Redefining sustainable investing: SFDR 2.0 unpacked 

The European Commission (EC) has proposed a significant overhaul of the Sustainable Finance Disclosure Regulation (SFDR) to simplify the framework and provide clear, reliable information that supports informed investment decisions.  

Since its introduction in 2021, SFDR has improved transparency but also created challenges. The distinction between Article 8 and Article 9 products has effectively become a labelling system, leading to market confusion, inconsistent interpretation and greenwashing concerns. At the same time, disclosure requirements have grown increasingly complex and overlap with other EU regulations, notably CSRD. Below, we highlight the key elements of the proposal and what they mean in practice. 

Key proposed changes 

To help investors understand the impact, the EC has focused on three main areas where SFDR would be simplified and clarified. A key underlying shift is the move away from the largely principles-based approach of the current SFDR towards more detailed and standardised requirements, including explicit exclusion criteria and minimum investment thresholds at product level. 

New product categories 

The proposal replaces the current Article 8 and 9 classifications with a clearer product categorisation system. Financial products would be able to opt into one of the following categories: 

• Transition (Article 7) – products targeting assets that are not yet sustainable but are on a credible transition pathway. 

• ESG Basics (Article 8) – products that integrate ESG factors without pursuing a specific sustainability or transition objective. 

• Sustainable (Article 9)– products that invest predominantly in assets contributing to environmental or social objectives. 

Each category is subject to minimum criteria, including a requirement that a substantial share of the portfolio (proposed at 70%) aligns with the stated strategy, alongside exclusion criteria for harmful activities. 

Simpler, more focused disclosures 

The EC proposes to significantly streamline SFDR disclosures by shortening and standardising pre-contractual and periodic disclosures, focusing on the most decision-relevant information for investors, and removing mandatory entity-level Principal Adverse Impact (PAI) reporting. Delegated regulations are expected to further specify how sustainability information must be included in pre-contractual and periodic disclosures, while the use of website links would replace separate, stand-alone website disclosures. Together these changes should lower administrative burdens while improving clarity and comparability for investors. 

Tighter rules on naming and marketing 

Under the proposal, only products that meet the criteria of a sustainability category would be allowed to use sustainability related terms in their names and marketing materials. This is intended to further limit greenwashing and strengthen investor trust. 

What does this mean for investors? 

For investors, SFDR 2.0 is a strategic inflection point rather than a purely technical compliance exercise. 

First, existing product strategies will need to be reassessed. Funds currently positioned as Article 8 or 9 should critically evaluate whether their investment approach, portfolio construction and exclusions can credibly meet the proposed category criteria, including minimum investment thresholds. This reassessment is likely to influence product design, capital allocation and, in some cases, fund positioning. 

Second, transition and impact strategies are expected to receive greater recognition, but also face higher expectations. The proposed framework places stronger emphasis on credibility and substantiation. This means that transition pathways, sustainability objectives and impact claims will need to be clearly defined, supported by data, and embedded in investment decision-making and stewardship practices. 

In sum, SFDR 2.0 encourages investors to move from broad sustainability intentions towards more explicit, evidence-based strategies that can be clearly explained to capital providers and other stakeholders. 

Timing and next steps 

The proposal is now subject to negotiation between the EC, European Parliament and the Council. Once adopted and entered into force, SFDR 2.0 is expected to become applicable after an 18-month application period, giving market participants time to adjust their existing product structures, disclosures and internal processes. 

How Steward Redqueen supports clients 

Steward Redqueen closely monitors regulatory developments in sustainable finance and supports investors in translating regulatory change into clear strategy, credible positioning and practical implementation. We work with our clients to align sustainability ambitions with evolving EU requirements, from impact or ESG strategy design to disclosure and reporting. 

If you are looking for practical guidance on what the proposed SFDR changes could mean for your portfolio or funds, please get in touch. Our SFDR offering helps you turn regulatory requirements into stronger decision-making and future-ready reporting.