On 20 November 2025, the European Commission published a proposal for a set of amendments to overhaul the SFDR (“SFDR 2.0”). The proposals aim to address the shortcomings in the current legislative act by simplifying the rules and align disclosure with other EU sustainability frameworks, thereby increasing efficiency and cutting reporting costs for firms.
Key changes proposed include:
- The creation of a new product categorisation regime for financial products making ESG claims, to replace the existing Article 8 and Article 9 disclosure regime. Strict eligibility criteria have been proposed for each of the three new categories – “sustainable”, “transition” and “ESG basics” – to address the concerns EU regulators had with the current disclosure regime being used as a product categorisation / labelling regime (because of which most products can easily claim Article 8 alignment under current rules);
- Strict limitations regarding ESG marketing and disclosures for uncategorised products;
- The removal of portfolio management and investment advice from the scope of SFDR altogether;
- Removing the definition of “sustainable investments”, along with the “do no significant harm” principle and “good governance” requirements (as these principles are now intended to be captured through the mandatory exclusions and other qualifying criteria applicable to each product category);
- Removing the entity-level requirements for PAI reporting and disclosures on how sustainability risks are considered in remuneration policies;
- Streamlining the disclosure and reporting obligations;
- Limiting mandatory Taxonomy-related disclosures to Article 7 (“transition”) and 9 (“sustainable”) products pursuing an environmental objective.
The Commission’s proposal is in the form of a Regulation that will amend the current SFDR.
The proposal must now be negotiated by the European Parliament and Council under the “ordinary legislative procedure” and so there could be changes to the wording as a result.
Before the Parliament and Council can commence negotiations (known as “trilogues”), they must first agree their respective negotiating positions.
The Commission’s proposal includes an 18-month implementation period from when SFDR 2.0 comes into effect. The EU legislative process to agree SFDR 2.0 is likely to take around 12–18 months and the 18-month implementation period would then apply on top of that. This means the earliest effective date of SFDR 2.0 is likely to be around early to mid-2028 (at which point, the new Regulation will immediately apply to AIFs and UCITS, whereas there is a 12-month transition period for other financial products). See our blog post for more information.
Current products should continue to comply with the existing SFDR regime.
Any funds that have their final closing before the effective date of SFDR 2.0 will be grandfathered, albeit there is some uncertainty as to whether the grandfathering will only apply to products that are closed to investors prior to the date of application of the amending Regulation or products which are closed-ended and which have simply been created and distributed before the date of application of the amending Regulation.