European Commission proposal

SFDR 2.0 proposes three main product categories: Article 7 “Transition”, Article 8 “ESG Basics” and Article 9 “Sustainable”. Impact-related subcategories also exist under Article 7 “Transition” and Article 9 “Sustainable”. A mixed product category, combining elements of Articles 7, 8 or 9, is proposed under Article 9a. Financial products which do not fall within any of these categories are “non-categorised products” under Article 6a.

A financial product (likely an investment fund for most AIMA members) is able to qualify for a product category by meeting investment criteria, complying with pre-defined exclusions in which products cannot invest and by disclosing certain information to investors. In detail, this means that financial products must meet the below minimum criteria to qualify for a product category:

1. have at least 70 per cent of investments meeting the objective of the category (investing in the transition, integrating sustainability factors or investing in sustainable entities, assets or activities).
2. exclude investments in companies involved with controversial weapons, tobacco cultivation or production, UNGC or OECD violations, and companies which derive 1 per cent or more of their revenues from hard coal and lignite.
3. publish pre-contractual, website and periodic disclosures (maximum of 2 pages in length)
4. invest in pre-defined permitted investments

Financial products wishing to qualify for either the Article 7 “Transition” or Article 9 “Sustainable” may also choose to meet the 70 per cent minimum investment threshold by aligning at least 15 per cent of their investments with the EU Taxonomy or managing their fund with reference to the EU sustainability benchmarks. Additional mandatory exclusions and self-selected Principal Adverse Impacts disclosures are required for Article 7 “Transition” and Article 9 “Sustainable” products.

*These minimum requirements are subject to negotiations between the European Commission, the Council of the EU and the European Parliament.*

The Council of the EU

The legislative arms of the EU, the Council of the EU and the European Parliament, have been scrutinising the European Commission’s SFDR 2.0 proposals. The most significant suggestion proposed by the Council is to reinstate the exemption for AIFs marketed exclusively to professional investors from the scope of SFDR 2.0. This had been proposed by the European Commission in an early draft of the proposals but was not subsequently carried through into the final proposals published in November 2025.

The Council has also made the following suggestions to the SFDR text:

• providing flexibility for Article 7 “Transition” products to include investments in companies which derive revenue from fossil fuel-related activities as along as at least 20 per cent of their capex is allocated to Taxonomy-aligned activities and they have a strategy to reduce GHG emissions
• an opt-out from the regime for products which are fully closed before the start date of SFDR 2.0
• added flexibility to include sovereign debt in the Article 7 “transition” and Article 8 “ESG Basics” product categories
• added flexibility to better accommodate private assets in those same product categories and the Article 9 “sustainable” product category
• the immediate disapplication of those elements of SFDR 1.0 which are not to be taken forward into SFDR 2.0 upon the latter’s entry into force
• added flexibility for the Article 9 “sustainable” category by allowing investments in assets with standards “comparable” (and not simply equivalent or limited) to the EU Taxonomy, European Green Bonds and the Paris-Aligned Benchmark. This includes standards developed in third countries.
• an extension of the application date to 24 months from entry into force (from the 18 months proposed by the Commission)
• the re-introduction of a limited number of mandatory Principal Adverse Impacts indicators

The Council of the EU reached a General Approach (an agreed position) on SFDR 2.0 at the end of June 2026. The text of its position on SFDR 2.0 is available here.

The European Parliament

The Economic and Monetary Affairs Committee in the European Parliament, which has been scrutinising the SFDR 2.0 text at the same time as the Council, has suggested a significant number of amendments to the SFDR 2.0 proposals but has not yet reached an agreed position.

Suggested amendments from MEPs sitting on the Economic and Monetary Affairs Committee are generally split between those wishing to see a more restrictive SFDR 2.0 regime and those wishing to see a less restrictive regime. MEPs are divided, for instance, on whether to allow general purpose sovereign debt to count towards sustainability-related investments in product categories, whether to include or exclude fossil fuel-related investments in the product categories and whether or not to exclude AIFs marketed exclusively to professional investors from the scope of SFDR 2.0.

The Economic and Monetary Affairs Committee is not expected to vote on an agreed position before early September 2026.

Review of the Sustainable Finance Disclosure Regulation (SFDR 2.0) with Travers Smith
27 November 2025

Collection of AIMA articles relating to the review of the Sustainable Finance Disclosure Regulation (SFDR) and the implementation of SFDR 1.0