How to start aligning your processes with SFDR 2.0 requirements

The European Commission has announced a significant overhaul of the Sustainable Finance Disclosure Regulation (SFDR), widely referred to as SFDR 2.0.

Under the proposal, which is subject to the ordinary legislative procedure, the updated framework is expected to take effect by December 2028 (with recommended actions to taken by Q4 2026) and includes: a twenty‑day entry into force,  an eighteen‑month transition period, and  Technical standards anticipated by October 2027.

What is the impact on Fund Managers?

There is no grandfathering, meaning Article 8 & 9 existing products must comply with the new framework or discontinue sustainability claims, except for closed-ended products that were established and distributed prior to the date of application of SFDR 2.0.

The reform is intended to simplify the framework, reduce greenwashing risks, improve investor comparability, and streamline compliance for financial market participants.

The current Article 8 & 9 frameworks would be replaced with three new product categories, each requiring at least 70% of investments to align with sustainability indicators to meet sustainability criteria and apply binding exclusions:

• Transition Category (Article 7): For products targeting companies and activities that are clearly taking actions toward environmental sustainability (i.e. reducing gas emission, improving energy efficiency, increase use of renewable energy, etc.) and can demonstrate progress through measurable indicators (i.e. emissions reduction targets, percentage of revenues aligned with transition activities, etc.) applying EU Climate Transition Benchmark (CBT) exclusions (investment only in companies on which are on a credible and measurable path towards decarbonization) and incorporating tools such as transition plans, structured engagement, and Taxonomy‑aligned activities.
• ESG Basics Category (amended Article 8): ESG Basics is expected to be the most common category for existing Article 8 funds maintaining the role of a mainstream ESG category introducing 70% threshold, the mandatory CTB exclusion. The simplified disclosure and the strict limit on claims while offering lower operational burden compared to the Sustainable or Transition categories.It is designed for products integrating ESG factors in a meaningful and systematic way, but which do not pursue a sustainability objective while however applying CTB exclusions.

  ESG Basics products may invest in companies with stronger ESG ratings, integrate ESG metrics in screening, and apply ESG scoring methodologies clearly disclosing indicators they use to assess ESG performance.

  While falling under this category, products cannot market themselves as “impact” products and/or claim to deliver measurable sustainability outcomes.

• Sustainable Category (amended Article 9): For products that aim to achieve clear and measurable sustainability objectives supported by credible sustainability indicators rather than merely integrating ESG factors or facilitating transition efforts.
• The category applies PAB (Paris-Aligned Benchmark) exclusion and restricting fossil‑related activities; products must identify relevant Principal Adverse Impact (PAI) and must disclose any action to address them.

The Sustainable Category under SFDR 2.0 is the strictest and outcome-oriented classification; through the 70% minimum threshold, the PAB exclusions rules, the mandatory PAI disclosures, the formal impact label and all evidence-based disclosure, it will be ensured that only products with genuine, measurable sustainability outcomes can market themselves as “sustainable”.

A new Combined Product (Article 9a) category would allow a financial product to meet the sustainability qualification by investing primarily (Fund of Funds) in other products that are already classified under transition, ESG Basics and Sustainable categories and are consequently compliant with the 70% investment threshold. This means that the product inherits the sustainability classification of the underlying funds and can rely on their respective disclosures, indicators exclusions and methodologies.

The proposal aims to eliminate some of the current SFDR core concepts; elements and definitions such as “good governance” and “sustainable investment” would be embedded directly into the new product criteria, with DNSH principle (“Do No Significant Harm”) replaced by binding exclusions for greater consistency; Principle Adverse Impact (PAI) disclosures will remain mandatory for new Transition and Sustainable categories.

The implementation of SFDR 2.0 will have both strategic and operational implications across the product lifecycle:

Additional guidance and regulatory technical standards referred to the implementation of the proposal need to be delivered and are expected from regulators and legislators; investment managers and product managers shall closely monitor the development of SFDR 2.0 to anticipate any necessary adjustments to the funds’ strategies and to the portfolios’ composition.

How can Altum Manco help?

Altum Management Company (Luxembourg) S.A. provides a full suite of services that map directly onto the strategic, operational, governance and data related demands of SFDR 2.0. Speak to our experts on how we can support you with project assessments, setup and launch for your UCITS, SIF, RAIF and AIF structures.