stricter labels lead to more sustainable decisions?

December 9, 2025

By Anne Kuijken, Director Legal and Regulatory Solutions

The debate about the sustainability of the current SFDR classification has become increasingly heated in recent years. The system set out in Articles 6, 8 and 9 did not provide a clear lower limit or uniform definition of sustainability. As a result, it did not give investors sufficient guidance and did not lead to a demonstrable shift of capital towards sustainable activities.

With the publication of SFDR 2.0 on 20 November 2025, the European Commission is proposing a complete overhaul. The existing classification will disappear and be replaced by three new product categories: products that contribute to a transition objective (new Article 7), products that integrate sustainability factors into the investment process (new Article 8), and products with an explicit sustainability objective (new Article 9).

The same strict minimum requirement applies to all these categories: at least 70% of the portfolio must be demonstrably in line with the objective of the category. In addition, standardised exclusions will be introduced, based on the Climate Transition Benchmarks and the Paris-Aligned Benchmarks. This will make the system stricter, more uniform and clearer in terms of content.

Transition products are more complex than they appear

Despite the clear structure of the new categories, practical implementation is not straightforward. Transition funds require solid evidence that companies are actually reducing their emissions or fundamentally changing their business model. According to the new SFDR, engagement only contributes to the transition if progress is measurable. It is precisely this measurability that is often lacking.

As a result, the new Article 7 category is unlikely to become a broad catch-all for everything labelled “transition”, but will only include a relatively small group of products that can convincingly demonstrate that the core of their portfolio is changing.

Integration of sustainability factors becomes more concrete

The new Article 8 category is likely to mean the biggest reshuffle in the market. Whereas ESG screening is often sufficient at present, SFDR 2.0 requires clear and demonstrable integration of sustainability factors. For at least 70% of investments, it must be substantiated how sustainability has been materially taken into account: through indicators, methodology or alignment with business strategies. For many current Article 8 products, this requires substantial adjustments to strategy, portfolio construction and reporting.

Targeted contribution to sustainability goals

The new Article 9 remains the domain of products with an explicit sustainability objective, but the requirements are becoming stricter. In addition, a product may only use terms such as “impact” in its name if the results are actually measurable. This creates a clear distinction between genuine impact strategies and products that rely primarily on their green profile.

Something to do with supply and demand

The European Commission's proposal addresses a significant shortcoming of the current system, namely the lack of minimum thresholds and clarity. Nevertheless, the question remains whether this will fundamentally change the investment choices of institutional investors.

The practice of recent years offers insufficient grounds for optimism. Despite increased transparency, we are seeing a structural outflow from Article 9 products, including strategies that demonstrably contribute to social or environmental goals.

This trend seems to be driven primarily by a shift in investor focus. In a context of geopolitical uncertainty and volatile markets, returns, costs and track record remain the dominant factors. A more precise label will not fundamentally change investor behaviour.

The proposal is likely to lead to less greenwashing and a clearer fund landscape. However, there is a risk that the new categories will mainly become a compliance exercise: classifying, substantiating, ticking off exclusions. It makes the market more orderly, but not necessarily more attractive.

The bottom line remains that sustainable products do not automatically attract inflows, even when these products demonstrably create value and global investors need to address systemic sustainability risks.

The ambition of SFDR 2.0 is understandable and valuable in some respects. But the real transition lies less in a new classification system and more in a change in investor perspective. The transition to a sustainable economy does not require new labels, but a fundamentally different view of the value of sustainability on the part of investors.