SFDR 2.0: Five Key Takeaways From the European Commission’s Proposal for Revising the EU Sustainable Finance Disclosure Regulation

On 20 November 2025, the European Commission (Commission) published its proposal for revising the EU Sustainable Finance Disclosure Regulation, known as SFDR 2.0 (the Proposal). In brief, SFDR 2.0 would present significant changes to asset managers that are subject to the current regime (SFDR 1.0).

The top five key takeaways for asset managers are set out below.

1. Shift from disclosure regime to product categorisation regime. The Proposal shifts the SFDR regime from a disclosure regime (current Articles 6, 8, and 9) to a product categorisation regime (new Articles 7, 8, 9). Asset managers with sustainability-related funds will need to comply with requirements in these new categories (mandatory 70% minimum investment thresholds, mandatory exclusions, and permitted investment types).
2. Mandatory (but more streamlined) disclosures. SFDR 1.0’s mandatory disclosure framework (pre-contractual, website, and periodic) applies to products that fall within the new product categories (new Articles 7, 8, and 9) as well as for non-categorised products (current Article 6). However, the Proposal introduces various changes to simplify and reduce disclosures in order to reduce the compliance burden on asset managers.
3. New marketing communications and naming requirements. If a fund does not comply with a sustainability-related category (i.e., as a current non-categorised Article 6 product), an asset manager cannot make sustainability-related claims in relation to the fund even if the fund opts to make voluntary disclosures under new Article 6a. Only financial products qualifying under the new Articles 7, 8, and 9 can make sustainability-related claims in their marketing communications and fund name.
4. Removal of entity-level PAI reporting. The Proposal removes the requirements regarding the disclosure and reporting of principal adverse impacts (PAI) at entity-level under current Article 4 of SFDR 1.0. This means asset managers would no longer be required to publish entity-level PAI statements nor comply-or-explain statements in relation to PAI. However, product-level PAI disclosures and reporting remain in relation to the new Article 7 and 9 product categories.
5. No grandfathering or transition relief, and no exemption for professional investor-only funds. Financial products currently subject to SFDR 1.0 would need to comply with the new SFDR 2.0 once it is in force, unless an exemption applies (there is no transition relief). Whereas a leaked early draft had indicated that alternative investment funds (AIFs) that are offered exclusively to professional investors would be exempt from the new regime, this exclusion does not appear in the published Proposal. There is only one exemption available, which is for closed-ended funds that were created and distributed before SFDR 2.0 comes into effect.

The Commission proposes other key changes to the SFDR 2.0 framework, such as the removal of portfolio management services and financial advisers providing investment advice from the scope of the SFDR.

The Proposal only presents a starting point and will be subject to change by the European Parliament and Council, as the two co-legislators. The Proposal sets out an intention for SFDR 2.0 to have a “start-up period” from 2027 to 2028.

In this Update, we provide our analysis of the SFDR 2.0 Proposal, which sets out the points above in further detail and the key changes for asset managers.

1. Shift from disclosure regime to product categorisation regime

New product categorisation regime

The headline change of the Proposal is the new product categorisation system, as summarised below.

* The Proposal does not set out specific labels for these categories; however, they have been labelled as such for the purposes of this Update.

Criteria requirements for sustainability-related financial products

The Proposal sets out criteria for financial products to qualify as one of the sustainability-related product categories. Notably, it proposes to remove the definition of “sustainable investments” under existing Article 2(17) and the “do no significant harm” (DNSH) principle embedded within that definition, each of which helped underpin existing Articles 8 and 9 of SFDR 1.0.

Instead, the integrity of the product categories is based on minimum investment thresholds and specified exclusions and permitted investments. The concept of PAI on sustainability factors is retained.

Summary table

Combination funds (i.e., funds that combine new Article 7, 8, or 9 products) would need to meet the 70% threshold for the minimum investment commitment and comply with the relevant exclusions for the relevant mix of categories in the fund.

