SFDR Revision and PAB Investment Exclusion Criteria
In Europe, a review of the SFDR (Sustainable Finance Disclosure Regulation) is currently underway. The revision proposal published by the European Commission in November 2025 presents a framework based on the categories “Sustainable,” “Transition,” and “ESG Basics,” replacing the previous classification based on applicable articles (Article 8/9).
This revision proposal includes establishing certain investment exclusion criteria for each category. The basis for these exclusion criteria is the EU’s climate benchmarks, the CTB (Climate Transition Benchmark) and the PAB (Paris-Aligned Benchmark). Under the CTB, social safeguards (controversial weapons, tobacco, violations of international norms) serve as exclusion criteria; under the PAB, in addition to these, climate safeguards apply, excluding companies with revenue above certain thresholds from coal, oil, gas, and high-carbon-intensity electricity generation. Under the revision proposal, the Transition and ESG Basics categories would be based on the CTB exclusion criteria plus the exclusion of companies with 1% or more revenue from coal, while the Sustainable category would be based on the PAB exclusion criteria; furthermore, the Transition and Sustainable categories would also require the exclusion of companies pursuing new fossil fuel development projects, among others (*1).
Such criteria were not uniformly applied under the existing SFDR Article 8/9 framework. In fact, analysis by the European Commission’s advisory body, the “EU Platform on Sustainable Finance,” found that among funds using terms related to sustainability, environment, or impact in their names, approximately 65% of Article 8 funds and approximately 49% of Article 9 funds held companies that would fall under the PAB exclusion criteria (excluding UN Global Compact violations) (*2). While the proportion of holdings subject to exclusion was limited on average, at around 4% of assets under management, the main driver was fossil-fuel-related holdings. Following the SFDR revision, whether the investment exclusion criteria that each asset manager has independently set meet the EU-wide common minimum standards may affect the investment targets and product categories of existing funds.
Cadira’s Investment Exclusion Criteria
Cadira has established company-wide investment exclusion criteria since its founding. These are codified in our Sustainable Investment Policy and disclosed externally via our company website.
Cadira’s investment exclusion criteria were not established with the aim of responding to the SFDR revision, but they cover a broader range of businesses and conduct than the PAB. Upon checking against the PAB exclusion criteria, we do not hold any companies that would fall under them. Nor do we hold any companies that would fall under the new fossil fuel development exclusion added under the Sustainable category in the revision proposal.
For reference, the specific items of our investment exclusion criteria are shown below.
Business Criteria
Companies with 5% or more of revenue from the following businesses:
Adult entertainment, alcohol, oil and gas, gambling, electricity generation from non-renewable energy sources, coal mining, tobacco, military contracting and small arms, unconventional oil and gas
Conduct Criteria
Companies recognised as having engaged in serious problematic conduct in the following areas:
Human rights violations, violations of labour rights, serious involvement in environmental problems, coercion/corruption, damage to biodiversity, serious impact on water resources, tax evasion, authoritarian governance systems
Updating Our Thinking on Investment Exclusion Criteria
The environment surrounding geopolitics, energy supply and demand, and other factors has recently been changing significantly. Even amid these circumstances, Cadira has not changed its longstanding investment exclusion criteria; however, believing it important to more clearly organise the thinking behind them, we revisited the rationale for our investment exclusion criteria through internal discussion.
Through this discussion, we have reframed the foundational system underlying our thinking on sustainability as a loop structure of “industrial activity,” “Earth’s heat balance,” “the living environment,” and “decision-making,” and have positioned the continued healthy circulation of this loop as a necessary condition for a sustainable society. Industrial activity affects Earth’s heat balance through greenhouse gas emissions and other factors; that change in turn affects people’s living environment. The state of the living environment is reflected in the decisions made by people and society, and those decisions again shape the nature of industrial activity.
Cadira believes that investing in businesses that degrade this foundational system carries the risk of accelerating the decline of societal sustainability. For example, fossil fuels accelerate climate change through greenhouse gas emissions, and weapons directly harm people’s living environment through conflict. In addition, highly addictive or dependency-inducing products and services may affect people’s autonomous judgment and society’s long-term decision-making. These negative effects ultimately undermine the sustainability of industrial activity itself.
In terms of the relationship with corporate fundamentals, businesses that negatively affect this foundational system may face a shorter period over which they can sustain high growth, due to environmental and social constraints. This is true not only when physical limits such as resource depletion are reached, but also in the stages leading up to that point, where friction with local communities and regulatory constraints can become significant impediments to the business. Companies recognised as having engaged in serious problematic conduct are also likely to face social sanctions, and we therefore consider them unsuitable for investment premised on sustainable growth.
Cadira will strictly apply its investment exclusion criteria while continuously reviewing the thinking underlying them in response to changes in the environmental and social landscape, and will make investment decisions based on both long-term corporate value and the realisation of a sustainable society.
