Why the EU rewrote the SFDR
The Commission’s review found that the original SFDR had become overly complex, hard to implement, and widely misunderstood. The Article 8 and 9 classifications were never meant to act as product labels, yet they became de-facto categories, creating confusion, greenwashing risk and inconsistent investor expectations.
The new proposal fixes this by deleting Articles 8 and 9 entirely and replacing them with a simpler, clearer set of product categories set out in the law itself.
Key SFDR 2.0 changes
1. Entity-Level disclosures will be removed
- Proposal abolishes entity-level Principal Adverse Impacts (PAI)
- Proposal deletes the integration of sustainability risks in remuneration policies on their websites
2. Product-level disclosures will be shorter and standardised
New disclosure templates, tied directly to the three categories, will be much simpler and limited to essential information.
- Sustainable investment definition will be simplified under new categories
- Do No Significant Harm (DNSH) section requirements removed
- Good governance section requirements removed
3. Three new voluntary product categories replace the old system
Products may opt into one of three new categories set out in Articles 7, 8 and 9 of the proposed SFDR:
- Article 7: Transition products
- Article 8: ESG Basics products
- Article 9: Sustainable products
(These categories fully replace the old “Article 8/9” classifications.)
4. Rules for non-categorised SFDR products
- Permitted to voluntarily make disclosures on sustainability in the pre-contractual documentation, but it shouldn't be misleading
- No sustainability terms can be used in the fund name
- No sustainability claims can be used in marketing materials
- No more than 10% of the pre-contractual investment strategy section
- Sustainability information cannot be included in the fund's KIID
- An annual disclosure must be provided to describe how they consider sustainability factors in practice
New SFDR 2.0 categories (Articles 7–9)
Article 9: Sustainable products
For investments already contributing to environmental or social objectives, and excluding significant fossil-fuel activities.
Article 7: Transition products
For investments in companies not yet sustainable but on a credible, measurable transition pathway.
Article 8: ESG basic products
For funds integrating ESG in a structured way without meeting the higher criteria of Sustainable or Transition products.
How the new three-tier system works
1. Exclusions (what you cannot invest in)
All three categories include mandatory exclusions (e.g., controversial weapons, tobacco), with Sustainable products having the strictest fossil-fuel rules.
2. 70% minimum alignment
Each category requires at least 70% of the portfolio to meet the relevant ESG strategy:
- Sustainable fund: 70%+ in assets that positively contribute to sustainability.
- Transition fund: 70%+ in companies on a credible improvement or decarbonisation path.
- ESG Basics fund: 70%+ in assets aligned with its specific ESG integration approach.
3. Adverse impacts
Funds must identify material adverse impacts and describe how they are addressed and will be mitigated.
How SFDR 2.0 helps LPs and GPs
Clearer ESG signals
Only products meeting Article 7–9 rules may make ESG or sustainability claims in names or marketing.
Better comparability for LPs
Simplified templates help LPs evaluate funds more easily.
Reduced reporting burden
No entity-level PAI, and product templates are shorter and less complex.
How SFDR 2.0 prevents greenwashing
The reform removes the ambiguous old system and replaces it with clear legal criteria, labelling rules, exclusions and minimum thresholds. Supervisors will enforce these rules consistently.
New SFDR 2.0 templates
The old, lengthy templates will be phased out. New product templates will be:
- max two pages,
- aligned with the three categories,
- accompanied by limited technical rules for comparability.
For VCs, this means faster onboarding, fewer legal costs, and less disclosure duplication with the CSRD.
SFDR and CSRD
The new framework aligns with CSRD by removing the need for most FMPs to produce their own entity-level adverse impact reports, relying instead on company-reported data.
SFDR and EU taxonomy
- Taxonomy disclosures will become voluntary, not mandatory.
- Taxonomy-related disclosures will only be required for Article 7 and 9 products pursuing an environmental objective.
- Products investing 15%+ in Taxonomy-aligned assets automatically meet the 70% “positive contribution” requirement.
- EU Climate Benchmarks can also satisfy the thresholds.
- This flexibility is particularly relevant for climate-tech VCs.
Impact on defence investments
- EU sustainable finance rules do not prohibit investment in defence.
- The only exclusion applies to internationally prohibited weapons.
- This clarification may increase institutional interest in defence-tech.
Timeline and next steps
- The reform is a proposal, now entering negotiations with Parliament and Council.
- The Commission will draft simplified templates (Level 2).
- Many SFDR technical standards are de-prioritised until at least Oct 2027, meaning the new system will not apply for 2026 disclosures.
- VCs should prepare, but implementation will come only once legislation is finalised and the 18-month transition period begins.
Your action checklist for 2026
- Map your fund to Article 7, 8 or 9 based on likely strategy.
- Review fund documentation for future changes to names and marketing.
- Enhance ESG data processes for 70% alignment + exclusions tracking.
- Engage LPs early to align expectations.
- Monitor UK SDR and global rules as interoperability is increasingly relevant.
How Planicorn can help
Planicorn has supported funds through many major ESG regulatory shifts, and we know how to help you adapt quickly and confidently.
Contact us to understand your fund’s exposure, update your ESG positioning, and build a clear roadmap for the transition once the final rules and timelines are confirmed.
Sources
- European Commission - Questions and answers on the Sustainable Finance Disclosure Regulation
- Proposal for a Regulation of The European Parliament and of The Council
