SFDR 2.0 proposal

On 20 November 2025, the European Commission proposed amendments to the SFDR (the “Proposal”), introducing major changes to the current framework. The Proposal stems from the assessment and review of the SFDR initiated back in 2023, which revealed several shortcomings related to the framework, including, among others, the misunderstood use of the SFDR as a labelling system and too complex disclosures. Consequently, SFDR in its current form has made it difficult for end investors to compare financial products and fully understand SFDR disclosures, ultimately increasing the risk of greenwashing.

Therefore, the purpose with the proposed amendments is to (i) “simplify and reduce the sustainability-related administrative and disclosure requirements for financial market participants and financial advisers, as well as to enhance the coherence of the framework for the operation needs of financial market participants” and (ii) “improve end-investors’ ability to understand and compare sustainability-linked financial products, and to protect them against potential misleading ESG claims.”

 

Main elements of the proposal:

The following key elements of the Proposal can be highlighted:

Reduction in disclosure requirements and removal of entity disclosures:

Principal adverse impact (PAI) entity-level disclosures, including templates, are deleted. The reason is to address the overlaps between the SFDR and the CSRD, thereby minimizing reporting requirements and related costs.

Product-level disclosures shall be significantly reduced, including by reducing number of topics in the disclosure templates, and thereby making disclosures easier to understand and more comparable for investors. Further, disclosures are aligned towards the new product categories.

Establish a categorization system with three categories for financial products with ESG features:

Disclosure requirements in accordance with article 8 and 9 in the current SFDR shall be deleted and the categorisation of financial products known today will be replaced with three categories. Such categories will divide financial products into groups depending on level of ambition and ESG objectives. Such new categories will require less data and be more transparent compared to today. The categories are:

• Article 7: Transition category: The category includes products contributing to transitional companies or projects that are not yet sustainable or investments contributing to improvements in, among others, environmental and social areas.
• Article 8: ESG basics category: The category includes other products integrating ESG investment approaches without meeting the transition or sustainable category. This means focusing on best-in-class performers on a given ESG metric which pursue financial returns while also excluding those not performing well on ESG.
• Article 9: Sustainable category: The category includes products contributing to a sustainable goal.

To be within one of the categories, the products shall all comply with the following main criteria:

(i) Minimum 70 % of the portfolio shall support the strategy chosen and comply with claims made by the product. For articles 7 and 9, the 70% threshold shall be considered met for financial products with a proportion of investments in taxonomy-aligned economic activities equaling 15% or more. The assessment of performance shall be disclosure and based on indicators chosen by financial market participants. For article 7 and 9, any principal adverse impacts on social or environmental factors must be identified and disclosed, including specific actions taken to address them.

(ii) The product shall comply with exclusion criteria preventing it from investing in specific activities and industries not in line with the category, such exclusion criteria being specifically specified in each article.

 

Other changes:

Further, the following amendments from the Proposal can be highlighted:

• Information is still divided into pre-contractual, website and periodic information, however, disclosures are expected to be significantly shortened.
• Various definitions in the framework are changed. This includes one of the main definitions in SFDR article 2(17): “Sustainable investment”. Instead, new definitions such as “Sustainability-related financial product”, “Sustainability-related financial product with impact” and “environmental objectives” are included.
• Entity-level disclosure on remuneration policies (article 5) is deleted.
• Some new articles are included. A new article 6a shall restrict non-categorised products from highlighting sustainability aspects in disclosures. A new article 9a shall regulate financial products investing in or combining categorised products, i.e. clarify when products are eligible for a category and how non-categorised products investing in categorised products without meeting the category requirements shall disclose information. A new article 12a shall set requirements for data and estimates, requiring that data shall come from formalized and documented agreements and estimates shall be based on formalized and documented methodologies.
• Article 10 (website disclosures) and article 11 (periodic reports) are amended to reflect the new categories.
• Article 13 is updated and provides that ESG claims made by financial products in marketing material and names are reserved for categorised products only, ensuring that such claims only come from financial products complying with EU minimum standards.
• A new article 17 underlines that financial market participants can choose not to apply the updated regulation to closed-end financial products created and distributed before the regulation apply.
• The SFDR level 2 Regulation will be repealed.

 

In general, the proposed amendments aim towards helping investors make better informed choices, lower costs for financial market participants and promote sustainable finance in Europe. Further, according to the Proposal, the EU Taxonomy will still take on a central role, among others, by being used as investment approach under the sustainable and transition categories.

The Proposal can be found here. Further, the press release from the European Commission is available here.

 

Next steps:

The proposal will now be sent to the European Parliament and Council for review. Additional measures and more details will be developed as a second step.

Since financial products within article 8 and 9 of the current SFDR regulation represent around 50% of EU Assets under Management (AuM), SFDR plays a significant role across the entire EU. Therefore, the Proposal is of great importance and we in Mazanti Transactions will follow the development closely.

Tags:  Disclosure RequirementsSFDRSustainability