Transition Finance and Retail Investor Preferences: Data-Driven Insights for the SFDR Review

As the EU’s Sustainable Finance Disclosure Regulation (SFDR) review enters its decisive phase, new empirical evidence from the ClimLabels project offers insights into the design of transition products and retail investors’ preferences. The policy brief presents findings from the three-year ClimLabels research project (2022–2025), funded by the German Federal Government, conducted by Climate & Company, SAFE, University of Münster, and Ruhr University Bochum.

The research analysed core transition criteria and applied them to a representative universe of over 3000 publicly listed firms  to test the feasibility of transition-oriented investment products. Simulated portfolios applying moderate minimum criteria delivered competitive returns and volatility patterns between 2018–2024, providing regulators and market participants with evidence on how to balance environmental ambition with practical risk-return considerations.

Malte Hessenius, Data and Transition Finance Lead at Climate & Company says: “The SFDR review is the EU’s regulatory window of opportunity to promote credible transition finance across financial markets. Our evidence shows that clear, objective criteria can be implemented in a way that balances credibility with practical feasibility – while still leaving room for market innovation. It is now up to policymakers to use this window of opportunity.”

On the demand side, the research involved 300 retail investors from across the EU in an incentivised task, alongside a survey of over 2,500 investors and 400 financial advisors. The results show that retail investors are highly diverse in their interest and willingness to pay. This implies that differentiated SFDR categories are essential to reflect diverse sustainability preferences. Importantly, investors can understand and act on distinctions between SFDR-relevant product categories once these are clearly explained – an insight that is also relevant for MiFID. A further survey of over 1,000 retail investors tested which exclusions mattered most, with ESG being disaggregated into 18 subcategories. The findings reveal a clear prioritisation of social and governance factors.

Red the full policy brief here: ClimLabels Policy Brief