The Sustainability Story – Episode Summary

Podcast: The Sustainability Story
Host: Nicole Gehrig, CFA Institute
Guest: Simone Ruiz-Vergote, Head of Sustainable Finance Policy Research at MSCI
Episode: Simone Ruiz-Vergote: Decoding SFDR 2.0 for Asset Managers and Investors
Date: January 23, 2026

Overview

This episode explores the European Union’s revision of the Sustainable Finance Disclosure Regulation (SFDR)—informally dubbed “SFDR 2.0”—and its anticipated impacts on asset managers, investors, and the sustainable investment landscape. Nicole Gehrig hosts Simone Ruiz-Vergote, an industry expert with decades of experience in sustainable finance and EU policy, to break down the regulatory changes, their market implications, and the practical steps asset managers should consider as SFDR evolves.

Key Discussion Points and Insights

1. Simone's Sustainability Story (01:14–02:43)

• Simone’s background: Grew up in Freiburg, Germany—“more bikes than inhabitants” and a “cradle of the solar industry.”
• Raised by biologist parents, she became sensitive to “planetary boundaries,” but trained as an economist, blending market and environmental perspectives.
• Began her career at the EU Commission, focusing on carbon markets and public policy instruments (emissions trading), leading to her passion for sustainable finance and current role at MSCI.

2. SFDR: From Disclosure to De Facto Labeling (02:43–04:44)

• Original intent: Increase transparency on sustainability risks, objectives, and negative impacts in investment products.
• Unintended result: The emergence of “Article 8” and “Article 9” fund labels, which created confusion and varied interpretations.
• Main challenge addressed: The proposed SFDR 2.0 seeks to clarify product categories, set minimum standards, and improve comparability and usability for investors.
• Quote:

  “Is it so clear what a sustainable product is? ...The main aim is really improving usability, comparability and then also the credibility of sustainable investments.” — Simone (06:56)

3. Key Changes in SFDR 2.0 and Market Response (07:30–10:02)

• Replaces Article 8/9 with three new categories for sustainability.
• Simplification: Removes entity-level disclosure requirements, with further simplification in forthcoming regulatory acts.
• Alignment: Seeks coherence with other regulations (e.g., CSRD, EU Taxonomy, ESMA fund name guidelines).
• Positive reception: Market participants generally welcome clarity and comparability.

4. Global Interoperability and Jurisdictional Evolution (10:02–14:56)

• Emergent global trend: UK, Australia, and other jurisdictions are developing similar categorizations.

• Core “building blocks” of product categories are converging worldwide:

  • Sustainability: e.g., minimum 70% of portfolio aligned with objectives.
  • Transition: For companies/sectors transitioning to lower emissions, requiring credible, science-based targets.
  • ESG Basics: Focused on financially relevant sustainability risks and ESG integration.
  • Impact: Crosscuts categories, emphasizing intentionality, contribution, and outcome measurement.

• Each market will implement and supervise differently, but growing consensus exists on foundational principles.

• Quote:

  “You have very similar building blocks...There is a clear understanding that there needs to be some common ground to allow for a product to be cross marketed in different markets.” — Simone (11:38)

5. Balancing Rigor and Market Breadth (14:56–16:13)

• Regulator’s dilemma: How strict (robust) should categories be versus keeping the market broad enough to avoid products becoming niche.
• Key tension: Robust standards may shrink the “sustainable” universe, but relaxed thresholds risk diluting credibility.
• Quote:

  “You want it to be right, but you don't want it to be zero.” — Simone (15:56)

6. Naming, Exclusion Criteria, and Evolving Compliance (16:13–20:36)

• ESMA guidelines on fund names (May 2024): Encouraged harmonization and drove substantial renaming and/or policy revision.
• Many funds opted for name changes over stricter policy shifts due, in part, to tracking error concerns (e.g., fossil fuel exclusions).
• SFDR 2.0 category rules will closely track, and eventually replace, ESMA’s approach.
• Quote:

  “If at the end all the products change their name, I don't think you can call it a success. Ideally they do not change the name, but make their strategies more robust.” — Simone (20:27)

7. Implementation Guidance for Asset Managers (20:36–23:26)

• Advice: Avoid premature overhauls; upcoming years (2028 implementation) allow time.
• Immediate priorities:
  • Strengthen data quality and fill data gaps (with reliable estimates).
  • Enhance governance, traceability and substantiation of claims.
  • Prepare for increased scrutiny—regulatory expectations for robust, walk-the-talk disclosures will grow, not diminish.
• Shift from entity- to product-level reporting will reduce some compliance burden.
• Quote:

  “Supervisors are still expecting you to walk the talk and more so...the robustness of the claims and also related disclosures will be, will be even more important going forward.” — Simone (22:10)

8. Adverse Impact Indicators and Streamlining (23:51–25:41)

• Anticipate a smaller, more focused set of adverse impact indicators—less redundancy, more alignment with Paris-aligned benchmarks.
• Regulators expect greater comparability and clarity in the new framework.

