SFDR 2.0 – Major Overhaul of the EU’s Sustainability Regime Proposed
On 20 November 2025, the EU Commission published its proposed amendments to the Sustainable Finance Disclosure Regulation (“SFDR 2.0”)1. The SFDR 2.0 proposals introduce a major overhaul from the current disclosure-based framework to a product categorisation regime. The amendments create new categories of sustainable products which expand and update the current Article 8 and 9 framework.
- Published
- in Industry Updates
Background
SFDR was introduced in 2023, with the aim of re-orientating private capital towards the transition to a climate neutral, green and inclusive European economy. Arguably SFDR has been a success, there is now over EUR 6 trillion in assets in European sustainability focused funds. The number of sustainability focused funds continues to increase, these count for over 50% of all new funds launched last year.
Despite its success to date, the European Commission was concerned that SFDR is operating as a de facto product labelling regime (i.e. Article 8 and Article 9 operating as sustainability “badges” for funds) rather than as a disclosure regime, as was originally intended. The SFDR 2.0 proposals recalibrate it from a disclosure regulation into a product categorisation regime, whilst also simplifying reporting obligations on asset managers designed to boost competitiveness and enhance investor transparency.
Sustainably Focused Fund Categories
SFDR 2.0 contemplates three main categories of sustainably focused funds, each based on the respective fund’s investment strategy. These categories are:
Transition Category – funds that invest in the transition of undertakings, economic activities, or other assets towards sustainability, or contribute to such transition;
Sustainable Category – funds that invest in sustainable undertakings, sustainable economic activities, or other sustainable assets, or contribute to sustainability; and
ESG Basics Category – funds (other than sustainable and transition funds) that integrate sustainability factors in their investment strategy beyond the consideration of sustainability risks.
Each category requires that the relevant fund has a minimum of 70 percent of its assets aligned to the objective of the respective category. SFDR 2.0 also provides guidance as to how alignment should be assessed for each category (for example the use of benchmarks) which is a departure from the more subjective measures of “promotion” or what a manager deemed a “sustainable investment” under the current SFDR regime.
There will also be prescribed exclusions for each category which are drawn from the existing EU Paris-aligned (PAB) and EU climate transition (CTB) exclusions sets. In addition to the three main categories of sustainably focused funds, SFDR also contemplates a number of new “sub” categories.
Impact funds are now expressly contemplated, and there is the ability to create distinct “impact” versions within both the Transition and Sustainable fund categories. Funds may also be established as a combination of the Transition, ESG Basics and Sustainable categories. Further, while the “Article 6” category will remain (any fund that is not categorised under Article 7, 8 or 9), SFDR 2.0 introduces the “Article 6a” category – funds considering sustainability factors or sustainability risks where this is not a central element of their presented strategy.
A Revamped Disclosure and Reporting Framework
As noted above, a key driver behind the SFDR 2.0 proposals is enhancing competitiveness while at the same time, simplifying the regulatory reporting rules impacting asset managers.
SFDR 2.0 proposes the prescribed pre-contractual disclosure and periodic reporting formats would be shortened to two pages. It also proposes that website disclosure requirements would be aligned to the pre-contractual format and content. These changes will be welcomed by asset managers and investors alike. Standardising the sustainability disclosures (and limiting it to two pages) should enable investors to more readily compare sustainability products, which was one of the original objectives of SFDR.
In addition, the reporting obligations of asset managers will be significantly reduced under SFDR 2.0 with entity level PAI reporting falling away. It had long been felt that asset manager level reporting (distinct to fund level) was better addressed under the EU’s existing corporate sustainability reporting regimes so this is another change that will be welcomed.
Who is in Scope?
SFDR 2.0 will continue to apply to UCITS management companies and AIFMs. However there are a number of notable changes contemplated from the current regime. Investment advisers and certain investment firms will no longer fall within the definition of a “financial market participant” which may impact on delegate investment management arrangements, in addition to potentially taking certain managed accounts out of scope of SFDR.
Timeline for Implementation
The proposed amendments under SFDR 2.0 will now undergo deliberation in the European Parliament and the European Council. The legislative process will likely see SFDR 2.0 entering into force in late 2027 or early 2028. Accordingly, for now, asset managers need only maintain a watching brief on the proposals and how they develop during this process.
Further Information
For further information, please reach out to your usual Maples Group contact or any of the persons listed.
1https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52025PC0841
