SFDR 2.0: From Article 8/9 to ‘Sustainable’, ‘Transition’, and ‘ESG Basics’

• Legal Certainty Instead of Interpretation: Clear 70% quotas replace vague principles.

• Efficiency: Less coordination effort with auditors through standardized metrics.

• Credibility: A robust framework that proactively refutes greenwashing allegations and strengthens investor trust.

The European Commission has proposed the SFDR 2.0 as the central institution within their Action Plan for Sustainable Growth on 20.11.2025.

The action plan serves as the foundation of SFDR 2.0 and aims to promote sustainable financing and create transparency for investors by setting specific measures and guidelines for the financial sector. The proposal is part of a comprehensive Omnibus I Package, a European legal reform that bundles multiple sustainability regulations and reflects the movement and dynamics in European sustainability law.

Currently, SFDR 2.0 is in the legislative process with ongoing negotiations in the European Parliament and Council; European supervisory authorities play an important role in the interpretation and implementation of the new requirements. For the first time, impact investing is explicitly recognized in a European regulation, with SFDR 2.0 aiming to minimize greenwashing.

The goal of the reform is to simplify reporting and introduce new product categories with clear minimum criteria for sustainability reporting.

The Commission presented a legislative proposal for the fundamental revision of the SFDR on November 20, 2025, which particularly provides a new, three-tier product categorization system (“Sustainable / Transition / ESG Basics”), a significant reduction in disclosure requirements, and the removal of PAI obligations at the corporate level. The SFDR functions as a central disclosure regulation within the framework of European sustainability regulation.

The reform is part of the Omnibus I Package and is related to the Stop-the-Clock Directive, which addresses deadline adjustments and regulatory changes in sustainability reporting and EU taxonomy. During SFDR 2.0, the regulatory technical standards are also being revised to improve the transparency and comprehensibility of disclosure requirements. The goal of the reform is a noticeable relief and simplification for companies and investors by reducing complexity and bureaucracy and increasing comparability and transparency.

SFDR 2.0 marks a system change in the categorization of sustainable financial products and represents a paradigm shift in the regulatory framework. The European supervisory authorities and the Commission are continuously working to clarify open questions to eliminate uncertainties in the application of the disclosure regulation and provide guidelines. The new requirements target all market participants and oblige them to comply with all aspects of the ESG and disclosure regulations.

The current SFDR requirements remain unchanged until the trilogue negotiations are completed and the planned transition period. SFDR 2.0 provides a transition period to enable all market participants to adapt to the new regulations.

The proposal COM(2025) 841 aims to simplify the SFDR, better addressing greenwashing risks and enabling investors to have a clearer comparability of ESG products. The new ESG product categories and their minimum criteria should make sustainability goals more understandable.

The SFDR 2.0 distinguishes between:

• Article 6 Funds: No obligation to comply with ESG criteria.

• Article 7 Products: Transition category with a focus on sustainability transition goals.

• Article 8 Funds: Products with ESG characteristics.

• Article 9 Funds: Pursue specific sustainability goals with high transparency requirements.

Impact Funds and Impact Investing are recognized (as part of Art. 7 or 9) and must disclose and measure their theory of impact. Special focus is on the investment share, clear minimum quotas, and taxonomy compliance. Investments in fossil fuels are strictly regulated through exclusions and transition measures to achieve climate goals.

The reform aims to increase coherence with the CSRD, Taxonomy Regulation, and MiFID II/IDD and reduce the administrative burden. Successful implementation requires collaboration in an interdisciplinary team.

For all three categories, at least 70% of investments must support the respective sustainability strategy (Sustainable, Transition, or ESG Basics). SFDR 2.0 provides clear minimum quotas as a regulatory requirement to equip ESG product categories with comprehensible minimum criteria and ensure the achievement of sustainability goals.

The proportion of investments in sustainable assets must be demonstrated to be taxonomy-compliant, which significantly increases the transparency and comparability of the products. The financing of sustainable assets is specifically promoted through these minimum quotas and defined exclusions, as capital flows are specifically directed into sustainable projects and companies.

For this 70%, binding exclusions are provided, in particular

• Companies engaged in new projects for exploration, production, distribution, or refining of coal, oil, or gas, or without credible phase-out plans for coal/lignite. Investments in fossil fuels are thus specifically restricted or excluded to meet the EU’s climate goals and sustainability requirements and to support the transition to sustainable assets.
• Companies falling under the stringent exclusion criteria of the EU climate benchmarks (Delegated Regulation (EU) 2020/1818).
• State issuers (SSA) are generally not counted toward the 70% quota for “Sustainable” and “Transition” but can be part of the overall portfolio; for “ESG Basics”, suitable methods can be used to partially account for SSA exposures.

