The European Parliament is moving toward stricter ESG fund regulations under the review of the Sustainable Finance Disclosure Regulation (SFDR). The proposed draft would require sustainable investment funds to disclose mandatory Principal Adverse Impact (PAI) indicators, making ESG products easier for investors to compare. Lawmakers aim to strengthen transparency and reduce misleading sustainability claims across EU financial markets.
The draft also introduces tighter rules for funds using ESG-related language without qualifying under official EU sustainability categories. Such products may need disclaimers warning investors that they do not meet EU standards for sustainable finance. In addition, ESG Basics funds would have to exclude at least 20% of the lowest-rated securities before promoting ESG outperformance, raising the threshold for sustainability claims.