SFDR 2.0 April 2026 update

Recent developments in the European Parliament’s ECON Committee mark an important step forward in the evolution of the Sustainable Finance Disclosure Regulation (SFDR).

In late April 2026, ECON published a draft report noting that policymakers are no longer focused on incremental technical fixes, but on addressing more fundamental weaknesses in the framework’s design and market use.

The ECON report forms part of the European Parliament’s assessment of how SFDR has operated since its introduction, and is intended to feed into the European Commission’s broader review of the regime. Its stated aim was to evaluate whether SFDR is meeting its objectives of improving transparency, protecting investors and reducing greenwashing, and to identify whether structural reform is now required.

Ongoing issues with the current SFDR framework

The ECON draft report highlights a number of structural weaknesses in the current SFDR framework. Chief among these is the widespread misuse of Articles 8 and 9 as de facto product labels, despite their legal status as disclosure categories, which has contributed to market confusion and increased risks associated with greenwashing.

The report also points to a lack of comparability between products, driven by highly narrative disclosures and divergent interpretations across Member States. This is compounded by the excessive complexity of the regime, particularly at Level 2, where overlapping concepts, detailed technical indicators and extensive cross‑references have undermined usability.

The usefulness of principal adverse impact (PAI) disclosures is also questioned, with the report noting that firms are required to report large volumes of data that are often only weakly connected to investment decision-making. These challenges are exacerbated by persistent data availability and quality constraints, especially in private markets and for non‑EU exposures, leading to heavy reliance on estimates and proxies.

Taken together, the report concludes that the link between sustainability disclosures and effective investor protection remains weak, undermining confidence in sustainable finance products.

Suggested reforms

The report also identifies a number of potential solutions to these issues, namely:

• Moving away from the Article 8 / Article 9 construct, replacing it with a clearer, more explicit product categorisation or classification system.

• Developing defined sustainability product categories, with clearer eligibility criteria and regulatory expectations.

• Re‑focusing SFDR on investor protection, ensuring sustainability claims are understandable, comparable and substantiated.

• Greater proportionality in disclosure requirements, particularly for products without explicit sustainability objectives.

• Review and rationalisation of PAI indicators, including reassessing their relevance and mandatory nature.

• Improved alignment with other EU sustainable finance legislation, including CSRD and the EU Taxonomy, while avoiding duplication.

How these reforms are beginning to take shape

Alongside these high‑level themes, the report provides early indications of how a revised regime (SFDR 2.0) could operate in practice. Product scope is expected to be broadened, with packaged investment products (PRIIPs) explicitly brought within scope, ensuring a more consistent approach across retail-facing investment products.

A new categorisation framework is also emerging, with products falling into categories such as ESG Basics, Transition and Sustainable. Within this structure:

• All categorised products would be required to disclose against a core set of mandatory PAI indicators, supplemented by additional indicators where material.

• Clear disclosure of engagement strategies would become a standard requirement, reinforcing the link between sustainability claims and stewardship activity.

• To strengthen credibility, eligibility thresholds are expected to tighten, including:

  • Increasing the minimum share of Taxonomy-aligned investments required for Transition or Sustainable products to 20% (up from earlier proposals of 15%)

  • Raising expectations for ESG Basics products, where outperformance against a benchmark would only be valid after excluding the lowest 20% of the investment universe, aligning more closely with existing supervisory practices (e.g. in France)

• The treatment of specific asset classes is also clarified. The report proposes that general purpose sovereign bonds should remain outside the core sustainability thresholds, but must still align with the product’s overall sustainability strategy

• For products that do not meet categorisation criteria, mandatory disclaimers would be required to clearly distinguish them from categorised products, improving transparency for investors

More broadly, there is a clear emphasis on usability including disclosure templates needing to be more suitable for retail investors, addressing longstanding concerns that SFDR disclosures are overly complex and not decision‑useful.

Timing

The report also signals a more pragmatic approach to implementation:

• The application of SFDR 2.0 is expected to allow for a 24‑month transition period from entry into force of the Level 1 regulation, rather than the 18 months previously suggested

• Based on current timelines, this would point to a likely application date of 1 January 2029

• At the same time, certain obligations under SFDR 1.0 that are removed under the revised framework may cease to apply immediately upon entry into force (potentially from 1 January 2027)

This reflects a growing recognition of the need for clearer sequencing and manageable transition for firms.

What does it mean?

The report reflects a desire to more clearly balance the ambition for reform with realistic implementation by firms. Although legislative change will take time, the policy direction is increasingly clear. Firms should begin preparing by reviewing:

• Current product classifications and positioning

• Underlying data and Taxonomy alignment

• Stewardship and engagement frameworks

• Governance processes supporting sustainability claims

What’s next?

The ECON report does not itself have legislative force, but will inform the European Commission’s ongoing review of SFDR. Any formal proposal will follow the EU legislative process before being supplemented by updated Level 2 measures. While the final shape of SFDR 2.0 remains subject to political agreement, the policy direction is now sufficiently developed that firms should be using this period to prepare for a more structured, demanding and investor‑focused regime.

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