SFDR 2.0 Released: New Fund Categories and Reporting Simplification
The EU Commission has released its final proposal for SFDR 2.0. We shared the leaked SFDR 2.0 proposal on 6th November. There are a few notable changes in the final version compared to the leaked version to be aware of, namely:
No opt-out for AIFs marketing exclusively to professional investors
More clarity of application for private markets, permitting a transition period for investment ramp up to achieve 70% alignment
PAI (or equivalent) reporting still required at product level only for Articles 7 and 9
18-month implementation from publication of final rules
Key features of the finalised SFDR 2.0 proposal are set out below.
Product Categories
As expected, the concepts of Article 8 and 9 as we know them will be scrapped and replaced with product categories. The product categories will be known as Articles 7, 8 and 9. It will not be possible to claim that a fund in scope for SFDR invests in line with these categories without using them formally.
The leaked version was calling New Article 8 “Other ESG” but this is now being referred to as “ESG Basics”.
These categories are:
| Category | Objective | Alignment Requirement | Mandatory Exclusions |
|---|---|---|---|
|
Article 7
"Transition" |
Transition-related objective Products claiming to invest in companies, assets , activities or projects that are on a credible path to sustainability or that pursue particular environmental or social transition-related objectives. |
70% |
Limited Paris Aligned Benchmark and Extra Exclusions: a) – d) and h) – i) from the list below |
|
Article 8 "ESG Basics" |
Integration of sustainability-related factors, beyond risk management Products claiming to integrate other sustainability considerations beyond sustainability risks in their investment strategy. |
70% |
Limited Paris Aligned Benchmark Exclusions: a) – d) from the list below |
|
Article 9 "Sustainable Features" |
Sustainability-related objective Products claiming to invest in companies, assets, activities or projects that are already sustainable or pursue a particular objective related to sustainability factors, including environmental and social objectives. |
70% |
Full Paris Aligned Benchmark and Extra Exclusions:
|
|
Article 9a |
Mixed Scope Not a formal label, but can be mixed between Articles 7 and 9; or can be new Article 8 with mixed goal across different asset types |
70% |
See Article 9 |
Importantly, while some of the terminology has been reused, the criteria are such that there is no guarantee that an existing Article 8 or Article 9 fund will qualify for the new Article 8 and Article 9 respectively.
Note that the new text recognises that for alternative or private assets, the full implementation of an investment strategy can take a certain period of time (which you would need to disclose in pre-contractual disclosure (i.e. up to the fund)). The alignment % may not be immediately reached during that phase-in period but it should be attained at the latest at the expiry of the phase-in period. This is a really helpful clarification that we always felt was omitted from SFDR 1.0.
Additional clarity that to measure contribution, compliance with the strategy and the progress towards the sustainability objective, “appropriate sustainability-related indicators” should be selected and disclosed. I.e. not entirely prescriptive metrics.
Note that sovereign investments can only contribute to the 70% alignment in certain circumstances (Article 7 if transition use of proceeds only; Article 8 if it has ESG attributes or use of proceeds; Article 9 if sustainable use of proceeds only).
Only Articles 7 and 9 can use the term “impact” in fund names as long as they meet impact criteria.
What can Article 6a Funds say about ESG (uncategorised products)
This is handled under Article 6a of new rules, and these are restricted on what they can say on ESG.
ESG cannot be used in product names; prospectus can make statements on how it considers sustainability factors, but needs to be secondary to other product characteristics, and represent <10% of the volume of the product’s representation of the strategy. I.e. keep it light and simple.
PAIs
Notably, the PAI regime is removed at an entity level (current Article 4 entity level disclosures).
The leak had indicated that mandatory exclusions would replace the need for PAI monitoring at a product level too, but the final proposal indicates that products falling under the sustainable category (9) and transition category (7) should identify and disclose the principal adverse impacts of their investments on sustainability factors, and explain any actions taken to address those impacts. It does appear there is more flexibility on those indicators, but largely, PAIs not going away for article 7 or 9.
Sustainable Investments
The current (loose) definition of Sustainable Investments (Article 2(17)) which has received much criticism is being removed – deemed unnecessary in light of new product categories and prescriptive requirements.
Common standard of significant harm achieved through exclusions (instead of do no significant harm). Good governance also doesn’t really feature specifically.
If 15% of portfolio is in EU Taxonomy aligned activities for Articles 7 and 9, this will be considered to be enough to meet the 70% alignment for sustainable investments (on the basis that it’s harder to achieve EU Taxonomy alignment; this will be reviewed in 3 years).
Disclosures
There will still be mandatory pre-contractual, website and product disclosures for Article 7, 8 and 9 funds, but these are expected to be less detailed than current disclosures.
Importantly the website disclosures will be the same as the pre-contractual and periodic disclosures (rather than being a separate template).
There will be new regulatory technical standards (RTS) to follow for these disclosures.
Entity level disclosures (which we always considered to add little value) have been removed (remuneration policy disclosures under current Article 5 and PAI consideration under current Article 4).
Additional requirements to share information on request such as information relating to data and use of estimates.
Disclosures need to include (7/8/9):
Statement of compliance with applicable conditions
Statement of compliance with exclusions
Data sources used
Description of sustainability factors
Strategy to meet 70% threshold
Sustainability indicators used to measure compliance
Additional requirements for impact funds
What’s staying the same?
The broad disclosures on the integration of sustainability risks are remaining as they were in SFDR 1.0 (Article 3 entity level and Article 6 product level).
No Professional Investor Opt-outs
It is not the case that the new categories will be optional for AIFs that are made available exclusively to professional investors. This opt-out provision is not in the final proposal.
Grandfathering
There is no grandfathering – i.e. funds currently disclosing in line with Article 8 or Article 9 will need to align with the new product categories to be compliant with SFDR 2.0.
Timing and What next?
EU Commission proposal was released on 20th November 2025.
The Commission proposal will now be submitted to Parliament and Council for their deliberation. These parties need to agree the draft, expect 12-18 months from now for this process.
Once the rules are final, it appears there will be an 18-month transition period, i.e. sometime during 2027/2028. (Leak had noted 12 months)
If you would like to discuss these changes and the implications for your organisation, get in touch.
Further Reading
