Latest Q&A SFDR

Executive summary

What you need to know

On 4 August 2025, the European Securities and Markets Authority (ESMA) issued new additions to the Q&A on the Sustainable Finance Disclosure Regulation (SFDR) – Regulation (EU) 2019/2088 and its Delegated Regulation (EU) 2022/1288. These updates bring important clarifications focusing on:

• Principal Adverse Impact (PAI) Disclosures (Part IV), and

• Financial Product Disclosures (Part V).

This update reflects the EU's continuing effort to streamline sustainability reporting, enhance data comparability, and support alignment with CSRD and EU Taxonomy frameworks.

SFDR Compliance

Clarifications in part V : PAI disclosures

1. Energy Consumption per m² – Metric Standardized

The ESMA clarified that when reporting energy consumption in GWh per square meter for real estate assets, firms should use the:“Useful internal floor area”. This aligns with the EU Taxonomy Regulation and avoids misrepresentation that might arise from using other metrics such as Gross Internal Area (GIA) or Net Internal Area (NIA).

2. Definition of “Water Usage” (PAI Indicator 6)

The term “water usage”, which previously lacked clarity, is now defined in line with Commission Delegated Regulation (EU) 2023/2772 and ESRS E3 under CSRD:

• Water consumption: Water drawn in and not returned to the environment.

• Water intensity: Consumption per €1M revenue of the investee company.

• Water recycled/reused: Water used multiple times before being discharged.

This alignment with CSRD water disclosures ensures consistency across sustainability reporting frameworks.

Clarifications in part V: Product Financial Disclosures.

3. Minimum Commitments, do not have to add up. But
explain.

For products under Article 8 and Article 9 SFDR, the minimum
commitments to environmental sustainable investments, and social sustainable
investments do not need to add up to the minimum sustainable investments
overall. These are treated as separate minimum thresholds. However, if these do
not add up, firms must include an explanation in the asset allocation section
of the pre-contractual disclosures (Annexes II and III).

4. Top Investments Disclosure - Follow Sectoral Rules

The ESAs confirmed that methodologies for identifying top
investments (in periodic disclosures under Annexes IV and V) should be
determined by sector-specific legislation, such as: UCITS Directive, AIFMD,
MiFID II, etc.

There is no universal requirement from the ESAs themselves,
reaffirming the principle of regulatory proportionality.

Conclusion

The 2025 Q&A clarifications reflect a continued effort by the ESAs and the European Commission to streamline disclosure requirements, align with broader EU sustainability frameworks, and enhance data quality and comparability.

Need help integrating these changes into your SFDR disclosures or ESG frameworks? Get in touch to stay ahead of evolving EU sustainability rules.