SFDR 2.0: Council of the EU Negotiating Position
The Council of the EU agreed its negotiating position on 24 June 2026 on the updated sustainability framework – SFDR 2.0.
SFDR 2.0 enables investors to understand and compare sustainability-related financial products more easily.
The three new categories of financial products remain as proposed in November 2025:
Sustainable: products that contribute to sustainability goals, such as investments in companies or projects already meeting high standards (Article 9)
Transition: products channelling investments towards companies or projects that while not yet sustainable are on a credible path (Article 7)
ESG basics: other products that may integrate ESG approaches but do not meet the criteria of sustainable or transition categories (Article 8)
What SFDR 2.0 changes has the Council proposed?
Use of PAIs for Sustainable (9) and Transition (7) categories
Sustainable and transition categories must make mandatory use of at least three indicators from a list to be provided by the European Commission to support their claims when companies identify and disclose the principal adverse impacts of their investments on sustainability factors. The ideas is that this should allow for better comparability between financial products – in short some PAI metrics are here to stay for 7 and 9 funds in some form.
Potential for Fossil Fuel company inclusion in Transition category (7)
To recognise their important role and contribution in transition, the Council position clarifies that investments in companies active in the fossil fuel sector which allocate 20% of their capital expenditure to economic activities aligned with EU taxonomy (green classification) rules, and with a clear, time-bound strategy to reduce greenhouse gas emissions, may be considered for inclusion in the transition category. To enhance transparency, such investments must also be subject to a fourth mandatory indicator when assessing adverse impacts.
Alternative Investment Funds regain Professional Investor exemption
This exemption had been included in the leaked text in early November 2025, but did not appear in the proposals of 20th November 2025. And now it’s returned! The Council’s position is that alternative investment funds who market exclusively to professional investors may opt not to apply the categories, though general anti-greenwashing provisions are expected to apply. In practice, we anticipate that professional investors would still request SFDR categories (or at least SFDR-mirrored categories) as their preference for sustainability is not likely to go away despite the exemption proposed, and the clarity of the new Article 7/8/9 framework will help investors to guarantee minimum criteria are being met. This would not be a full “opt-out of SFDR”, simply an opt out of the categories.
What happens next?
The negotiating position approved on 24th June 2026 is the Council's mandate to start negotiations with the European Parliament on the updated SFDR, once the Parliament has agreed on its respective position. To be clear, these amendments are not certain to be upheld, simply debated further.
We expect these negotiations to continue through the rest of 2026, with final rules released at the end of the year at the earliest.
The amendments also confirm, as expected, that the implementation period should be extended to 24 months (from the 18 months included in the November 2025 proposal).
What should you do now?
For now, we are advising existing Article 8/9 funds to take no specific action on these updates whilst negotiations continue, but continue to monitor closely and keep an eye on any elements of the proposals that would require you to make a change to your approach.
Once final rules are in place, there will be ample time to adjust frameworks and redraft documentation.
If you’d like to talk through any of these updates, the Danesmead team is on hand to help!
Further Reading
