SFDR 2.0 – EU Parliament’s Negotiating Position and Next Steps

Background

In November 2025, the European Commission published proposals for a revamped version of SFDR (EU Sustainable Finance Disclosure Regulation), known as SFDR 2.0. These proposals converted the existing Article 8 and 9 disclosures into formal product labels with defined criteria, alignment requirements and mandatory exclusions.

In June 2026, the Council of the EU published their negotiating position, supporting the continued use of PAIs for Sustainable and Transition categories and notably adding in an exemption from the labels for alternative investment funds whose products are marketed exclusively to per se professional investors.

In September 2026, we received the European Parliament’s negotiating position. This article sets out the key points from that release.

Three Key Points to Note in EU Parliament’s Position

1.      Professional Investor Exemption

This had been included in a leaked version of the EU Commission’s original November 2025 proposal, but did not make it into their final 20th November text. We were surprised to see it therefore in the EU Council’s June proposals, and also the Parliament position too. It being in both of these documents gives more weight to its likely inclusion in the final text. But there are two important points to note here:

The proposed exemption would provide an opt out from Articles 6a, 7, 8 and 9 (i.e. the product labels) for alternative investment funds that are made available exclusively to professional investors[1]. This definition is very specific and only exempts per see professional investors, not elective professional investors. So any investment funds with elective professional investors (often HNWIs) would not benefit from the opt out.

Additionally, the opt out in the Parliament text does not allow these AIFs to opt out of Article 13 which stipulates that “Financial market participants may only include sustainability-related claims in the names and in the marketing communications of financial products referred to in Article 7(1), Article 8(1) and Article 9(1).”. This means that even if they can and choose to opt out of the product labels, they still cannot make other sustainability-related claims in the names and marketing communications of these funds; which makes this exemption of fairly limited use. In our experience, LPs are often the ones who are driving adoption of such labels, so we expect to see minimal use of the exemption in practice.

2.      Use of SFDR 1 after SFDR 2 comes into force

Parliament agrees that closed-ended funds that are distributed prior to SFDR 2.0’s go live date will not be required to engage in the new framework. One element we had struggled with in the Council proposal was the abrupt termination of SFDR 1.0 when SFDR 2.0 comes into force, leaving existing closed funds in a challenging spot where they may have made contractual commitments to LPs to report certain SFDR disclosures or information. In the consultation process, we had been keen that these funds could opt to continue to use the original disclosure templates in these cases, and we are pleased to see that the Parliament position seems to permit that approach. Albeit this will result in parallel regulations for some years, but difficult to see a better way.

3.      PAIs

It looks like PAIs may be here to stay, with Parliament including certain PAI reporting for Article 7, 8 and 9 funds. According to the latest Parliament text:

• Transition Objective (Article 7) funds should “…identify and disclose the share of investments in companies active in the fossil fuel sector, greenhouse gas emissions and another relevant principal adverse impact”

• ESG Basics (Article 8) funds should “…identify and disclose the principal adverse impacts of their investments on sustainability factors, and explain any actions taken to address those impacts. They should disclose the share of investments in companies active in the fossil fuel sector.”

• Sustainable Objective (Article 9) funds should “identify and disclose the share of investments in companies active in the fossil fuel sector, greenhouse gas emissions, activities negatively affecting biodiversity-sensitive areas, and exposure to companies without processes and mechanisms to monitor compliance with the UNGPs and OECD Guidelines for Multinational Enterprises.”

Five areas that are generally aligned (and therefore likely to go forward):

1. Product categories themselves and their names (including “ESG Basics”, which we don’t love), though some changes to the exclusions have been proposed

2. Alignment thresholds for product categories at 70%

3. Provisions for funds to disclose and adhere to a ramp up period to meet the 70% alignment threshold (though slight differences in limits to these between parties)

4. Article 6a restrictions – i.e. limiting sustainability to 10% of the investment strategy description

5. Implementation period – both Parliament and Council proposed 24 months (vs. 18 months put forward by Commission)

What will happen now

Now all positions have been shared, the EU Commission, Council and Parliament will enter into “trilogue” negotiations, out of which we expect to see final SFDR 2.0 text. We don’t anticipate we will see or hear much of these negotiations as they are done behind closed doors. They are expected to last a few months, so we should expect the final text in early 2027. We are expecting a 24-month implementation window following the final text (EU Commission had drafted 18 months, but both Council and Parliament proposed 24 months), during which time we will be working hard to support clients to comply.

What should you do now

We recommend taking a few actions in the coming months:

1. Gap Analysis. Review the three proposals (full references below) to determine whether your existing SFDR framework would likely need amending to comply with the proposed product categories. Understand what operational processes may need to change to meet your desired product category criteria, with a particular focus on exclusions. We can help with this

2. Speak to your LPs. Whilst some LPs we have spoken to are waiting for final rules before engaging in these conversations, others are keen to discuss how you might align with a particular product category, and it’s helpful to know what your LPs’ expectations are. Start these conversations soon so everyone is on the same page.

3. Watch and wait. We don’t recommend making any changes to existing frameworks until the final rules have been agreed, but keep a close eye on proceedings in the coming months. Watch out for our bulletins and updates!

References

September 2026 European Parliament Negotiating Position (15 September 2026): https://www.europarl.europa.eu/doceo/document/A-10-2026-0234_EN.pdf

European Parliament's Economic and Monetary Affairs Committee (ECON)’s announcement that it has adopted its negotiating mandate (10 September 2026): https://www.europarl.europa.eu/news/en/press-room/20260907IPR47414/meps-vote-for-clearer-simpler-sustainable-finance-disclosure-rules

European Counsel negotiating position (19 June 2026): https://data.consilium.europa.eu/doc/document/ST-10495-2026-INIT/en/pdf  (and Press release: https://www.consilium.europa.eu/en/press/press-releases/2026/06/24/council-agrees-position-on-simpler-transparency-rules-for-sustainable-financial-products/)

European Commission Original Proposal (20 November 2025): https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52025PC0841 (and Press Release: https://ec.europa.eu/commission/presscorner/detail/en/ip_25_2736)

[1] alternative investment funds that are made available exclusively to professional investors as defined in Annex II, Section I, to Directive 2014/65/EU, provided that no retail investor as defined in Article 4(1), point (11), of that Directive has access to the alternative investment fund concerned.

For more information on SFDR, please get in touch.