Note that while we currently exclude electricity generation from non-renewable energy sources from investment, should technological innovation give rise to new low-carbon options, we would not exclude them uniformly; rather, where we can judge, based on a comprehensive assessment of their contribution to climate change and their environmental burden, that they would bring a net positive impact to society and the environment, we may in the future consider them as potential investments. We also believe that, since the PAB’s exclusion criteria for electricity are based on emissions intensity at the point of generation, consistency with the PAB exclusion criteria would be maintained even if such a review were undertaken.
*1 European Commission, Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector (SFDR), Regulation (EU) No 1286/2014 (PRIIPs) and repealing Commission Delegated Regulation (EU) 2022/1288, COM(2025) 841 final, 20 November 2025, Recitals (16)–(18) and Articles 7–9.
https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52025PC0841
*2 EU Platform on Sustainable Finance, “Categorisation of Products under the SFDR: Proposal of the Platform on Sustainable Finance” (December 2024), Annex A, p.58. The analysis covers funds, among 9,147 Article 8 funds and 814 Article 9 funds, that use terms related to sustainability, environment, or impact in their names (1,817 and 495 funds, respectively).
Learn More
The SFDR Revision Debate and our Response
SFDR Revision and PAB Investment Exclusion CriteriaIn Europe, a review of the SFDR (Sustainable Fina...
The Shift Toward Growth-Oriented Corporate Governance
More than a decade has passed since Japan's corporate governance reforms began in 2015, and this yea...
The Impact of AI's Evolution on Asset Management
AI Adoption: Rapid Spread, Gap in ResultsThe evolution of AI is bringing about a structural shift in...
The Need to Reassess Risks considering Extreme Weather
Growing Cost of Extreme Weather Risk MitigationIn May 2026, CDP (Carbon Disclosure Project, an NGO p...
The Impact of Large-Scale Military Operations Against Iran
Japan’s Crude Oil and LNG ProcurementFollowing the large-scale military operation conducted by the U...
A Review of the Lower House Election Results and Key Themes Ahead
Lower House Election ResultsIn the February 2026 general election for the House of Representatives, ...
Japan’s Evolving Discount Rate — Re-examining Corporate Valuation in a Rising Interest Rate Environment
Interest Rate Trends and BackgroundLong-term interest rates in Japan have been rising. Comparing Jan...
Further Revision of Governance and Shift in Management Resource Allocation: Expanding the Scope of Growth Investment in the Japanese Stock Market
Review of 2025The Japanese equity market in 2025 experienced a broadly strong upward trend. The TOPI...
AI-Powered Threats: How Cybersecurity Became a C-Suite Priority
Cybersecurity DamageIn recent years, cybersecurity incidents have continued to rise sharply. Accordi...
Japan's First Female Prime Minister: The Takaichi Administration and New Investment Opportunities
Japan’s First Female Prime MinisterIn October 2025, Sanae Takaichi was elected Prime Minister of Jap...
Defining the Boundaries of Sustainable Investing in an Era of Expanding Defense Spending — Cadira’s Investment Policy
In recent years, rising geopolitical tensions have heightened the importance of the defense industry...
Japan’s Stewardship Code, Third Revision: Accelerating Collaborative Engagement Between Investors and Companies
In June 2025, Japan’s Stewardship Code underwent its third revision. The key points of this revision...
Staying Grounded Amid Political and Trade Uncertainty in Japan
At Cadira Capital Management, we believe that while macro-level developments such as politics and tr...
Gender Reform as a Catalyst: What Sustainable Investors Should Watch in Japan
On June 11, the World Economic Forum released its Global Gender Gap Report 2025 (*1), in which Japan...
What GPIF’s Stewardship Reports Reveal About the Future of Investor Engagement
In recent years, M&A activity and activist investor engagement have been gaining momentum in the...
From Disclosure to Dialogue: What We Learned from Publishing Our Progress Report 2024
Since the publication of our inaugural Progress Report 2024 in March, we have held discussions ...
Agility Matters More Than Ever—The Impact of U.S. Tariff Policy and Implications for Japanese Equities
When the environment is highly uncertain, investors cannot rely solely on a company’s current busine...
Governance Reforms and the Future of Japan’s Listed Subsidiaries: Unlocking Value through Transparency
Efforts to enhance corporate governance in Japan continue to advance steadily. The Tokyo Stock Excha...
On the Possibility of GPIF to engage in Impact Investing
Within Japan's impact investment community, there is growing discussion about the possibility of the...
Acceleration of AI Investment and Its Impact
Massive AI Investments by HyperscalersMajor global IT companies, known as hyperscalers, are aggressi...
