home page ← Buzz@Bruss! Edition #9 ← Rethinking SFDR’s direction: sustainable finance or selective finance?
Recent proposals to amend the EU Sustainable Finance Disclosure Regulation (SFDR) contradict the regulation’s underlying purpose and risk alienating important potential stakeholders. Buzz@Bruss! spoke to Tim Lin (TL), JT Group – Risk Management & Capital Markets Director, to better understand what this may mean to the Company as well as to the EU’s overall climate and sustainability initiative.
What is SFDR?
The SFDR (Regulation (EU) 2019/2088) → is an EU transparency framework, in force since March 2021, designed to improve how sustainability information is disclosed in the financial sector. Its main goal is to make sure that investment products are transparent about how they consider sustainability (environmental, social and governance issues).
SFDR requires banks, asset managers and investors to:
· Clearly explain how sustainability risks are considered when they invest
· Be transparent about what they claim is “sustainable” and why
· Avoid greenwashing (making sustainability claims that are vague or misleading)
In November 2025, the European Commission published a reform proposal → with the stated goal of simplifying the framework, improving legal clarity and reducing administrative burdens for financial market participants.
What are your thoughts about the EU’s SFDR initiative?
TL: When SFDR was first introduced, it was meant to be a transparency tool – not a classification or labelling system. The idea was simple: increase clarity on how sustainability risks are considered, curb greenwashing, help retail investors compare products, and channel capital into a broad range of sustainability themes, not only environmental ones.
In reality, the framework quickly became complex, open to interpretation and hard to apply consistently. That’s what led to the Commission’s SFDR 2.0 proposal, aimed at simplifying disclosures and creating clearer sustainability related product categories. But this marks a real shift: SFDR starts moving from explaining how sustainability is assessed to defining what counts as sustainable in the first place.
And that’s where the concern lies. A tool designed to inform investor judgement is at risk of turning into a gatekeeper – one that increasingly predetermines which sectors, business models or transition pathways are considered investable.
Under SFDR, investment funds are classified by asset managers themselves into different “Articles”, based on what they disclose about sustainability in their investment strategy:
These Articles were designed as disclosure categories, not as eligibility tests. In practice, Articles 8 and 9 are now widely treated by markets as ESG labels. This has led asset managers to apply increasingly restrictive exclusions in order to qualify for – or remain within – these categories, with direct consequences for which sectors can access ESG labelled capital.
What are the key aspects of change in the SFDR 2.0 proposals?
TL: The new classification into Articles 6, 7, 8 and 9 is meant to help investors and asset managers better distinguish between different product types.
But SFDR was never designed to push entire industries out of sustainable finance – yet that’s what has happened. Companies involved in fossil fuels, coal power, armaments, tobacco and others have seen their access to ESG labelled capital shrink, while other sectors continue to qualify with little difficulty.
Under the new proposals, some previously excluded categories regain access to ESG funding – but tobacco remains out.
For investors, this trend limits choice. Strict labels make it harder to compare investment strategies, evaluate transition pathways, or allocate capital based on forward looking performance rather than static classifications.
This creates tension with the EU’s own transition ambitions. If sustainable finance is meant to drive real world change, excluding lawful sectors by default risks cutting off the very capital required to support it.
For us, the goal isn’t to lower sustainability ambition but to return SFDR to its original purpose. These categories should function as disclosure tools – not automatic exclusion filters. Especially in the proposed ‘transition’ category, companies should be judged on the credibility of their plans, data and governance, not on labels alone. That means revisiting hardwired exclusions that override investor judgement.
What does this mean for JTI?
TL: We believe that access to transition finance should be determined by credibility, transparency and evidence – not by blanket exclusions that disregard individual track records and commitments.
This matters especially for the proposed ‘transition’ category. A framework designed to support progress cannot exclude entire lawful sectors from the start; doing so undermines its purpose. Transition finance only works if it can distinguish between companies standing still and those demonstrably changing course.
For JTI and other tobacco manufacturers, this has both social and environmental dimensions. Our industry employs millions globally, many in farming communities in developing countries. We run programs that support local livelihoods, eliminate child labor, strengthen sustainable agriculture and protect biodiversity.
Within our own operations, we are advancing toward carbon neutrality by 2030 and net zero across our value chain by 2050. We continue to invest in initiatives across our Sustainability Impact Framework – Product, People, Planet – that address major sustainability challenges and align with SFDR’s expectations.
We are also investing heavily in innovations that advance reduced-risk products – non-combustible alternatives with the potential to lower the health impacts associated with smoking.
To sustain this progress, we need access to financial markets willing to invest in these efforts. Our Green Loan – the first in the tobacco industry – is already supporting emissions reduction projects and other environmental initiatives.
Any final thoughts?
TL: “No-one should be left behind” was a founding principle of the European Green Deal. That ambition matters just as much in sustainable finance as it does in climate or social policy. SFDR was designed to bring transparency, comparability and trust to investment decisions – not to hard code exclusions or pre judge which sectors can contribute to Europe’s transition.
A credible sustainable finance framework should empower investors to distinguish between companies that are standing still and those that are changing course. Data, track records and credible transition strategies – not blanket assumptions or automatic exclusions – are what ultimately enable capital to support real world progress.
