The era of claiming impact without proving it is coming to an end. SFDR reform is forcing investors to show their workings.

For years, investment funds have been able to call themselves ‘sustainable’ or ‘impact-focused’ with relatively little scrutiny of whether their investments actually delivered either. Labels like Article 8 and Article 9, introduced under the EU’s Sustainable Finance Disclosure Regulation, known as the SFDR, were designed to help investors understand what a fund was trying to do. In practice, they became something closer to marketing tools.

Article 8 funds were supposed to promote environmental or social characteristics. Article 9 funds were supposed to have sustainable investment as their objective. But the regulation said relatively little about how funds had to demonstrate any of this. Thousands of funds claimed these labels, and no two interpreted them quite the same way.

Regulators noticed. In November 2025, the European Commission proposed a significant reform of SFDR, replacing the Article 8 and Article 9 system with three new categories and introducing much clearer requirements for what a fund has to show in order to use a sustainability or impact label at all.

What is changing?

The proposal would replace Articles 8 and 9 with three categories – Sustainable, Transition and ESG Basics – each with defined criteria, a 70% minimum alignment threshold and limits on the use of sustainability terms in fund names. For more information on the detail of the proposal, please see our previous blog: SFDR 2.0: Europe’s sustainable finance reset.

For impact investors, one element matters most: funds making impact-related claims would need a pre-defined, measurable objective and clear information on how it is pursued and assessed. Funds that cannot qualify would be prohibited from using terms like ‘sustainable’, ‘ESG’ or ‘impact’ in their names and marketing materials.

This is still a proposal. The framework remains subject to the EU legislative process, with application not expected until around 2028. The direction is clear, although the exact detail may yet change.

Why does it matter for impact investors?

The shift moves the burden of proof. The current system asks funds to disclose. The proposed system asks funds to demonstrate. That distinction, between describing intent and showing evidence, runs through everything the impact investing field is grappling with right now.

The Global Impact Investing Network (GIIN) estimated global impact-investing assets under management at US$1.571 trillion in 2024, representing compound annual growth of 21% since 2019. That is a field that has grown fast on a combination of genuine conviction and, in some cases, loosely defined claims. Reform changes the terms on which that capital operates.

At the same time, clean energy, food systems and domestic infrastructure, long-standing themes in impact portfolios, are now being backed by governments for reasons of national security as much as sustainability. That creates momentum, but also risk: when impact priorities become political priorities, they gain backing but also become exposed to political cycles. An impact case built primarily on policy alignment is only as durable as the policy itself. The experience in parts of the United States, where ESG considerations have faced significant political challenge, illustrates this clearly. Broad claims without substantive backing become easy targets. Specific, evidence-based positions are harder to dismiss.

What will be difficult to demonstrate in practice?

Measurement has improved, particularly on the environmental side. Frameworks such as IRIS+ have helped establish a shared language across the field. But the harder problem is attribution: not just what happened, but whether the investment caused it. Determining whether capital genuinely contributed to an outcome, rather than simply being present when it occurred, requires understanding what would have happened in its absence. In markets where baseline data is limited and reporting systems are uneven, it is harder still.

There is also a question that tends to receive less attention. Without deliberate direction, capital follows the path of least resistance: towards developed markets and lower-risk contexts. Many of the regions facing the most acute climate and development challenges, across sub-Saharan Africa, South and South-East Asia, and parts of Latin America, remain systematically undercapitalised. SFDR reform creates a clearer framework within which to address that. Whether investors actually use it to do so is a separate question.

How TDi can help

TDi works with financial institutions, asset managers and development finance institutions on the practical dimensions of sustainable finance. As regulatory expectations tighten, that work centres on whether impact strategies have clearly defined objectives, whether those objectives can be measured credibly, and whether the evidence is strong enough to support the claims being made.

We can support you with:

• ESG and impact investment framework development, aligned with the proposed SFDR categories
• Regulation and standards mapping using TDi’s Standards and Regulations Tool – part of the TDi Digital Platform
• Impact measurement and attribution methodology for listed equity, private markets and frontier market contexts
• ESG risk assessment for investment portfolios, including supply chain and critical minerals exposure

If you are reviewing your sustainable investment strategy ahead of the proposed SFDR changes, we would be glad to discuss this with you. Please get in touch for a free consultation or explore some of our finance and investment solutions here.

References

1. Sustainable Finance Disclosure Regulation: https://eur-lex.europa.eu/eli/reg/2019/2088/oj/eng 
2. European Commission proposal for significant reform of SFDR: https://finance.ec.europa.eu/publications/commission-simplifies-transparency-rules-sustainable-financial-products_en
3. The Global Impact Investing Network (GIIN) estimated…US$1.571 trillion: GIIN, Sizing the Impact Investing Market 2024: https://www.thegiin.org/publication/research/sizing-the-impact-investing-market-2024/