Understanding SFDR 2.0: New EU Product Categorisation Rules

Highlights

• New SFDR 2.0 fund categories set minimum investment thresholds and exclusions.
• It removes entity-level reporting and focuses on product-specific sustainability impacts.
• Only funds meeting SFDR 2.0 Articles 7, 8, or 9 can use sustainability claims in marketing.

The European Commission proposed revisions to the EU Sustainable Finance Disclosure Regulation (SFDR), introducing what is commonly referred to as SFDR 2.0.

This proposal shifts the regulatory framework for asset managers, particularly those offering sustainability-related financial products, from a complex disclosure-focused system to a structured product categorisation regime.

By doing so, it aims to make sustainability information more accessible for investors, as well as set clear boundaries for the use of sustainability claims in fund names and marketing.

Read More: SFDR 2.0 Draft Suggests Overhaul of EU ESG Disclosure Framework

Product Categorisation Regime Under SFDR 2.0

SFDR 2.0 introduces three main sustainability-related fund categories: Transition (Article 7), ESG Basics (Article 8), and Sustainable (Article 9). Each category has minimum investment thresholds, exclusions, and permitted investment types.

Funds classified under these categories must disclose Principal Adverse Impacts (PAI) at the product level. Non-categorised funds, previously under Article 6, are barred from making sustainability claims, even if they provide voluntary disclosures under the new Article 6a. This structure clarifies which funds can legitimately present themselves as sustainable.

Also Read: Commission Prunes SFDR Rules for Sustainable Financial Products

Disclosure and Marketing Requirements

The revised SFDR keeps mandatory disclosure obligations but simplifies them to reduce the compliance burden for asset managers.

Pre-contractual, website, and periodic disclosures are important for products under the new categories.

Marketing communications and fund names now face stricter rules: only financial products meeting Articles 7, 8, or 9 criteria may claim sustainability features. These measures are designed to limit greenwashing and provide investors with more reliable information when comparing sustainable investment options.

Removal of Entity-Level PAI and Transitional Rules

SFDR 2.0 removes the requirement for entity-level PAI reporting, thereby concentrating on disclosures at the product level. Asset managers no longer need to publish entity-wide PAI statements or comply-or-explain statements.

The proposal does not offer general grandfathering or transition relief for existing funds, apart from a narrow exemption for certain closed-ended funds. Professional investor-only funds are subject to the new regime, which shows the Commission’s intention to ensure consistency across the EU sustainable finance market.

See Also: 65 Impact Funds Demand New EU Investment Category

Takeaway on SFDR 2.0 Implications

The new rules aim to make EU sustainable finance products easier to compare and assess for both retail and professional investors. Asset managers need to align existing funds with the new product categories and disclosure standards by the proposed start-up period from 2027 to 2028, establishing a clearer framework for sustainable investment in Europe.

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