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Key Contacts
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Since March 2021, the Sustainable Finance Disclosure Regulation (SFDR) (Regulation 2019/2088) has served as the EU’s transparency regime for sustainability disclosures by financial market participants and financial advisers. The European Commission’s comprehensive assessment of the SFDR identified significant complexity and implementation challenges. Misaligned concepts and definitions across EU sustainable finance laws, data challenges, and the de facto use of Articles 8 and 9 as fund labels have undermined investor protection and heightened greenwashing risk. The SFDR review forms part of the European Commission’s simplification initiatives and is part of the follow up on the Draghi report on ‘the future of competitiveness’.
On 20 November 2025, the European Commission published its proposal to revise the SFDR (SFDR 2.0).
10 Key Changes
1. Introduction of new sustainability-related financial product labels and related investment conditions and disclosure requirements introduced. See tables below for a high-level overview of categories and corresponding conditions
Categories
| SFDR 2.0 Article | Category | Being financial products | |
|---|---|---|---|
| Article 7* | Transition | That claim to invest in the transition of undertakings, economic activities, or other assets towards sustainability, or contribute to such transition | Sustainability-related financial products |
| Article 8 | ESG basics | Other than Articles 7 and 9 financial products, that claim to integrate sustainability factors in their investment strategy beyond the consideration of sustainability risks | |
| Article 9* | Sustainable | That claim to invest in sustainable undertakings, sustainable economic activities, or other sustainable assets, or contribute to sustainability | |
|
* An Article 7 or 9 financial product that has as its objective the generation of a pre-defined, positive and measurable social or environmental impact qualifies as “sustainability-related financial product with impact” and is subject to additional disclosure requirements. |
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Minimum investment criteria
| Category | Criteria (Executive Summary only) |
|---|---|
| Article 7 (Transition) |
70% investments to meet a clear and measurable transition objective related to sustainability factors, including E or S transition objectives (with list of eligible investments provided for this purpose) + CTB exclusions (controversial weapons/tobacco/human rights violations) + 1 PAB exclusion (1% revenue from fossil fuels) + Additional fossil fuel-related exclusions Principal adverse impacts will also need to be disclosed using “appropriate sustainability related indicators” (note: the prescribed SFDR Level 2 PAI indicators will no longer be a feature of the regime) |
| Article 8 (ESG basics) |
70% investments that integrate sustainability factors (with list of eligible investments provided for this purpose) + CTB exclusions (controversial weapons/tobacco/human rights violations) + 1 PAB exclusion (1% revenue from fossil fuels) |
| Article 9 (Sustainable) |
70% investments to meet clear and measurable sustainability-related objective(s) (with list of eligible investments provided for this purpose) + PAB exclusions (controversial weapons/tobacco/human rights violations + fossil fuels) + Additional fossil fuel-related exclusions Principal adverse impacts will also need to be disclosed using “appropriate sustainability related indicators” (note: the prescribed SFDR Level 2 PAI indicators will no longer be a feature of the regime) |
Critically, fund managers that market funds disclosing under Articles 8 and 9 SFDR will need to assess the extent to which these will be capable of categorisation as sustainability-related financial products under the new regime.
2. Under new Article 9(a), financial products which invest in Article 7, 8 or 9 (i.e. sustainability-related) financial products (for example fund-of-fund structures) can avail of the product categorisation regime if they: (i) satisfy the 70% investment threshold applicable to those products; and (ii) apply the exclusion criteria applicable to those products.
3. The European Commission is to publish Level 2 measures for prospectus disclosures for sustainability-related financial products – these are not to exceed two pages, with a one-page add on for disclosures specific to products with “impact” – a significant paring back of the length of disclosures currently required under Articles 8 and 9 SFDR.
4. Similarly, the European Commission is to publish Level 2 measures for prospectus disclosures for sustainability-related financial products – not to exceed two pages.
5. Scope: no longer applicable to investment firms which provide portfolio management or entities that were in scope of the financial advisers definition.
6. Concept of sustainable investment (and related do no significant harm test) abolished.
7. Entity level PAI-related requirements abolished.
8. Requirements around integration of sustainability risks in remuneration policies deleted (but it is important to note that existing Article 6 sustainability-related disclosure requirements remain applicable for all funds and existing sustainability policy-related disclosure requirements remain applicable to financial market participants).
9. Simplification of website disclosure requirement for sustainability-related financial products - can link instead to prospectus documents and periodic reports for sustainability-related financial products.
10. New exemption for closed-end financial products: FMPs can opt out of SFDR 2.0 compliance for those created and distributed before the date of application of SFDR 2.0 (the leaked draft contained another exemption for FMPs of AIFs made available exclusively to professional investors to opt out of the sustainability labels elements of SFDR 2.0 but the final draft removed this exemption).
Naming and marketing communications
Next steps and timing
The proposal will proceed under the ordinary legislative procedure and SFDR 2.0 will enter into force on the twentieth day following publication in the Official Journal of the European Union. It is proposed that the revised disclosure requirements will apply from 18 months from the date of application of SFDR 2.0. While IBIPs/pensions/PEPPs are subject to a 12-month transitional period this is not the case for UCITS or AIFs.
No deadline is provided for the preparation of delegated acts by the European Commission.
For further information in relation to this topics, please contact any member of the ALG Asset Management & Investment Funds team.
Date published: 28 November 2025
