To date, there is no stable, scientifically grounded definition of a transition fund in Europe. In both the European Union and the United Kingdom, regulators expect such funds to make “transition investments”, but this concept is not underpinned by objective and mandatory criteria: financial institutions wishing to communicate on transition criteria are free to refer to the standard(s) of their choice.
This lack of a common framework leaves the field open to a multitude of concepts and reference standards. The OECD has identified no fewer than 14 taxonomies and guidelines from public sector bodies relating to the transition worldwide. Reclaim Finance analyses 27 reporting standards, analytical tools and reference guides for transition plans. Two new European sustainable finance labels specifically dedicated to the transition were created in 2025 (FNG Siegel Transition, LuxFLAG Transition).
On the climate front, these frameworks share a common foundation, notably:
However, the requirements differ on key points such as the scope of emissions covered, the consideration of the value chain, and scenario analysis. On the social front, the differences are even more pronounced: whilst some standards incorporate ‘just transition’ issues (impacts on employment, regional restructuring, working conditions), others ignore them entirely. The result is a fragmented regulatory landscape, where ‘transition’ can encompass very different realities depending on the framework chosen.
It is therefore not surprising that financial actors have varied practices when it comes to transition funds and investments. Our 2026 Sustainable Finance Barometer – a study in which we analysed the sustainable investment strategies of 60 funds classified as Article 8 or 9 under the SFDR – paints a nuanced picture:
The funds analysed that have a quantified transition objective – i.e. a CO2 emissions reduction target and/or a temperature alignment target – stand out on certain investment policy indicators:
However, these differences do not stand up to closer scrutiny. When looking at key indicators for assessing the credibility of a transition strategy, no clear distinction emerges between the two categories. The proportion of companies, amongst the main investments disclosed in periodic annexes, that are aligned with a ‘well below 2°C’ trajectory or have adopted a ‘net zero’ commitment validated by the SBTi remains broadly similar across all funds. As regards ACT scores, 8.37% of the main investments made by transition funds are in companies rated between A and C, reflecting tangible efforts; however, an equivalent proportion is invested in companies with low scores, between F and G, which significantly relativises the distinction from conventional funds. Finally, the average alignment of CapEx with the European Taxonomy stands at 3.03% for transition funds, compared with 3.40% for funds without a transition objective – a counter-intuitive discrepancy.
The tools, data and standards exist and are recognised, but they are not applied uniformly, nor even systematically, by funds that claim to have a transition objective. These findings highlight the need for a more unified regulatory landscape and a more rigorous and systematic use of transition indicators. A fund’s stated objective says little about its actual investment practices, which is primarily a problem for end investors: without a common benchmark, it is difficult for them to know what a ‘transition’ fund really entails.
To address this fragmentation, the European Union has undertaken a revision of the SFDR regulation, published in November 2025, which introduces for the first time a category dedicated to transition funds: Article 7. To qualify, a fund must invest at least 70% of its portfolio in companies with credible transition plans, science-based targets, or those aligned with the European CTB/PAB climate benchmarks (Climate Transition Benchmark, Paris-Aligned Benchmark). Companies developing new fossil fuel projects are explicitly excluded. This sends a strong signal, enshrining for the first time in European law the incompatibility between fossil fuel expansion and transition strategies. Transition funds will also, like other SFDR-classified funds, be required to engage in shareholder engagement initiatives aimed at measurable outcomes, and to disclose the main adverse impacts of their investments on sustainability factors.
The creation of a dedicated transition category in SFDR 2.0 therefore represents a symbolic step forward. However, there is a high risk of repeating the same pitfalls as SFDR V1, or as the UK’s SDR regime, if objective definitions are not put in place to clarify key concepts.
In our response to the European consultation on the European Commission’s SFDR 2.0 proposals, we emphasise that the proposals lack clear minimum requirements on central concepts: what constitutes a ‘credible transition plan’? On what basis should it be assessed? On the basis of recognised external frameworks such as the SBTi, the ACT or the European Taxonomy? The same questions arise regarding the concept of a “credible engagement policy”. Without precise answers to these questions, funds using less stringent methodologies for assessing transition levels will be able to claim Article 7 status, opening the door to greenwashing.
According to our analysis (carried out as part of our 2026 Sustainable Finance Barometer), only 13% of the funds analysed are currently aligned with this new ‘transition’ category. Even more telling is the fact that 100% of these funds are currently classified as Article 9 under SFDR 1.0, meaning they are among the most stringent funds under the current framework.
Thus, whilst a notable improvement has been identified in relation to the funds’ commitments between 2024 and 2025 regarding taxonomy alignment targets or the reduction of GHG emissions, the results also highlight the need for funds to continue their efforts to strengthen their climate-selective strategies and lend credibility to their commitments. The new Article 7 category will only truly transform the market if it is based on objective, binding standards that are consistent with the frameworks recognised in the financial sector.
Faced with the conceptual ambiguity surrounding the notion of transition investments, the sustainable finance ecosystem is demonstrating a willingness to organise itself around stable and objective regulation. Alongside regulatory measures, industry initiatives are raising the bar on the highlighting of transition characteristics: in particular, many labels are being, or will be, amended in the coming months to incorporate this concept (SRI label, Greenfin label), and new dedicated labels are being created (LuxFLAG Transition label, FNG Siegel Transition label). Nevertheless, the persistence of grey areas within the regulatory framework and the new diversity of standards continue to hinder the objective of defining transition funds. Market participants will therefore need to continue to demonstrate rigour and transparency in addressing this essential yet complex issue within their investment strategies.
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