Additional specifications to criteria

Investment thresholds

•  Conditions. The investment thresholds for meeting the product’s sustainability objectives must be (i) met in accordance with the “binding elements” of financial product’s investment strategy and (ii) measured using “appropriate” sustainability-related indicators.
• Phase-in period. The Proposal acknowledges that the full implementation of an investment strategy will take time for fund managers with alternative or private assets. Accordingly, in pre-contractual documents, fund managers should communicate a specific phase-in period, for the investment threshold to be attained by the end of the period.
• Alternative criteria. Funds may also qualify for new Articles 7 and 9 without meeting the criteria for the minimum investment commitment, PAI, and exclusions, if (i) the fund’s investments replicate or are managed with reference to the EU Paris-aligned Benchmarks or (ii) at least 15% of investments are in Taxonomy-aligned economic activities.

Permitted investments

• Catch-all provision. The list of permitted investments for each product category includes a “catch-all” provision. This means investments that are not listed as an example, but otherwise contribute to the category’s objectives, can be included in the portfolio so long as the asset manager provides a “proper justification” in the applicable disclosure.
• Potential additional conditions. The Commission is also empowered to specify additional conditions for these permitted investments in due course. If this is the case, asset managers may need to consider additional criteria when assessing whether an investment qualifies as a permitted type of investment and therefore qualifies towards the financial product’s investment threshold.

2. Mandatory (but more streamlined) disclosures

Transition, ESG Basics, Sustainable (new Articles 7, 8, and 9)

The SFDR 2.0 Proposal maintains the disclosure regime under SFDR 1.0. Asset managers would be required to prepare product-level pre-contractual, website, and periodic disclosures for funds that fall within new Articles 7, 8, and 9.

“Impact” (new Articles 7, 9)

Additional disclosures would be provided for “Impact” financial products. This includes disclosing the intended impact “in terms of specified environmental or social objectives, underpinned by a pre-set impact theory” and provisions to measure, manage, and report on the desired impact.

Non-categorised financial products (current Article 6 and new 6a)

Disclosures on sustainability risks

Current Article 6 funds (i.e., those that are not categorised as sustainability-related products) would still be required to prepare disclosures on how sustainability risks are considered. In other words, the position for such funds in the Proposal is generally the same as under SFDR 1.0.

Voluntary disclosures on the consideration of sustainability factors

However, under new Article 6a, the Proposal allows non-categorised financial products to voluntarily provide pre-contractual disclosures on whether and how such products consider sustainability-related factors in pre-contractual disclosures, such as the fund’s private placement memorandum.

However, certain requirements apply:

• Specified presentation requirements. Information on how the product considers sustainability factors should not be a “central element” of the precontractual disclosures. The legislative text explains that this means that the information should be secondary to the presentation of the product’s characteristics in terms of breadth and positioning in the document. In addition, it should be presented in a “neutral” manner and limited to less than 10% of the volume occupied by the presentation of investment strategy.
• No inclusion in KID. Such information should not be included in the Key Information Document (KID) prepared for the purposes of the EU Packaged Retail Investment and Insurance Products (PRIIPS) Regulation.
• Periodic reporting is required. Asset managers would also be subject to annual reporting requirements. They would need to provide a description of how sustainability factors are considered in their annual periodic report.

Key changes to simplify / reduce disclosures

Although the Proposal generally retains SFDR 1.0’s disclosure framework, it makes a number of key changes to alleviate reporting burdens on asset managers:

• Reduction of reporting content. In relation to disclosures for new Articles 7, 8, or 9 products, the Proposal provides that the Commission would be empowered to adopt a delegated act on the presentation of these disclosures, which “shall not exceed two pages”. This should greatly limit the amount of information that asset managers would need to prepare in comparison with current product-level disclosure templates under SFDR 1.0 (which run up to five pages).
• Removal of “sustainable investment” concept. The concept is removed to address inconsistency in practice (defined under current Article 2(17) of SFDR 1.0). The Proposal notes that these underlying concepts are instead embedded in the criteria for the sustainability-related product categories.
• Removal of principle of “do no significant harm” / “good governance”. As a corollary to the above, these concepts are removed and effectively replaced by the criteria, and the list of exclusions (for e.g., the exclusion on companies in violation of the UNGC principles or the OECD Guidelines for Multinational Enterprises).

