SFDR 2.0 – Towards Simpler And More Effective Product Categories

On 6 November 2025, a draft version of the revised Sustainable Finance Disclosure Regulation (SFDR) – commonly referred to as SFDR 2.0 – was leaked, offering an early glimpse into the European Commission's (EC) proposed changes. While SFDR 2.0 has been anticipated for some time, its specific content remained undisclosed until now. The leak, occurring just two weeks ahead of the expected official publication (19 November 2025), proposes replacing the existing product categories pursuant to article 6/8/9 of SFDR with new product categories.

Introduction

On 6 November 2025, a draft version of the revised Sustainable Finance Disclosure Regulation (SFDR) – commonly referred to as SFDR 2.0 – was leaked, offering an early glimpse into the European Commission's (EC) proposed changes. While SFDR 2.0 has been anticipated for some time, its specific content remained undisclosed until now. The leak, occurring just two weeks ahead of the expected official publication (19 November 2025), proposes replacing the existing product categories pursuant to article 6/8/9 of SFDR with new product categories.

The proposed amendments to the SFDR are consistent with proposals around the product categories as set out in the various publications leading up to the proposal and constitute (assuming the leaked version will not be materially amended) a simpler and more effective set of product categories.

We expect SFDR 2.0 to come into effect late 2027 or 2028 at the earliest. The definitive proposal of the EC will still need to pass through the EU's legislative process, which can be far from straightforward.

Key changes introduced in SFDR 2.0

New product categorisation framework

The most significant change under SFDR 2.0 is the deletion of the existing product categories of article 6/8 and 9, which will replaced with new product categories being:

1. Article 7: Products with transition-related objectives;
2. Article 8: Products integrating sustainability factors; and
3. Article 9: Products pursuing sustainability-related objectives.

This new product categorisation framework is designed to reflect prevailing market practices and provide investors with clearer insight into the sustainability ambitions of financial products. Each category will be subject to a common set of criteria, including:

• A minimum threshold of 70% alignment with the stated objective for the relevant category;
• A mandatory list of exclusions, which refer to the exclusions for the Climate Transition Benchmarks and Paris-Aligned Benchmarks; and
• A prescribed list of eligible investment types.

Across all three categories harmonised disclosure templates, naming and marketing rules and restricted use of “impact” terminology (reserved only for products explicitly pursuing measurable social or environmental outcomes) will be introduced.

The leaked SFDR 2.0 proposal states that products other than those falling in one of the new product categories set out in articles 7/8 or 9, may not use any sustainability-related information in their name or in their marketing communications.

Alternative investment funds (AIFs) offered exclusively to professional investors are exempt from the mandatory product categorisation under SFDR 2. There is also a generic exemption set forth in the leaked proposal, which removes closed-ended funds which are closed to new investment before SFDR 2.0 comes into force, from scope in its entirety.

Aside from these exemptions there is no grandfathering regime provided for in the leaked proposal for SFDR 2.0. In other words, once SFDR 2.0 is in force, financial products which currently comply with article 8/9 will need to be compliant with the new SFDR 2.0 regime.

Simplification and reduction of disclosure requirements

Under SFDR 2.0, the requirement for disclosures in relation to the principal adverse impacts (PAIs) at both entity-level and product-level will be removed.

In addition, firms will also no longer be required to include information in their remuneration policies on how sustainability is incorporated into their remuneration policies nor to disclose such information on their websites.

There will also no longer be the requirement to report Taxonomy eligibility or alignment under SFDR 2.0 in line with the Taxonomy Regulation.

Firms will still need to publish information on their websites about how they integrate sustainability risks into their investment decision-making processes, as well as certain required disclosures and periodic reporting about article 7/8 or 9 products will still be required. However, the format for periodic disclosures will be capped at two pages, mirroring the pre-contractual disclosure format (also amended and reduced).

Other changes in SFDR 2.0

In addition to the key changes mentioned above, the draft SFDR 2.0 introduces several further measures aimed at strengthening the sustainable finance framework. Notably, the proposal places renewed emphasis on investor protection and the mitigation of greenwashing risks, by introducing clearer rules governing the use of sustainability-related claims in product names and marketing materials.

SFDR 2.0 also seeks to enhance alignment with other EU sustainable finance legislation – such as the EU Taxonomy and the Corporate Sustainability Reporting Directive (CSRD) – to promote consistency across regulatory frameworks.

Furthermore, SFDR 2.0 formalises new transparency requirements concerning the use of data and estimates in sustainability disclosures. Financial market participants would be required to document and, upon request, disclose their methodologies and data sources.

These measures are intended to improve the reliability and comparability of sustainability-related information, thereby enabling investors to make more informed decisions.

Portfolio management and investment advice will be removed from the scope of SFDR, on the basis that the EC considers that firms providing these types of services do not manufacture or manage the underlying sustainable products in relation to which they provide services.

Conclusion

It is important to note that the version of SFDR 2.0 discussed above is based on a leaked draft and has not yet been officially published by the EC. As such, the final legislative proposal of the EC may differ. However, if adopted in its current form, SFDR 2.0 could mark a significant step forward in making sustainable finance regulation more effective, proportionate, and aligned with market realities.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.