SFDR 2.0 Explained: what changes, who it affects and when it will apply

The reform is called SFDR 2.0 – a legislative proposal that has now cleared two of the three institutional positions it needs. While it has not yet reached trilogue, it looks to be a highly important area that demands planning and forethought prior to finalisation.

The Sustainable Finance Disclosure Regulation (SFDR), Regulation (EU) 2019/2088, has applied since 10 March 2021. Under the current framework, products sit under Article 6 (no sustainability claim), Article 8 (products promoting environmental or social characteristics) or Article 9 (products with a sustainable investment objective).

On 20 November 2025 the European Commission published its proposal to replace the current regime with three voluntary categories: Sustainable, Transition and ESG Basics.

Each carries prescribed criteria including a general requirement that at least 70 per cent of the portfolio supports the relevant strategy. Three specific changes within the framework change stand out among the others:

• Categories replace disclosure articles.

The proposal moves from a disclosure-based framework to a product labelling system backed by minimum criteria.

• The definition of sustainable investment disappears.

The Article 2(17) definition is deleted and the minimum criteria attached to each category define what qualifies instead.

• Templates get simpler.

The Commission has paired the three categories with simplified templates and clearer rules on sustainability and impact claims, which the PRI has welcomed as an improvement to usability and investor protection. That said, while this would ensure simpler templates, they would still have to be filled in, in every language, for every product.

The current regime reaches AIFMs authorised under AIFMD, UCITS management companies, MiFID II investment firms providing portfolio management or investment advice. It also affects manufacturers of insurance-based investment products under the Insurance Distribution Directive.

The scope looks likely to widen further, with packaged retail investment products brought explicitly within the regime for a more consistent approach across retail-facing products.

Put simply, If you manufacture or distribute a fund marketed in the EU that says anything at all about sustainability, this concerns you.

The Commission published its latest proposal in November 2025. Parliament’s ECON Committee published its draft report on 28 April 2026, going further than the Commission in places by raising the minimum taxonomy-aligned investment to 20 per cent for both the Sustainable and Transition categories. It also suggested applying the full list of mandatory principal adverse impact indicators across all categories, including ESG Basics.

The Council agreed its negotiating position on 24 June 2026 and the ECON vote has reportedly moved to September 2026. Trilogue cannot begin until Parliament adopts its mandate.

Two questions remain genuinely contested: how far the Transition category should accommodate fossil fuel companies pursuing a credible transition strategy and whether alternative investment funds offered exclusively to professional investors should sit outside the categorisation regime altogether.

Parliament’s mandate is currently expected in the autumn. Trilogue follows, then formal adoption, publication in the Official Journal and entry into force. The Council has proposed extending the application period from 18 to 24 months after entry into force and the ECON materials support that extension. Proskauer Rose LLP

On that basis, the application lands somewhere around 2029.

When a product changes category, its pre-contractual annex, periodic report, website disclosure, prospectus and marketing material all move together. For a fund distributed across the EU, each of those exists in several languages and every version has to carry the same defined terms with the same meaning.

For right now, there are three pieces of work that will pay off whatever trilogue decides.

• Settle your terminology.

The category labels are not final. During Council discussions, the Cypriot Presidency floated combining “ESG” or “sustainable” with qualifiers such as “Basic” and “Advanced” to signal the hierarchy between categories. Whatever the final wording, it needs one agreed rendering per language, applied everywhere. Starting to build those glossary and terminology assets now costs very little and removes time pressure.

• Audit your legacy boilerplate.

Any standing text, in any language, that refers to sustainable investment as defined in that article stops being accurate the day the new regime applies. Finding out where that wording sits across your document set is an exercise you can run today with a content audit.

• Work out who does the work.

The documentation effort will concentrate into a narrow window before the application date, across your entire in-scope range, in every distribution language, at the same time.

The last time this happened, in 2022, the firms that came through it well were not the ones who guessed the rules earliest. They were the ones whose terminology was already agreed, whose documents were already mapped and who knew in advance who was picking up the work. This just requires someone to start before the deadline is visible.

We have supported asset managers, fund administrators and private banks through every major disclosure change since 1998, including the original SFDR rollout and the reclassification wave that followed it.

Our fund and investment management content solutions cover prospectuses, factsheets, KIDs, KIIDs, SFDR annexes and periodic reports, supported by approved multilingual glossaries and translation memories that keep defined terms consistent across every market you distribute in.

For the wider picture on handling regulated content across languages, see our guide to staying compliant when translating regulated content.