Sustainable Finance update (asset management) – EU Parliament proposes substantial changes to the SFDR 2.0 proposal

Context

The Commission's SFDR reform proposal (COM/2025/841) was published on 20 November 2025 and is now being reviewed by the European Parliament and the Council. The primary objectives of the reform are clearer disclosures for investors (notably by way of three main transition, ESG basics and sustainable categories) and burden relief for entities (such as AIFMs and UCITS management companies).

On 28 April 2026, the European Parliament's Committee on Economic and Monetary Affairs (ECON)  published the rapporteur’s draft Report¹ which includes proposals for some substantial amendments  (in total 51) to the Commission’s SFDR 2.0 proposal.

The rapporteur (Mr Gerben-Jan Gerbrandy) broadly supports the Commission’s SFDR 2.0 proposal but is pushing for some enhancements. "The proposal provides an excellent starting point to create a better sustainable finance framework in the European Union. Nonetheless, the Commission proposal can be enhanced on transparency, on effectiveness, and on burden relief".

It should be pointed out that this is only a draft report and that ECON can still comment. Nonetheless, the rapporteur's draft report is a good indication of the ECON’s position as regards SFDR 2.0 and the overall direction of travel. We have briefly outlined the next steps in the EU decision-making process below.

What are the European Parliament’s key proposals?

• Statement for non-categorised products: Any non-categorised financial product subject to the proposed new article 6a (i.e. one not qualifying under one of the three SFDR categories) must include a prominent statement that it does not meet EU standards for defining sustainable financial products and protecting against greenwashing. This disclaimer would also appear in the standardised KID document for packaged investment products.

  Assessment: While we think that a disclaimer may in principle be a good idea, in particular if it were to replace the EU Commission’s current proposal under article 6a to limit ESG-related disclosures to 10% of the investment strategy, the current wording should be revised, in particular as regards the inference that non-categorised funds may be more likely to be greenwashing. A more factual and neutral disclaimer would be clearly preferable.

• Mandatory principal adverse impact indicators: Introduction of a three-tier PAI regime for All categorised products which must disclose a core set of Principal Adverse Impact (PAI) indicators, enabling investors to compare the different funds across all three categories. 

  Assessment: While the element of comparability that this proposed change introduces is generally to be welcomed, it is nonetheless likely to be one of the more controversial proposals given that many in the industry had advocated for the voluntary consideration of PAIs. Mandatory consideration of PAIs is likely to also reignite the discussion around data availability in light of the reduced scope of CSRD.

• Raised sustainability bar: The minimum share of taxonomy-aligned investments qualifying for a sustainability safe harbour rises from 15% to 20%. For the ESG basics category, funds must screen out at least the lowest-scoring 20% of securities before claiming outperformance of ESG ratings or the investment universe.

  Assessment: Increasing taxonomy-aligned investment from 15-20% may not impact many funds in practice (according to the rapporteur 44% of current Article 9 funds already meet this 20% threshold of taxonomy-aligned investments which is based on a 2024 report from the EU Sustainable Finance Platform). 

• Transition category: for the catch-all other investment category requirement to explicitly justify a credible contribution.

  Assessment: With no definition of what is meant to be "credible" there is a risk of uncertainty and inconsistent practices across jurisdictions. 

• Engagement strategy disclosure: Fund managers must either explain how their sustainability-related engagement strategy supports their fund's sustainability objectives or clearly explain why they have no such strategy.

  Assessment: This essentially introduces a “comply or explain” mechanism regarding engagement. While we agree that engagement can play an important role, it may not be relevant for many more liquid strategies. Requiring asset manager to justify, product by product, how their engagement supports each fund’s sustainability objectives creates operational burden. 

• Longer transition, faster relief: The overall application date is to be extended to 24 months after entry into force (up from the Commission's proposed 18 months). However, burden-reducing measures for entities (including the removal of entity-level PAI and remuneration disclosures) would take effect from the entry into force of SFDR 2.0.

  Assessment: We believe that this measure is intended to be pragmatic and industry-friendly and is welcomed.

The draft report remains silent on a number of important topics, including the possibility to opt-out for professional investors or the replacement of the ESMA Guidelines on funds' names using ESG or sustainability-related terms.

What Happens Next?

The rapporteur's draft report will be discussed in the course of June 2026 (amendments may still be made) and should be voted on in the Committee on Economic and Monetary Affairs on 15 July 2026 before proceeding to plenary vote in September 2026.

The EU Council is also actively working to reach a “general approach” on the Commission’s SFDR 2.0 proposal that could serve as an acceptable compromise. The target is to reach an agreement by the end of June 2026, before the Cypriot presidency ends.

Once the Commission’s proposal, the Parliament’s report and the Council’s general approach are available, trilogue discussions will begin to agree on a final version of SFDR 2.0.