• Elimination of Art. 4 and 5 SFDR (PAI obligations at the corporate level)
• The obligation to explain and report on “Principal Adverse Impacts” at the entity level is abolished to avoid duplication with the CSRD and reduce costs. This relieves companies significantly as the complex PAI report at the entity level is no longer required and reporting obligations are simplified.​
• At the product level, PAI-related information (particularly for categorized products) is still provided, but with significantly fewer indicators and streamlined templates. The regulatory technical standards are being revised to simplify the templates and increase the transparency and comprehensibility of disclosure.​
• Simplification of product disclosure
• The highly detailed technical templates of Delegated Regulation (EU) 2022/1288 are repealed; the Delegated Regulation is to be entirely repealed with the applicability of the new SFDR rules. Simplification of disclosure requirements is part of a comprehensive reform and a system change within the SFDR 2.0, which marks a fundamental change in the European sustainability regulatory system.​
• Future delegated acts focus on brief, standardized product information (max. about two pages for sustainability information), aligned with PRIIPs-KID and Key Information Documents. The European supervisory authorities and the Commission are continuously working to clarify open questions, to eliminate uncertainties and provide guidelines. This movement towards more transparency and less bureaucracy should facilitate implementation for both companies and investors and strengthen comparability.​

Products not assigned to any of the three categories are considered so-called Article 6 Funds within the framework of the Disclosure Regulation. These funds are subject to less stringent ESG requirements and are not required to comply with sustainability criteria.

The SFDR 2.0 stipulates that products not falling into one of the new categories may no longer use sustainability information in marketing information. This means that sustainability information for these products must not be a central part of the pre-contractual information (max. about 10% of the volume of the strategy presentation), not appear in the PRIIPs-KID/KIID, and not constitute “sustainability claims” according to the Categories Article and Art. 13 SFDR-E.

The European supervisory authorities and the EU Commission are continuously clarifying open questions on the interpretation and application of the disclosure regulation to eliminate uncertainties and provide guidelines. It is especially important for all market participants to observe the new requirements of the disclosure regulation.

The proposal is now under ongoing negotiations in the ordinary legislative procedure in European Parliament and Council. These negotiations are crucial for the final regulations and timelines of SFDR 2.0.

The SFDR 2.0 stands for a movement and a fundamental system change in the European sustainability regulatory system: The reform brings a dynamic further development of the regulatory framework and relies on clearer, quantitative criteria for sustainable investments. The goal of the reform is primarily a relief and simplification for all market participants, by reducing complexity and bureaucracy and increasing transparency and comparability. A well-organized team with interdisciplinary expertise is essential for the successful implementation of the new requirements.

The new SFDR rules are expected to be applicable 18 months after entry into force; a transition period is provided to allow all actors to adapt to the new requirements. With a timely agreement, practical applicability from 2028 is realistic.

EU Taxonomy and Sustainability: Foundation and Differentiation of the New Product Categories

The EU Taxonomy forms the central foundation for the realignment of sustainable financial products within the framework of SFDR. With the current proposal of the European Commission to introduce the three-tier categorization system (“ESG Basics”, “Transition”, “Sustainable”), the taxonomy becomes the binding reference for the classification and evaluation of sustainable economic activities.

The three new product categories are clearly distinguished:

• “ESG Basics” includes financial products that systematically integrate ESG factors, without pursuing explicit sustainability goals.

• The category “Transition” addresses products that specifically support companies or projects that are on a credible transformation path towards more sustainability.

• “Sustainable” products invest in economic activities that are already considered sustainable in terms of the EU taxonomy or pursue a clearly defined sustainability goal.

The revision of the EU taxonomy provides more precise criteria by which companies and financial market participants can measure and disclose their sustainability performance. This creates a reliable basis for comparability and transparency. The introduction of the new product categories is part of the comprehensive Omnibus package of the European Commission. It aims to increase consistency among various regulatory frameworks – such as SFDR, CSRD, and the Taxonomy Regulation. The new categories help prevent greenwashing and strengthen the credibility of sustainable financial products.

Below is a practice-oriented guide to preparing for the new SFDR framework with a focus on product classification, disclosure, and internal roadmap until around 2028.

An interdisciplinary team is crucial to successfully implementing the diverse requirements of SFDR 2.0 from Articles 8 and 9 to Sustainable and to bundle regulatory, technological, and technical skills. The continuous movement in the European sustainability regulatory system requires a constant adaptation of the assets to the new requirements. A targeted focus on critical areas within due diligence is essential to ensure efficiency and effectiveness. It is important that all actors in the company are involved in implementation to fully comply with all regulatory obligations.

8.1. Target Picture and Impact

• The SFDR becomes a combined disclosure and categorization system for ESG products with three labels (“Transition”, “ESG Basics”, “Sustainable”); Art. 8/9 as quasi-labels are eliminated.

