SFDR Reform Advances: The European Parliament Publishes Its Position on SFDR 2.0

This follows the Council of the EU’s adoption of its negotiating position on 24 June 2026. For the most part, the Parliament’s report confirms the direction already proposed by the European Commission and supported by the Council: replacing the current Article 8 and Article 9 framework and moving to a new product categorization that aims to improve transparency, making it easier for investors to understand and compare.

While several important topics remain under discussion, the core structure of the future reform is becoming clearer. The next step will be trilogue negotiations between the European Commission, the Council and the Parliament, which are expected to begin in October. Depending on the outcome of those discussions, a political agreement could potentially be reached between late 2026 and early 2027.

Based on the current timeline, SFDR 2.0 is expected to apply no earlier than the beginning of 2029.

What Is Becoming Clearer?

Across all three institutions, there is broad support for:

1. A New Product Categorization Framework

SFDR 2.0 is expected to be based on three categories:

• Transition

• ESG Basics

• Sustainable

This increases the likelihood that Articles 8 and 9 as they exist today will be replaced by a new product categorization framework.

2. A 70% Investment Threshold

The Commission, the Council, and the Parliament all support a minimum 70% threshold for categorized products. This means a core requirement would be at least 70% of the portfolio to be in line with a sustainability objective or strategy.

By comparison, the current SFDR framework focuses primarily on disclosure requirements and does not contain a universal minimum portfolio allocation threshold for Article 8 or Article 9 products. This makes the proposed 70% requirement one of the most significant structural changes under SFDR 2.0.

 A key question remains how the 70% threshold will be calculated in practice, with further clarification expected in 2027 through Level 2 measures.

3. Immediate Relief for Certain Requirements

Both the Parliament and the Council propose removing requirements that will no longer exist under SFDR 2.0 immediately upon entry into force.

This might affect Principal Adverse Impact (PAI) reporting and certain SFDR obligations for advisers and portfolio managers as early as 2027.

4. A Longer Implementation Period

Both the Parliament and the Council support a 24‑month implementation period, compared to the Commission’s original 18‑month proposal, giving companies additional time to prepare for the new framework.

5. Minimum Exclusions Criteria

Minimum exclusions are expected to replace some of the complexity associated with today’s Do No Significant Harm (DNSH) principle and are becoming a core element for product qualification. While there is broad agreement on excluding activities such as controversial weapons, tobacco and certain human rights violations, differences remain around fossil fuel exclusions, coal-related activities and the circumstances under which temporary deviations from the rules may be permitted.

What Is Still Being Debated?

1. Fossil Fuel Investments

The Parliament has proposed stricter requirements than the Council for certain fossil fuel-related investments within Transition products. The companies would need to demonstrate not only Taxonomy-aligned investments and emissions reduction plans, but also that more capital is allocated to sustainable activities than to new fossil fuel projects.

2. PAI Indicators

The three institutions continue to take different approaches to Principal Adverse Impact indicators.

While the Commission proposes a largely voluntary approach, the Council and the Parliament both support introduction of mandatory indicators. This is expected to be a key discussion point during the trilogue negotiations.

3. What Qualifies as a Transition Investment

Further clarification is needed on how companies will demonstrate credible transition strategies, monitor underperformance, and report progress against transition objectives over time.

4. Professional Investor AIF Exemption

Both the Parliament and the Council support an opt-out for certain Alternative Investment Funds (AIF) distributed exclusively to professional investors. However, the scope, practical application on how the exemption will work and which products will qualify remain under discussion.

5. Sovereign Debt Eligibility

The treatment of sovereign debt remains an important discussion point, particularly for Insurers and Pension providers, as they are often required to maintain a certain level of sovereign debt exposures. The Parliament and the Council support more flexibility compared to the Commission proposal, but the final approach is still being negotiated.

An additional one-year implementation period for SFDR 2.0 is currently proposed for pension products and Insurance-Based Investment Products (IBIPs).

6. Taxonomy Thresholds

The connection between SFDR and the EU Taxonomy continues to strengthen. While all institutions support the use of Taxonomy-aligned investments as an alternative to product qualification, the Parliament proposes a higher threshold for Sustainable products (20%) than the Commission and the Council (15%). Transition products remain at 15% across all three positions.

What Comes Next?

1. The European Parliament formally confirms its negotiating position in early October 2026.

2. Trilogue negotiations begin between the European Commission, the Council and the Parliament.

3. Agreement is reached on the final SFDR 2.0 reform, which is anticipated between late 2026 and early 2027.

4. Detailed Level 2 technical standards (RTS) and disclosure templates are developed throughout 2027.

5. SFDR 2.0 starts to apply following the implementation period, expected in 2029.

cleversoft Services

cleversoft continuously monitors developments in the SFDR 2.0 reform and assesses their impact on disclosures, calculations, ESG data requirements and reporting obligations.

As part of our compliance commitment, we are continuously evolving our standard SFDR service in line with regulatory changes and new disclosure requirements, and we will inform our customers as soon as new information becomes available.

As SFDR 2.0 progresses through trilogue negotiations, we will also share practical guidance to support your implementation planning.

Get in touch or visit our SFDR Service page to learn more about how our SFDR service supports your compliance efforts and operational efficiency.