The European Parliament has now adopted a position, alongside the Commission and the Council. All three institutions have therefore set out their respective visions for the SFDR review. There is broad consensus on the core framework. Disagreements are now concentrated on one issue: the role of transition in investment strategies. For asset managers, the time to prepare product-range decisions is now.
In March 2023, we discussed the wave of Article 9 funds being downgraded to Article 8. A regulation designed to promote transparency had, in practice, become a labelling system. SFDR 2.0 draws lessons from this experience. The Commission presented its proposal on 20 November 2025. It replaces Articles 8 and 9 with three categories. “Transition” (Article 7), “ESG Basics” (Article 8) and “Sustainable” (Article 9) would each require at least 70% of assets to be allocated to investments consistent with the relevant category’s strategy, together with mandatory exclusions.
What Is Now Largely Settled
On 10 September, the European Parliament’s ECON Committee adopted its report and approved the opening of interinstitutional negotiations. The Council had adopted its negotiating mandate on 24 June. Parliament’s position is expected to be endorsed in plenary in October, with no major amendments anticipated. The positions of the three institutions are therefore now largely stabilised.
Three elements are likely to feature in the final text:
- The 70% threshold. There is consensus on this point among all three institutions.
- A 24-month implementation period. Both the Council and Parliament support this timeframe, compared with 18 months in the initial proposal.
- An opt-out for AIFs reserved for investors that qualify as professional investors “by nature”. These funds would remain subject to restrictions on sustainability claims in their names and marketing documentation.
Where the Debate Remains Open: Transition
The main point of contention is whether fossil fuel companies should be eligible for the Transition category. The Commission proposed excluding new coal, oil and gas projects. Both the Council and Parliament leave the door open. A fossil fuel company could qualify if at least 20% of its capital expenditure (capex) is allocated to Taxonomy-aligned activities and if it has a measurable emissions-reduction strategy compatible with the Paris Agreement.
Parliament adds an additional condition: over a rolling three-year period, the average share of Taxonomy-aligned capex must exceed the share allocated to new fossil fuel projects. This safeguard is likely to be one of the key issues in the trilogue negotiations.
The divisions also run through the industry itself. The AFG supports including these sectors, arguing that they are among the highest emitters and therefore among those where transition matters most. NGOs, by contrast, have criticised the ECON position for largely disregarding climate science.
Other issues remain to be resolved. The first concerns the timeframe for reaching the 70% threshold: the Council would cap the ramp-up period at three years, while Parliament sets no limit. The second concerns the treatment of sovereign bonds, where Parliament is pushing for greater flexibility. Parliament also wants all Transition funds to explain their engagement strategy and how it is implemented.
A Longer Timeline, but Decisions Are Getting Closer
The final text is not expected to be published before the second quarter of 2027. SFDR 2.0 would then apply sometime between early and mid-2029. However, this longer timeline does not mean asset managers can afford to wait.
Funds launched or fundraising over the next 18 months will straddle both regimes. Investors may demand alignment with the new framework before it becomes a legal requirement. The market has already sent a signal: in the first half of 2026, Article 8 funds attracted approximately €145 billion in net inflows, while Article 9 funds recorded slight outflows.
For each fund, the question is no longer simply “which category?”. Asset managers also need to consider under which trilogue scenario that category will remain achievable.
The answers lie far more in the data than in the documentation. This means understanding issuers’ Taxonomy-aligned capex, assessing their transition plans and being able to demonstrate a credible engagement strategy. These projects take quarters, not weeks.
How Taleo Can Support You
- Mapping of assets under management and preliminary classification across the three new categories, including scenarios based on potential trilogue outcomes
- Gap analysis of eligibility criteria: thresholds, exclusions and positive contribution
- ESG data strategy: moving from volume to quality, aligning with the Taxonomy and assessing issuers’ transition plans
- Documentation review: pre-contractual disclosures, periodic reporting, fund naming and marketing
- Credible transition plans aligned with the CSRD, the Taxonomy and Article 29 of the French Energy and Climate Law (LEC)
The real question is not “Am I compliant?” but “Will my ESG promise withstand reclassification?”