9. Impact Investment and Framework Clarity (25:41–29:47)

• SFDR 2.0 to clarify distinction between funds with sustainability characteristics and those delivering genuine impact.
• Framework for Impact:
  • Theory of change and intentionality
  • Transparent contribution and engagement
  • Measurable progress and outcomes
• Recognition that not all “impact” has to sit in the “sustainable” category—transition products can be impact-oriented too.
• Engagement and milestones with investee companies are essential for both transition and impact labels.
• Quote:

  “There is this explicit recognition of impact... no longer shoehorned into an Article8.9 disclosure box where it was never really, you know, comfortable sitting.” — Simone (27:21)

10. Risks and Market Adoption Challenges (30:13–32:23)

• Risks: Oversimplification of product categories, inconsistent adoption, and divergent supervisory practices across markets.
• Supervisory interpretation of rules (e.g., handling of estimates) varies, making harmonization a challenge.
• Expect convergence over time as supervisors engage in dialogue and associations foster best practices awareness.
• Quote:

  “You might well see that the categories are nearly identical from one market to another, yet the supervisory implementation differs greatly.” — Simone (31:06)

11. Five-Year Outlook and Test of Success (32:23–34:45)

• Litmus test: Simplicity, recognizability, and ease of explaining categories to everyday investors.
• Goal: Investors should understand, compare, and make informed choices—unlike the confusing Article 8/9 system.
• Growing focus on financial materiality—demonstrating that sustainability is integral to investment performance.
• Quote:

  “The test of success for SFTR is that I can actually explain it to my neighbor, my father, the man on the street. It's easy, it's understandable, it sticks.” — Simone (33:21)

Memorable Quotes & Timestamps

• On SFDR’s main objective:
  “The main aim is really improving usability, comparability and then also the credibility of sustainable investments.” — Simone (06:56)
• On global convergence:
  “There is a clear understanding that there needs to be some common ground to allow for a product to be cross marketed in different markets.” — Simone (11:38)
• On balancing ambition and breadth:
  “You want it to be right, but you don't want it to be zero.” — Simone (15:56)
• On harmonization and success:
  “If at the end all the products change their name, I don't think you can call it a success. Ideally they do not change the name, but make their strategies more robust.” — Simone (20:27)
• On supervisor expectations:
  “Supervisors are still expecting you to walk the talk and more so...the robustness of the claims and also related disclosures will be, will be even more important going forward.” — Simone (22:10)
• On impact strategies:
  “No longer shoehorned into an Article8.9 disclosure box where it was never really, you know, comfortable sitting.” — Simone (27:21)
• On test of simplicity and success:
  “The test of success for SFTR is that I can actually explain it to my neighbor… It's easy, it's understandable, it sticks.” — Simone (33:21)
• On sustainability as performance factor:
  “Sustainability is a factor in financial performance and should be understood as such.” — Simone (34:44)

Segment Breakdown & Timestamps

• Simone’s Background and Motivation – 01:14–02:43
• Evolution and Purpose of SFDR – 02:43–07:30
• SFDR 2.0 Changes and Market Reactions – 07:30–10:02
• Global Regulatory Interoperability – 10:02–14:56
• Balancing Rigor vs. Market Breadth – 14:56–16:13
• ESMA Fund Name Guidelines and Policy Adjustment – 16:13–20:36
• Implementation Priorities for Asset Managers – 20:36–23:26
• Refinement of Adverse Impact Indicators – 23:51–25:41
• Clarifications for Impact Investing – 25:41–29:47
• Potential Risks and Supervisory Variance – 30:13–32:23
• Five-Year Outlook and Success Metrics – 32:23–34:45

Closing Thought

Nicole Gehrig (34:45):
“Simone, thank you so much for joining us today and for sharing your thoughtful insights on SFDR 2.0. ...Expectations around transparency and comparability and robustness are only increasing, so we're certainly keeping a close eye on how this develops.”

For Listeners

• The episode provides a comprehensive roadmap for asset managers and investors navigating SFDR 2.0, emphasizing prioritization of data quality, substantiation of sustainability claims, and robust governance protocols.
• Policymakers and practitioners alike are urged to find the balance between stringency and inclusivity, and to pay attention to practical implementation and supervisory nuances.

Contact the hosts for sustainability-related topics:
Deborah.Kidd@cfainstitute.org
Nicole.Gehrig@cfainstitute.org
Paul.Moody@cfainstitute.org