Draft SFDR 2.0 Proposals

1 Introduction

The development of the European Commission's proposals to update the EU Sustainable Finance Disclosure Regulation (SFDR) may turn out to be one of the worst-kept secrets of recent years. It was widely expected that the Commission would formally publish the proposals (dubbed "SFDR 2.0" by the industry) on 19 November 2025 and indeed, it appears that this may well still be the case.

On 6 November 2025, a leaked draft of the SFDR 2.0 text was published. This proposes replacing the existing Article 6/8/9 framework with a new product category framework. Although the Commission refused to comment on the leak, the advanced state of the text strongly suggests that the proposals are relatively far along in their development, which is consistent with the above anticipated deadline for their formal release. Nonetheless, we understand that as the text is an interservice consultation draft, the Commission may receive further (potentially significant) internal comments before the final draft version is published.

Many of the proposals are consistent with rumours that were circulating long before the leak occurred and for the industry, it looks like SFDR 2.0 (assuming it is adopted in this form) would be relatively positive news. Once the formal proposal is published (expected later in November 2025), the European Commission will send it to the European Council and European Parliament. It will only become legislation if it is agreed by all three. To become functional, it will need to be supported by a revised Regulatory Technical Standard, which has yet to be published. We do not expect these proposals to come into effect until late 2027 or 2028 at the earliest. There is no guarantee that the (broadly) pragmatic approach of the leaked text will survive into the final legislative amendments.

In this briefing, we identify the key points arising from the leaked Commission draft and provide our own views on what this might mean for the asset management industry. As the discussion is based on a leaked text that has not yet formally been adopted by the Commission, some of these details may still change between now and the expected publication date.

2 The headlines

• As expected, the Commission is proposing a new categorisation approach, which will delete and replace the existing Article 6, Article 8 and Article 9 SFDR product categories.
• The new product categories are likely to bring greater clarity, with clearer criteria about when a product falls within a particular category. SFDR 2.0 uses a different set of categories to the UK FCA's Sustainability Disclosure Requirements.
• The Commission will have extensive powers to specify in new delegated acts further details of which underlying investments will be eligible for each category. Much will therefore depend upon the approach that the Commission adopts in relation to those delegated acts.
• There will be a clearer set of conditions for products to fall outside the new product categories. In practice, this should make it easier for fund managers and other product providers to specify that a product does not fall within one of the revised categories.
• There will be a new ability for alternative investment funds (AIFs) that are marketed exclusively to professional investors to opt-out of the new product categories. In practice, this means that the managers (AIFMs) of those funds will be able to include sustainability-related claims in their fund documents or marketing materials without needing to comply with the detailed conditions applicable to the relevant product category. However, they will remain subject to certain other overarching requirements. Clearly, this will not be available to products available to retail investors either under the UCITS regime or through other retail-eligible products (see below).
• Closed-ended funds that are fully raised and are no longer distributed after the date that the new SFDR 2.0 rules come into force will fall outside the SFDR regime entirely. However, depending on the contractual commitments that they have made to their investors, they may in practice still need to comply with some requirements derived from SFDR 1.0.
• For UCITS funds and open-ended AIFs that are not marketed exclusively to professional investors, there does not appear to be any transitional relief in the draft text. Whether this is an issue is likely to depend upon whether or not those funds can easily update their fund documentation (and, where applicable, name) to meet the updated conditions to fall outside the new product categories. Where this is not practical, they will need to await the details of the Commission's delegated acts to determine if they can meet the criteria for the relevant product category.
• The requirements for entity-level reporting on principal adverse impacts and on integration of sustainability related risks into remuneration policies will be deleted.

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