The Council of the EU’s position on SFDR 2.0, which it agreed on 24 June 2026, keeps the core of the Commission’s November 2025 proposal for the revised Sustainable Finance Disclosure Regulation: three voluntary product categories in place of the Article 8 and 9 framework most of us know. The Council is the first of the two co-legislators to settle its view, and while nothing changes in your disclosures yet, the shape of what will replace them is becoming clearer.
Where did SFDR 2.0 come from?
The Commission proposed its amendments on 20 November 2025 after a review found that today’s disclosures were too long and complex, and that Articles 8 and 9 had been used as de facto labels. Its response, as set out in the Commission’s Q&A, has four parts:
- Three voluntary categories: sustainable, for products already investing in assets that meet high sustainability standards; transition, for products investing in companies or projects on a credible path; and ESG basics, for products that integrate ESG approaches without meeting the criteria of the other two.
- Common criteria: each category combines exclusions with a positive test, under which at least 70% of the portfolio must follow an ESG strategy that matches the product’s claims.
- ESG claims reserved for categorised products: under the proposal, sustainability-related claims in names and marketing communications are limited to products that sit in a category.
- Much less disclosure: entity-level principal adverse impact statements go, product templates for categorised products are limited to two pages, and the separate definition of “sustainable investment” is deleted, with the new rules applying 18 months after entry into force.
What did the Council change?
The Council’s press release describes a position that “welcomed the proposed changes” and then adjusts them in four places.
The first adds more structure on adverse impacts. For the sustainable and transition categories, managers identifying and disclosing principal adverse impacts must use at least three indicators from a list the Commission will provide, with the aim of making products easier to compare.
The second opens a route into the transition category for fossil fuel companies. Investments in fossil fuel companies that allocate 20% of their capital expenditure to Taxonomy-aligned activities, and that have a clear, time-bound plan to cut greenhouse gas emissions, may be considered for transition, although those investments must also be assessed against a fourth mandatory adverse impact indicator.
The third brings public sector bonds into transition, allowing general-purpose issuances by public sector bodies established in the Union to be included in that category under certain conditions. The press release notes the significant share these issuances take in portfolios, particularly in insurance and pension products.
The fourth is a carve-out for professional AIFs, under which alternative investment funds offered only to professional investors wouldn’t have to apply the categorisation provisions.
What hasn’t changed in the SFDR categories?
The overall architecture stands, with three categories, a criteria-based rather than disclosure-based approach, and a clear split between products that make ESG claims and those that don’t. For anyone who spent last winter working out where each fund might land, that analysis still holds.
It’s still a negotiating position, though, because the European Parliament hasn’t yet agreed its own and the Council’s mandate only starts talks once it has, so every detail described here can still move in trilogue.
What it means in practice
Today’s rules continue to apply in the meantime. Articles 6, 8 and 9, and the pre-contractual and periodic templates that go with them, remain the law until a final text is adopted and its transition period has run, which means this year’s periodic reports are produced on the current templates.
The question of fund names is also coming back into focus. ESMA’s fund names guidelines already govern ESG terms in names, but under SFDR 2.0 the right to make any sustainability-related claim in a name or a marketing communication would depend on being in a category. That turns category placement into a decision about fund names, factsheets, websites and marketing copy as well as disclosure annexes.
Investment managers with professional-only AIF ranges will want to watch the carve-out closely. If it survives trilogue, it removes the categorisation burden for a large part of the alternatives market, and if it doesn’t, those funds face the same choices as everyone else.
The timeline
- 20 November 2025: the Commission publishes its proposal
- 24 June 2026: the Council agrees its negotiating mandate
- Next: the Parliament agrees its position, followed by trilogues between the Council, Parliament and Commission
- After adoption: the rules would apply 18 months after entry into force under the Commission’s proposal, or 24 months under the Council’s mandate, with new implementing templates to follow
What to do now
- Map your range to the categories by testing each Article 8 and 9 fund against the 70% threshold and the exclusions for each category, and noting where the Council’s adverse impact indicators or fossil fuel test would change the answer.
- Audit your ESG language, listing every fund name, factsheet line and web page that makes a sustainability claim, since those are the places a category decision will land.
- Hold off on rebuilding templates, and keep investing in the data underneath them, such as holdings, exclusions and adverse impact indicators, rather than in layouts that will change again.
The Council’s mandate is the first real signal of where SFDR 2.0 is heading, towards fewer disclosures and firmer criteria, and it suggests the work will move from writing annexes to showing that each fund meets the criteria of its category.
For us, SFDR 2.0 shifts the hard part from document production to data. A category depends on exclusions, a 70% test and adverse impact indicators that have to be calculated consistently and shown the same way in every prospectus, periodic report, fund factsheet and fund page. When that data is governed in one place, with an audit trail behind each figure, moving a fund into a category, or out of one, is a controlled change rather than a hunt through documents. If you’d like to talk it through, get in touch.
