SFDR 2.0: what the new fund categories mean for selectors
28 SEPT, 2026
SFDR 2.0 is the most significant rewrite of European sustainable fund rules since the Sustainable Finance Disclosure Regulation took effect in March 2021. For fund selectors, it changes the question from "is this fund Article 8 or 9?" to "which of three categories does it qualify for – and can it prove it?"
The timing matters. On 10 September 2026, the European Parliament's ECON Committee adopted its negotiating position, joining the Council (June 2026) and the European Commission, whose proposal dates from November 2025. The framework is now broadly settled, even if the details are not.
Why SFDR is being rewritten
SFDR was designed as a disclosure regime, but the market used Articles 8 and 9 as de facto labels. That created instability: after ESMA clarified in June 2022 that Article 9 portfolios should hold only sustainable investments, Morningstar identified around 350 Article 9 funds reclassified to Article 8 in the second half of 2022, according to EFAMA.
The stakes are large. Combined assets in Article 8 and 9 funds stood at €7.1 trillion at the end of 2025, according to Morningstar, while Article 9 funds recorded outflows for a ninth consecutive quarter. SFDR 2.0 formalises what the market already does – treat SFDR as a labelling system – and attaches minimum criteria to each label.
The three SFDR 2.0 categories
All three institutions agree on the architecture. Sustainability-related products will fall into one of three voluntary categories, each requiring at least 70% of the portfolio to be invested in eligible assets for that strategy. Products outside them become "Article 6a" products, with strict limits on sustainability messaging.
| Category | Aim | Key criteria (current proposals) |
|---|---|---|
| Article 9 – Sustainable | Invests in sustainable companies, assets or activities | 70% eligible investments; Paris-aligned benchmark exclusions; alternative Taxonomy route (Parliament proposes a 20% minimum) |
| Article 7 – Transition | Invests in companies and activities on a credible transition path | 70% eligible investments; coal and fossil fuel exclusions with capex conditions; alternative 15% Taxonomy-aligned route |
| Article 8 – ESG Basics | Integrates sustainability factors beyond risk management | 70% eligible investments; outperformance on at least two sustainability indicators (Council and Parliament) |
| Article 6a – Uncategorised | No sustainability claim | Sustainability information limited to 10% of investment strategy disclosures |
Two details deserve attention. First, the numbering changes meaning: today's Article 8 "light green" becomes "ESG Basics", a name the industry has criticised but which now looks likely to stay. Second, fund-of-funds are handled through a separate Article 9a mechanism – relevant for multi-manager and ELTIF 2.0 structures.
Commission, Council and Parliament: where they differ
Consensus on the structure hides several open points that trilogue must settle. Where the Council and Parliament already agree, the provision is likely to survive into the final text.
| Issue | Commission (Nov 2025) | Council (Jun 2026) | Parliament ECON (Sep 2026) |
|---|---|---|---|
| Opt-out for professional-only AIFs | No | Yes, per se professionals only | Yes, but naming and marketing restrictions still apply |
| Taxonomy route for Article 9 | Retained | Retained | Threshold raised to 20% |
| Coal exclusion for Transition (1% of revenues) | Yes | Removed | Retained |
| Ramp-up period to reach 70% | Yes | Yes, three-year limit | Yes, no fixed limit |
| Fund-of-funds (Article 9a) | Combination rule | "Lowest common denominator" | Look-through approach |
| Implementation period | 18 months | 24 months | 24 months |
| Commission review | – | Within five years | Within three years |
The Parliament also wants asset managers to publish annually the share of their AUM and product range in each category – a figure that would make house-level ESG commitments directly comparable for selectors.
SFDR 2.0 timeline
| Date | Milestone |
|---|---|
| 20 November 2025 | European Commission publishes SFDR 2.0 proposal |
| 24 June 2026 | Council agrees negotiating mandate |
| 10 September 2026 | Parliament's ECON Committee adopts its position |
| October 2026 (expected) | Parliament plenary endorsement; trilogue begins |
| Q2 2027 at the earliest | Final text in the EU Official Journal |
| End 2028 – mid-2029 | New framework applies, depending on implementation period |
What it means for fund selection
Even with application some way off, selectors will feel the effects well before 2029. Managers raising capital across the go-live date must decide how to position products long before the rules take effect.
Buy lists will need remapping
Today's Article 8 universe is broad and heterogeneous – from funds like First Sentier's listed infrastructure strategy to exclusion-light core funds. Under SFDR 2.0 some will qualify as ESG Basics or Transition, while others may drop to Article 6a. Morningstar estimates that had SFDR 2.0 applied in 2025, ESG Basics funds would have captured 30% of EU fund flows rather than 38%.
Transition becomes a distinct allocation
The Transition category gives a regulatory home to strategies investing in companies that are not yet sustainable but are changing. For selectors, that means a new peer group to build – and new due diligence questions on transition plans, capex alignment and engagement.
Due diligence questions to ask now
- Which SFDR 2.0 category does the manager expect the fund to target, and on what analysis?
- What share of the portfolio would meet the 70% eligibility test today?
- Would any current holdings breach the proposed exclusions?
- For fund-of-funds and multi-asset mandates: how will underlying categorisation be tracked?
Strengths and limitations of the reform
Strengths: clearer categories with minimum thresholds, a recognised Transition segment, less disclosure volume and greater comparability across managers. Limitations: the "ESG Basics" name remains contested, the professional-AIF opt-out creates a two-tier market, and final exclusions – especially on fossil fuels – are still being negotiated. Recategorisation decisions should be treated as provisional until the final text is published.
Conclusion
SFDR 2.0 turns an informal labelling system into a formal one. The three-category structure, the 70% threshold and a 24-month implementation period now look highly likely; exclusions, the AIF opt-out and fund-of-funds treatment remain open.
For fund selectors, the practical step is to start mapping buy lists against the proposed categories and asking managers for their positioning. Those who do so early will be best placed when the flows between Article 8 and Article 9 funds begin to reshape under the new regime.
