20 November 2025 marked the most significant development in EU sustainable finance since the original Sustainable Finance Disclosure Regulation was adopted. The European Commission published its proposal to amend Regulation (EU) 2019/2088 (otherwise known as “SFDR”) which significantly overhauls the existing rules in several respects and now makes the SFDR’s unintended role as labelling regime official.
The proposal also includes targeted amendments to the PRIIPs Regulation and repeals the existing SFDR Level 2 Delegated Regulation. The scope is also narrowed as financial advisers and portfolio managers are removed from the SFDR’s product-disclosure obligation.
We provide below a high-level overview of the changes and potential actions clients might need to take if the proposal was adopted as issued today.
The European Commission’s proposal follows an intensive review of the Sustainable Finance Disclosure Regulation. Since its application in March 2021, the Sustainable Finance Disclosure Regulation has become a central part of the European Union’s sustainable finance framework.
However, the Sustainable Finance Disclosure Regulation has generated widespread criticism. Stakeholders have raised concerns relating to:
The proposal forms part of the European Commission’s programme to deliver simpler and more proportionate rules.
The most notable change is the creation of three new sustainability related product categories. The European Commission intends to replace the market’s reliance on Articles 8 and 9 with more objective criteria, making the SFDR’s once-unintended role official.
All three categories share the common features:
Mandatory minimum investment commitment: the proposed threshold is 70% alignment with the relevant objective of the category.
Mandatory list of exclusions: under the proposal, all three labels would be subject to a common baseline of exclusions, covering hard coal and lignite, controversial weapons, tobacco, and serious breaches of international norms. The sustainable and transition categories would go further by excluding companies developing new coal, oil, or gas projects, as well as those without a credible fossil-fuel phase-out plan.
List of permitted investment types: each category includes a list in which the firm may permissibly invest to give effect to their respective objectives.
Transition products
These relate to financial products that aim to support the transition of undertakings, economic activities and other assets towards sustainability, or contribute to such transition they must demonstrate credible pathways towards sustainability and may include activities that are not yet sustainable but have specific transition outcomes.
ESG basics products
These products integrate sustainability factors beyond basic risk management but do not pursue a transition objective or a sustainability outcome. They represent the broad category of financial products with environmental, social or governance characteristics.
Sustainable products
These products have a sustainability objective and invest in economic activities that meet robust sustainability criteria. They represent the highest tier of sustainability ambition and must meet additional exclusion and transparency requirements.
Map all existing products to the new categories
Clients must review their entire product range and assess which of the three new categories—Transition, ESG Basics, or Sustainable—each fund could realistically align with.
This requires analysing:
Any products that cannot meet the criteria will need to be:
The proposal eliminates Articles 4 and 5 relating to principal adverse impacts at entity level and remuneration policy disclosures.
The proposal introduces a simplified set of product disclosures aligned with the three new categories. According to the European Commission, the templates will be shorter, more focused, and easier for investors to understand. The current detailed sustainability indicators will be reduced and refocused on information that is genuinely meaningful to end investors.
Both the pre-contractual and periodic templates will be limited to two pages, with a substantial reduction in required content. New regulatory technical standards (RTS) will also be developed to specify the detailed requirements for each category and to define the format of the mandatory disclosures.
For website disclosures, firms will only need to publish the same pre-contractual and periodic templates, without any additional website-specific content as currently required.
Prepare to redesign product documentation (pre-contractual, website, periodic) to meet the simplified disclosures and categorisation rules.
The proposal aims for improved consistency across the regulatory framework including alignment with the Corporate Sustainability Reporting Directive.
The amendments remove the existing blanket obligation to disclose Taxonomy alignment for all products. Obligations will instead depend on whether a financial product claims to invest in environmentally sustainable activities.
The categorisation system is designed to support client preference assessments conducted by distributors. Further amendments to the delegated acts under these regimes may follow.
The proposal strengthens naming and marketing rules. Only products that meet the criteria of the new categories may use sustainability related claims in their names. Non categorised products may refer to sustainability factors in marketing communications only under very specific conditions.
The proposal also incorporates transparency requirements for the use of environmental, social and governance ratings in marketing materials.
Firms will be required to meet new requirements in relation to the use of data and ensure that External data (other than publicly available open sources) is used under formal, documented arrangements and Estimates not derived from external data providers rely on formal, documented methodologies.
Review and adjust product disclosures, naming, marketing, data use, and client-preference processes to align with the new categorisation system and its interactions with the Taxonomy Regulation, MiFID II/IDD rules, and strengthened marketing restrictions.
Update internal governance, data arrangements, and methodologies to ensure formalised use of third-party data, robust estimation practices, and compliance with new transparency and reporting requirements across the sustainable finance framework.
The proposed reform of the Sustainable Finance Disclosure Regulation marks a decisive shift in the EU’s sustainable finance framework. By introducing new sustainability-related product categories and removing some of the most burdensome requirements, the European Commission aims to provide clearer rules, reduce greenwashing risks, and strengthen investor confidence. However, the reforms will still require careful analysis and short-term resource allocation to ensure effective preparation.
The legislative process will continue through 2026, and we expect the new rules to apply from late 2027 or 2028.
As the implications of SFDR 2.0 become clearer, we are fully equipped to help firms navigate the transition. Our team can support with assessing product impacts, interpreting regulatory developments, updating disclosures and governance frameworks, and preparing a roadmap for implementation to ensure compliance and minimise disruption.
