Impact Europe, GSG Impact and allies urge EU legislators to back Commission’s SFDR recognition of impact investing
‘Major milestone’ for impact investing as revision of Sustainable Finance Disclosure Regulation acknowledges it for the first time as a distinct practice, but text risks being cut as it journeys through EU legislative negotiations.
GSG Impact, Impact Europe and other European finance bodies have urged EU legislators to support the European Commission’s recent proposal to recognise impact investing, in an open letter published this week.
The European Commission called for a ‘recognition’ of impact investing in a proposed revision of its regulation on sustainability-related disclosures for the financial sector, the Sustainable Finance Disclosure Regulation (SFDR), published on 21 November.
The text, submitted to the European Parliament and Council for examination before it is voted upon, says the term ‘impact’ in the names of financial products should be restricted to those that meet the “specific characteristics of impact investing”, including the “objective of intentionality and targeting measurable change in specific pre-defined environmental or social areas with an upfront theory of change and with reporting on the outcomes”.
The open letter, signed by 12 leading organisations in the field of impact and sustainable finance, welcomed the proposal. It said: “For the first time, impact investing is acknowledged in EU sustainable finance legislation as a distinct practice within products pursuing sustainability or transition objectives.
“This is a major milestone for a fast-growing segment of the European market that plays a central role in financing a just, inclusive, and competitive transition.”
This is a major milestone for a fast-growing segment of the European market that plays a central role in financing a just, inclusive, and competitive transition
Some campaigners initially called for a more specific definition of impact investing when the proposal was first published, but after discussions with the Commission they shifted their focus to ensure the recognition of impact investing wasn’t scrapped altogether in the final text, sources told Pioneers Post.
The new proposal, dubbed “SFDR 2.0”, is only at the start of the EU legislative process, meaning it is likely to be substantially amended during negotiations in the European Parliament and the Council of ministers – so there is a risk the mention of impact investing could be cut.
“We call on the EU co-legislators to maintain the provisions on impact investment in the final text, as it is an appropriate measure to integrate impact funds in the SFDR framework while providing sufficient flexibility to support their development,” write the co-signatories of the letter.
Three new categories
In addition to GSG Impact and Impact Europe, the open letter was signed by Eurosif (the European Sustainable Investment Forum), Impact Finance Belgium, the UK’s Impact Investing Institute, the Netherlands NAB, SpainNAB, Bundesinitiative Impact Investing, the Hellenic Impact Investing Network, Social Impact Agenda Per l’Italia and French-based think tank the Sustainable Finance Observatory.
The SFDR requires financial players to disclose how they consider various environmental, social and governance (ESG) factors (including in the products they manage), with an aim to increase transparency and drive more investment towards what the EU calls the “sustainability transition”. It was first adopted in 2019, and has been in application since 2021.
The new text would group sustainability-related investment products in three categories: ‘sustainable’ (which contribute to sustainability goals by investing in companies or projects that are already meeting high sustainability standards); ‘transition’ (which invest in companies that are not yet sustainable but on a credible path to become so); and ‘ESG basics’ (for those that follow various ESG criteria but do not match the former two categories).
Products would be required to allocate 70% of their portfolios towards investments that match the claims made. Each category excludes investments in a number of activities (specific to categories) including coal, tobacco, human rights abuses or controversial weapons.
“Sustainability-related financial product with impact” is defined as a product within the sustainable or transition category which “has as its objective the generation of a pre-defined, positive and measurable social or environmental impact”.
Products branded “impact” will need to specify what their intended impacts are in terms of specified environmental or social objectives with a pre-set “impact theory” and have provisions to measure, manage, and report on their desired impact. Products not matching the impact definition “shall not use the term ‘impact’ in their name”, the text adds.
Additionality dropped
The definition of impact investing adopted by leading European organisations – including Impact Europe – includes three components: intentionality (having a clear intention before making an investment); impact measurement and management (collecting data on the impact created by the investments to inform decision-making); and additionality (at the investee level by investing in companies or projects that specifically contribute to solutions to social or environmental issues, and at investor level by showing that impact would not have happened without the deployment of that particular capital).
While the Commission’s definition of impact investing includes both intentionality and impact measurement, it does not mention additionality, to the initial disappointment of campaigners, especially as an earlier leaked version of the draft did include additionality.
The Commission argued that it had scrapped the requirement for additionality in an effort to remain simple and enable impact investors to develop new products in the future without excessive regulatory constraint, sources told Pioneers Post.
The campaigners’ focus has now shifted to making sure the recognition of impact investing isn’t scrapped during the EU’s complex legislative process – which they now see as a big risk given a generally hostile political landscape, according to people close to the matter.
In recent months, EU lawmakers have voted to radically weaken flagship corporate sustainability regulations in the bloc, with support from far-right parties vowing to “stop the Green Deal” (a series of policy measures aiming to make the bloc carbon neutral by 2050).
Top image: European Commission president Ursula Von der Leyen addresses the European Parliament in October 2025. © European Union 2025 - Source : EP
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