• The SFDR 2.0 recognizes impact investing and impact funds for the first time in a European regulation and defines clear requirements for their impact measurement and reporting.

• The new ESG product categories receive clear minimum criteria and minimum quotas to make the sustainability goals more understandable and comparable.

• This reform marks a fundamental system change in European sustainability law, as the categorization of sustainable investments becomes more transparent and quantitative.

• The regulatory frameworks are in constant motion to achieve debureaucratization, while expectations remain high.

• For all market participants, this means a relief through simplified requirements and increased transparency, although an adjustment of assets is essential.

• Core impacts: 70%-Minimum Quota per category, hard exclusions, elimination of PAI at the corporate level, simplified product templates, and stricter marketing/naming rules.

8.2. 3-Step Check for Product Classification

8.2.1. Classification Logic (High Level)

1. Step: Check whether the product has a reliable ESG claim at all. It should be noted that Article 6 funds are not required to comply with ESG criteria and therefore must meet less stringent requirements for sustainability reporting.

2. Step: Assign to one of the three categories based on target level and strategy. Products are assigned according to SFDR 2.0 to Articles 6, 7, or 9: Article 6 funds are non-sustainable, whereas Article 7 products support investments in companies or activities that are in transition to more sustainability (often with transition goals like CO2 reduction). Article 9 funds, on the other hand, pursue specific sustainability goals and must ensure high transparency in achieving objectives. Impact funds and impact investing play a special role as they must detail how their investments achieve measurable positive ecological or social impacts.

3. Step: Check the 70% quota and exclusions, especially concerning fossil fuels, to meet climate goals. If the minimum quotas and exclusion criteria are not met, the classification is “non-categorized” with strongly restricted ESG claims. It is necessary to adapt the investments to the new requirements to meet regulatory requirements. Responsibility lies with all actors who must ensure that all classification requirements are implemented.

8.2.2. Decision Tree (Simplified Schema)

In implementing the classification according to SFDR 2.0, all actors are primarily entrusted with comprehensive responsibility and due diligence to fully meet the regulatory requirements.

8.2.3. Minimum Quota & Exclusions (Operational)

• All three categories: At least 70% of investments must serve the respective sustainability strategy – this minimum quota is a regulatory requirement of SFDR 2.0. The remaining 30% (e.g., liquidity/hedging) must not counteract the sustainability claim.

• Exclusion Lists (Highly Shortened):

  • Basic Exclusions: Prohibited weapons, tobacco, serious violations of UNGC/OECD guidelines, hard coal/lignite.

  • Additionally for “Transition” and “Sustainable”: No companies with new projects in coal/oil/gas; none without a credible coal phase-out plan.

  • Intensification for “Sustainable”: Among others, fossil-fuel value chains, power generation >100 g CO₂e/kWh. The adjustment of investments to these requirements is necessary to meet sustainable financing criteria.

8.3. Adjustment of Disclosure Documentation

8.3.1. Pre-contractual Disclosures (Prospectus, VVP, KID)

• For categorized products: Clear section on the category (Transition/ESG Basics/Sustainable) including objectives, strategy, taxonomy quota, exclusions, and 70% methodology.

• Sustainability Indicators: Focus on core KPIs (e.g., emissions intensity, taxonomy share).

• Impact Products: Subcategory “with impact” requires a detailed theory of impact, target sizes, and a measurement and reporting concept. Impact Investing is explicitly integrated into European regulation for the first time.

• For non-categorized products: ESG information only as a secondary component (max. about 10% of the strategy part). No ESG claims in PRIIPs-KID/KIID.

8.3.2. Periodic Reporting

• Annual presentation of the achievement of objectives and integration of sustainability factors.

• System Change: Description of identified “principal adverse impacts” (PAI) at the product level (replaces the previous entity-related obligation).

• For implementation, a interdisciplinary team with regulatory, technological, and technical expertise is crucial.

8.4. Internal Roadmap 2026–2028

8.4.1. 2026: Inventory & Design Phase

• Mapping of all products (ESG strategy, data availability, taxonomy quota).

• Gap Analysis: Where will the 70% quota be achieved? Where are exclusions or data missing (UNGC/OECD)?

• Establishing the in-house category policy.

8.4.2. 2027: Products & Data Implementation

• Adjustment of investment strategies, benchmarks, and ESG filters to ensure the quotas and exclusions technically.

• Building the data governance according to Art. 12a SFDR-E (external providers, internal estimation logic).

• Drafting new pre-contractual templates and marketing materials.

8.4.3. 2028: Go-Live & Fine Tuning

• Change of product documentation (about 18 months after entry into force).

• Internal Trainings: Focus on permissible claims, MiFID/IDD compatibility and avoidance of greenwashing risks.

• Monitoring: Regular control of the 70% quota and annual alignment with the ESA Guidance.