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Niche AM feedback on the call for evidence for the revision of the SFDR

On 2 May 2025, the European Commission (EC) initiated a Call for Evidence to gather input for its impact assessment for the simplification of the Sustainable Finance Disclosure Regulation (SFDR). This is the final consultation before the Commission presents its proposed reforms, expected in the fourth quarter of 2025.

Niche Asset Management has decided to share its own view on the matter by responding to the EC’s call for evidence. Find below our feedback.

• 1. AIM OF THE REGULATION. Sustainability regulation is an essential tool for risk management not for improving the world. This is a side effect. Sustainability regulations should not distort or imperil investments as today it is a case (increases concentration, lifts the risk premium of sectors and geographies that must on the contrary be supported).

  2. LACK OF SCORING FRAMEWORK FOR PROVIDERS. Today’s approach is very focused on exclusions (screening off) and it is functional to passive/low tracking error/momentum investing. This approach has many issues. The main in our opinion is that it depends on scores made by providers that have different approaches. They need guidelines from the regulator to be consistent

  3. BEST IN CLASS. Best in class is by far the best way to assess static sustainability. Other methods that compare different sectors should be abandoned as they are highly distortive and are not just unfair but also harmful. However, the providers must be encouraged to create cluster of companies consistent not just in terms of sectors but also of regulatory requirements.
     EU regulations impose more stringent sustainability requirements, meaning European firms are often compelled by law to meet higher standards. In contrast, a company operating in a less regulated jurisdiction may have limited legal obligations but nonetheless choose to go beyond them in pursuit of sustainability improvements. A best-in-class or relative approach would allow for more meaningful benchmarking by crediting companies that make genuine progress relative to their local regulatory context and sectoral baseline. In this regard, the regulator should encourage data providers to offer more refined and contextualised analysis, creating company clusters that reflect both industry type and the applicable regulatory framework. Without such segmentation, there is a risk that disclosures will favour companies already operating under stricter regimes, thereby discouraging investment in regions and sectors where the need for sustainable transformation is most urgent.

  4.  ARTICLE 9. The sustainable goals underlying the Art. 9 funds are often vague; the implementation is difficult both from an investing and a compliance perspective. We think that the spirit of article 9 should be met by a more active investment approach that involves direct, documented engagement with the investee companies with a clear focus on improvement, driving positive environmental and social real economy outcomes. This approach cannot be applied by a number of actors like ETFs, low TE funds, high turnover funds, momentum funds that will stick to exclusions. However, long term, fundamental, activist investors can do it, helping and encouraging companies across their sustainability path.

  5. PAI STATEMENT. They are now misleading, comparing apples to pears. The disclosure and comparison of PAI indicators of a fund’s portfolio does not consider the changes in the composition of the underlying holdings, which are based on investment opportunities. As a result, a shift in sectoral or geographical allocation can lead to significant variations in reported PAIs—variations that may reflect portfolio turnover rather than actual improvements or deteriorations in sustainability performance. Comparing PAI indicators across different portfolio compositions does not offer meaningful insights. It undermines comparability across time periods and between funds. It would be more logical and informative to calculate and track PAI indicators over time using the same portfolio—ideally the latest one. This approach would make the evolution of sustainability performance clearer and more aligned with the actual investment strategy, helping both asset managers and investors to interpret changes in a more accurate and transparent way. We have been complementing for years the regulatory PAI with this “dynamic” PAI that we have created with great benefit.

  6. DYNAMIC APPROACH. In the regulation great space should be given to the dynamics. Together with dynamic PAI, also the ESG/DNSH data should analysed through their dynamics. The path is extremely important, more than the picture. This can really provide opportunities and speed up companies that are smaller or active in EM and reduce complacency for big companies active in highly regulated environments and/or active in industries that are by definition less polluting.

  7. REGULATION PRODUCTION GOVERNANCE. The regulation governance that produced the previous framework must be changed and more diverse voices, experiences, needs and feedback should be brought to the table. Lobbying from great players of ETFs/Funds (industrial AM) should be balanced with contributions from active, fundamental asset management able to bring real value to sustainability. The new framework should help, not hinder, the active, fundamental AM companies that are vital for the investment ecosystem.

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