Sustainable finance: SFDR, taxonomy, green loans and bonds

Sustainable finance has become a legal subject. A business seeking a green loan or bond must be able to show why the funding is green. The European framework rests on three pillars. The SFDR addresses financial parties. The Taxonomy Regulation supplies the substantive test. The European green bonds regulation applies on the capital markets. For the company looking for finance, all of this translates into one practical demand: data that can be delivered, verified and kept consistent.

The short answer

The SFDR, Regulation (EU) 2019/2088, requires financial market participants and advisers to be transparent about sustainability.
The SFDR addresses the financial sector, not your company directly. You encounter it through the information your financier requests.
The Taxonomy Regulation determines when an economic activity counts as environmentally sustainable.
Since 21 December 2024 the European Green Bond label may be used, under Regulation (EU) 2023/2631. Use is voluntary.
There is no European statutory framework for green loans. Market standards and contractual arrangements govern them instead.
A revision of the SFDR is in preparation. The Commission proposal dates from late 2025 and negotiations are still running.

The SFDR: transparency in the financial sector

The SFDR imposes disclosure duties on financial market participants, such as asset managers, banks, pension providers and insurers, and on financial advisers. The obligations operate at two levels.

Entity level

Who is eligible?

At entity level, a firm must explain how sustainability risks are taken into account in its investment policy and how its remuneration policy relates to this. A statement is also required on the adverse effects of investment decisions on sustainability factors, known as principal adverse impacts.

Product level

For each financial product there are pre-contractual disclosure duties, website information and periodic reports. In practice people speak of Article 8 products, which promote environmental or social characteristics, and Article 9 products, which have sustainable investment as their objective. Those labels are not a quality mark. They say something about the disclosure duty, not about the quality of the investment.

The revision

The European Commission presented a proposal to revise the SFDR at the end of 2025. The proposal shifts from a disclosure regime to a categorisation regime with product labels, and reduces the number of mandatory indicators. The Council adopted a position in 2026. Negotiations with the European Parliament have not yet concluded. Until the revised regulation applies, the current SFDR remains fully in force.

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What is eligible?

The Taxonomy Regulation

The taxonomy is the substantive test. An activity is environmentally sustainable only once three requirements are met. It contributes substantially to at least one of the six environmental objectives. It does no significant harm to the other objectives. And it meets minimum social safeguards. The technical criteria are set out in delegated acts.

Following the Omnibus I package, mandatory taxonomy reporting applies only to undertakings that also fall under the CSRD. Those are undertakings with more than 1,000 employees and more than EUR 450 million in net turnover. Other large undertakings may report voluntarily. Read further on the Taxonomy Regulation and on ESG reporting.

Green bonds

Regulation (EU) 2023/2631 introduces a voluntary standard. Only an issuer that meets the requirements may use the designation European Green Bond, or EuGB.

The proceeds must be spent on activities aligned with the taxonomy.
Before issuance, the issuer publishes a factsheet on the use of the proceeds.
A registered external reviewer assesses that factsheet.
After issuance, annual allocation reports follow, together with at least one impact report.
In the Netherlands, supervision rests with the AFM and the documents must be sent to it.

How much subsidy can I get?

Voluntary market standards also exist, such as the Green Bond Principles. Those have no statutory basis and no supervision. An issuer of an unregulated green bond runs a greater risk of allegations of greenwashing. See also green bonds and the prevention of greenwashing.

Green and sustainability-linked loans

For loans there is no European statutory framework. Practice works with market standards and contractual arrangements. Two forms are the most common.

Form	Core	Risk
Green loan	The proceeds are earmarked for a defined green project.	Insufficient definition of the project and of the controls on how the money is spent.
Sustainability-linked loan	The interest margin moves with performance indicators agreed in advance.	Indicators that are too easily met or not objectively measurable.

What if I already receive other subsidies?

In the documentation, pay attention to the definition of the indicators and to the measurement method. Arrange for verification by a third party as well. Record what happens if a target is missed and whether indicators may be adjusted later. An indicator drafted too vaguely leads to argument and sometimes to reputational damage.

The role of banks and supervisors

Banks are themselves subject to prudential requirements on ESG risks. The European Banking Authority has adopted guidelines on the management of those risks. They apply to most institutions from the beginning of 2026. For small and non-complex institutions they apply a year later. De Nederlandsche Bank and the European Central Bank assess how banks manage climate and nature-related risks.

This works through to the borrower. Banks request data on energy consumption, emissions, energy labels for real estate and transition plans. They do so not out of goodwill, but because their own supervisor requires those data.

Other requirements

What a business must be able to supply

Energy consumption per site, preferably over several years, with underlying invoices or meter readings.
Emissions data, at least for direct consumption and for purchased energy.
Energy labels and sustainability plans for business premises.
An investment plan with a timeline, amounts and expected savings.
Evidence that the investment falls within a recognised category, for instance through the Energy List (Energielijst) or the taxonomy criteria.
Permits and connection data, including any transport indication from the grid operator.
Consistency with what you publish elsewhere, such as on your website and in your annual accounts.

That last point is underestimated. A claim in a financing application that differs from your public communication is a liability risk. From 27 September 2026, stricter rules against misleading sustainability claims apply under Directive (EU) 2024/825.

Frequently asked questions

Application

Does the SFDR apply to me as an SME?
No. The SFDR addresses financial market participants and advisers. You do encounter the regulation indirectly, because your financier needs data in order to meet its own obligations.

Do I have to issue a green bond in order to finance sustainably?
No. The EuGB label is voluntary and mainly relevant for capital market issues. For most businesses, sustainable finance runs through bank loans with contractual sustainability arrangements.

What happens if I miss an agreed sustainability target?
That depends on the documentation. Usually the interest margin rises. Sometimes an information or remediation duty applies. A shortfall drafted as an event of default can trigger acceleration. Read the clause carefully for that reason.

Would you like your financing documentation reviewed, or your sustainability claims supported in legal terms? Please contact the solicitors at Law & More in Eindhoven or Amsterdam. We advise in Dutch and English.

Sustainability Law

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Sustainable finance: SFDR, taxonomy, green loans and bonds