3. Marketing communications and naming rules

Naming and marketing communication rules

Aside from the substantive changes set out above, the Proposal also introduces marketing communications and naming rules by amendment to new Article 13:

• Asset managers may make sustainability-related claims only in relation to new Articles 7, 8, and 9 products. Only financial products that qualify for the product categories would be able to make sustainability-related claims in the fund names or their marketing communications. New Article 9a products, however, would be able to make such claims only in the latter but not in the fund name.
• “Clear, fair, not misleading” rule. Asset managers making sustainability-related claims must ensure that marketing communications follow the “clear, fair, and not misleading” principle and are consistent with the sustainability features of the financial product.
• No sustainability-related claims for non-categorised current Article 6 products. As a corollary to the above, asset managers of non-categorised funds must be careful that they do not make any sustainability-related claims. This position remains the same even if they make voluntary disclosures under new Article 6a on sustainability-related factors.

4. Removal of entity-level PAI reporting

The Proposal removes certain of the entity-level disclosure requirements under SFDR 1.0, as follows:

• Removal of entity-level PAI disclosures. The Proposal removes the disclosures on PAI at entity level under current Article 4 of SFDR 1.0. This means asset managers would no longer be required to publish entity-level PAI statements nor comply-or-explain statements in relation to PAI. However, product-level PAI disclosures and reporting remain in relation to the proposed new Article 7 and 9 product categories.
• Removal of entity-level remuneration policy disclosures. Similarly to the entity-level PAI statements, the requirement to publicly disclose how firms’ remuneration policies integrate sustainability risks under current Article 5 of SFDR 1.0 is proposed to be removed.

5. No grandfathering or transition relief, with only one limited exemption available

Immediate compliance with SFDR 2.0

There is no grandfathering or transition provisions available to AIFs or undertakings for collective investment in transferable securities (UCITS) funds. This means that financial products that comply with the current SFDR framework (i.e., SFDR 1.0) would need to comply with the new SFDR 2.0 once it is in force, unless an exemption applies.

Exemption for certain closed-ended AIFs.

Only one exemption from SFDR 2.0 is provided in the Proposal. Asset managers with close-ended funds that are closed to new investors, created and distributed before the SFDR 2.0 comes into force, may be exempt in respect of such AIFs.

Notably, there is no exemption for asset managers with funds that market only to professional investors. This is a marked shift from the leaked copy of the Proposal that circulated in the industry in early November, which included such an exemption.

Given the limited exemption available, it can be understood that under the Proposal, SFDR 2.0 would generally apply to UCITs, open-ended AIFs, AIFs that are made available to professional or retail investors, and close-ended AIFs that will be raised after SFDR 2.0 comes into force (likely 2028 and onwards).

Other topical changes

The Proposal also introduces other types of topical changes that asset managers should note.

• Portfolio management and financial advisers out of scope. The SFDR 2.0 Proposal removes the following firms and products from the regime’s scope: (i) portfolio management services (provided by an investment firm or credit institution) from the definition of a financial product and (ii) investment advice provided by an investment adviser.
• Use of data and estimates. The Proposal introduces a new requirement to formalise and document arrangements for the use of data and methodologies for estimates. Firms must ensure that data provided by external providers is based on documented arrangements and that the use of estimates not based on data from external providers is based on a documented methodology. Certain information on data sources and methodologies will also need to be made available to clients upon request.

Timing

The text of the proposed legislation will be reviewed and subject to input from the co-legislators, the European Parliament and Council. Moreover, the Proposal also empowers the Commission to specify further requirements for the regime through by adopting a delegated act. Nevertheless, the Proposal provides a helpful framework for asset managers to understand the general regulatory direction for the SFDR.

In terms of timing, SFDR 2.0 is expected to come into effect 18 months after final adoption of the legislative text. The Proposal intends for SFDR 2.0 to have a “start-up period” from 2027 to 2028. However, given that the Proposal introduces substantive changes to the EU sustainability finance regulatory framework, it may be more realistic for the regime into come into effect in late 2028.