On the Publication of the Draft 7th Strategic Energy Plan
On December 17, the Ministry of Economy, Trade, and Industry (METI) of Japan released the draft of t...
On Economic Rationale for Sustainability
This has been a year of many elections around the world. Looking back, it seems that support for pop...
Trends in the US Housing Market
Housing was one of the key issues of the 2024 U.S. presidential election. Skyrocketing home prices a...
On Japan’s House of Representatives Election on October 27
Elections to the House of Representatives were held on October 27. The Liberal Democratic Party (LDP...
On the 2024 LDP Presidential Election
On October 1, Shigeru Ishiba was sworn in as Prime Minister of Japan. Prior to this, on September 27...
August Stock Market Volatility and Subsequent Outlook
The Japanese stock market plunged in the first half of August, with the TOPIX posting historic decli...
On the Growth Potential of the Japanese Local Economy
Capital investment in Japan continues to expand. Looking back at capital investment in corporate sta...
Our View on the TOPIX Revision Proposal
On June 10, 2024, the Japan Exchange Group announced a proposal to revise the TOPIX, Japan's benchma...
Impact IPOs: Current Status and Challenges
Cadira Capital Management met with two companies that went public last year as "impact IPOs". Below ...
On the Japanese Government's Support for Impact Investing
The Japanese government has been taking initiatives to promote impact investing. Following the relea...
On the Recent Weakening of the Japanese Yen
The yen-dollar exchange rate reached 160 yen on April 29, 2024. This is the yen's weakest level in 3...
On the Bank of Japan's Rate Hike
On March 19, 2024, the Bank of Japan decided to raise its policy rate from -0.1% to 0-0.1%. This is ...
On the Growing Interest in the Japanese Stock Market
On February 22, 2024, the Nikkei Stock Average reached a new market high for the first time in 34 ye...
Impact Integrated Value (IIV)
How can we effectively integrate both positive and negative impact when making investment decisions?...
Positive Impact Assessment
Integration of positive impact in corporate valuation poses significant challenges. For standardized...
Our Investor Contribution
Engagement is a core activity essential to achieving our mission. It is conducted with the aim of ma...
Sustainable Companies
The Japanese stock market is in a situation where structural changes are creating new investment opp...
Structural Investment Opportunity
At Cadira Capital Management, we believe that investor engagement will bring about a structural chan...
Listed Equity Impact Investing: Challenges and Opportunities
An approach known as "impact investing" is becoming increasingly popular in the investment world. In...
Our Investment Philosophy
At Cadira Capital Management, we believe that "investing for sustainability" will deliver superior r...
Our Views on Geopolitical Risks
The conflict between Israel and Palestine erupted on October 7th, raising concerns about geopolitica...
Perspectives on Equity Investing in a Declining Population
"Is there any reason to invest in countries with declining populations?"This is an unavoidable quest...
Our Comments to the “Draft Basic Guidelines on Impact Investment” by the Financial Services Agency of Japan
On June 30, 2023, the Financial Services Agency of Japan released the "Draft Basic Guidelines on Imp...
Our Views on Exchange Rate Risks
The Bank for International Settlements (BIS) announced that the real effective exchange rate (*1) fo...
Our Bottom-up Approach to Listed Equity Impact Investing
At Cadira Capital Management, we take a unique bottom-up approach to impact investing in public equi...
A message from our Chief Investment Officer
At Cadira Capital Management, our mission is "Connecting the Investment Chain and Beyond". Our goal ...
Important Notice
The content of this website has been prepared by Cadira Capital Management Co., Ltd. (“CCM”) for informational purposes only to professional investors who are expected to make their own investment decisions without undue reliance on such content. The views and strategies described may not be suitable for all investors. Under no circumstances is it to be used or considered as legal or investment advice, a recommendation to buy, an offer to sell, or a solicitation of an offer to buy or sell securities and investors should be advised to consult their own stockbroker, accountant, solicitor, independent financial adviser, or other professional adviser for advice. We accept no liability whatsoever for any direct or consequential loss arising from any use of this content. The information is intended solely to report on investment strategies and opportunities identified by CCM. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. CCM and its affiliates do not warrant the accuracy or completeness of any of the information or data contained herein. References to specific securities and their issuers are for illustrative purpose only and are not intended to be, and should not be interpreted as investment advice or, a recommendation, offer or solicitation for the purpose or sale of any financial investment. This content does not constitute tax advice and as such investors should be advised to consult their own tax advisers regarding the tax consequences of their investment activities. Investment return and principal will fluctuate, so that a client's initial investment may increase or decrease. Investing in securities markets involve risks like those arising from stock and bond markets, currency exchanges rate and interest rate volatility. No part of this content may, without CCM prior written consent, be copied, reproduced, or published by any recipient for any purpose. Past performance is not indicative of future performance.
