Asset Management & Investment Funds: EU & International Developments – September 2026

SFDR 2.0: the discussion continues

A revised draft of the SFDR 2.0 legislative text was voted on by the ECON committee of the European Parliament on 10 September 2026. This adopted text progresses several SFDR 2.0 issues that have been evolving since initial publication on 25 November 2025.

Some notable issues include:

• Revising the treatment of sovereign and public-sector debt, particularly for the transition category.
• Permitting investment by transition category funds in companies deriving revenues from fossil fuels provided certain specific conditions are met.
• Giving direction as to what sustainability indicators should be used for each category – for example ESG Basics funds will use an indicator on exposure to companies active in the fossil fuel sector.
• The disclosure statement for non-categorised products should state that it is not SFDR categorised and therefore is not required to disclose its negative environmental impact.
• Funds of funds are specifically contemplated as being able to be categorised where they invest in other SFDR 2.0 categorised products and accordingly be able to rely on the underlying categorised product disclosures.
• Reintroduction of the provision that products referencing CTBs and PABs are deemed to satisfy transition category requirements and those referencing PAB satisfy the sustainable category requirements.
• The Taxonomy-alignment shortcut to satisfying the 70% threshold is retained at 15% for the transition category and set at 20% for the sustainable category.
• Refining the opt-out provision for products marketed to professional investors to be available for AIFs made available exclusively to professional investors. The existing opt–out for closed–ended funds remains with some practical enhancements that will mean the SFDR 1.0 status of closed–ended funds will be permanently grandfathered.

The transition period for existing UCITS and AIFs is now proposed at 2 years from the date of application of SFDR 2.0. If, for example, political agreement on SFDR is reached by the end of 2026, and it enters into force early 2027 then it will apply from early 2029.

Negotiations between the EU institutions continue on SFDR 2.0. We will continue to closely follow the evolution of the legislative developments until the final text is agreed.

ESMA report on trends, risks and vulnerabilities

ESMA’s report on trends, risks and vulnerabilities (TRV) statistical annex No. 2, 2026, covering the period from 31 December 2025 to 30 June 2026, provides a comprehensive data-driven overview of developments across EU financial markets and the asset management sector. For fund managers, the report includes detailed statistics on investment fund assets, flows, leverage, liquidity, bond fund credit quality and maturity profiles, money market funds, alternative funds, ETFs and ESG funds, alongside broader indicators of market conditions and systemic risk.

ESMA sets new supervisory priority on digital innovation

ESMA announced  a new Union Strategic Supervisory Priority (USSP) on innovation with investor safeguards, commencing in 2027. The priority is intended to harness rapid technological trends to optimise outcomes while ensuring investor protection.

The USSP aims to equip supervisors with the knowledge, understanding and supervisory approaches needed to address new types of technologies in financial markets. In 2027, authorities will focus on areas where AI, tokenisation and other emerging technologies may be used by supervised entities to deliver core activities, including mapping how firms use, or plan to use, AI and tokenisation in processes and products directly impacting client outcomes (i.e., beyond back–office tasks), and carrying out initial checks on the most affected firms.

ESMA has identified three intended outcomes:

• supporting innovation
• supervisory readiness
• governance, quality and client interests

Four key risks are highlighted: (i) supervisory readiness, as supervisors need the right skills and tools to keep pace with technological change; (ii) fairness, given that AI outputs may be biased, unclear or misleading; (iii) investor protection, as new products may be hard to understand or create new risks for investors; and (iv) over-reliance, as new technologies such as AI may create increased dependency on a limited number of third–party providers.

Relevant areas of supervisory attention will include governance, testing, data quality, bias, the reliability of outputs and firms’ dependence on a limited number of third-party providers.

The new priority will operate alongside the existing USSP on cyber and operational resilience (launched in 2025), where ESMA highlights the importance of DORA compliance given the emergence of AI models with cybersecurity features. ESMA is closing its ESG disclosures USSP (commenced in 2023), although supervisory work will continue in this area.

ESG ratings RTS

Commission Delegated Regulation (EU) 2026/1119 was published in the Official Journal of the European Union and entered into force on 2 September 2026. The RTS supplement the EU ESG Ratings Regulation by specifying the additional information required for applications to ESMA for authorisation as an ESG rating provider and applications for recognition of third–country ESG rating providers. The RTS are directed at ESG rating providers and applicants.

ESMA 2027 annual work programme

ESMA has published its annual work programme for 2027 under which several strategic initiatives will move from preparation to delivery. 

Verena Ross, Chair of ESMA, said that 2027 will be an important milestone for the Savings and Investments Union (SIU), with many of ESMA’s strategic initiatives moving into the delivery phase. She noted that, while work continues on the Market Integration and Supervision Package (MISP), ESMA is advancing key SIU priorities, including regulatory, reporting and supervisory simplification, and greater use of data and technology in supervision. This work programme reflects ESMA’s commitment to strengthening the Single Market, protecting investors and safeguarding financial stability.

Key priorities relevant to the funds sector include:

• ESMA’s integrated funds reporting initiative, with RTS and ITS on funds reporting under the revised AIFMD and UCITS Directive which ESMA aims to finalise in Q2 2027
• processing applications for, and beginning supervision of, ESG rating providers, as well as adapting to its expanded responsibilities for benchmark administrators
• oversight activities for critical ICT third-party service providers together with the other European Supervisory Authorities and continued monitoring and promotion of compliance with the Digital Operational Resilience Act (DORA)
• supporting implementation of the Retail Investment Strategy, the European Single Access Point and the transition to T+1 settlement, and, subject to the finalisation and timing of the relevant legislative reforms, expected 2027 work on SFDR and PRIIPs, including sustainable finance disclosure simplification and PRIIPs KID simplification
• preparing for potential changes to ESMA’s mandates and responsibilities following the expected agreement on the MISP proposal
• expanding the use of data and AI-based tools in supervision, while continuing work on cybersecurity, crypto-assets, artificial intelligence and tokenisation

ESMA’s four flagship simplification initiatives, covering integrated transaction reporting, integrated funds reporting, the retail investor journey and risk-based supervision, will also enter a new phase in 2027. Further details are set out in ESMA’s accompanying report on simplification and burden reduction.

For more information on these topics please contact any member of A&L Goodbody's Asset Management & Investment Funds team.

Date published: 29 September 2026