With the Commission having published its legislative proposal in November 2025 (see our full analysis here), the Council having adopted its negotiating position on 24 June 2026 and the European Parliament having announced its negotiating position on 5 October 2026, the SFDR 2.0 legislative process will now continue to the trilogue phase. All three institutions have now committed to formal positions, and - looking across the two co-legislators' texts - the contours of the negotiation ahead are more encouraging than might have been expected at this stage of an ambitious legislative overhaul.
This briefing sets out a structured, topic-by-topic comparison of these three institutional positions: the Commission's original proposal, the Council's negotiating position, and the Parliament's negotiating position. It covers thirteen principal areas of the SFDR 2.0 Level 1 framework.
The analysis reveals a picture of meaningful convergence on the fundamental architecture - all three institutions have aligned on replacing the existing Articles 8 and 9 framework with three mandatory product categories (“Transition”, “ESG Basics” and “Sustainable”), each subject to a 70% investment threshold, tiered minimum exclusions, adverse-impact disclosure requirements and category-specific indicators. Nonetheless, several consequential points of divergence remain, including the implementation timeline, the approach to the professional-investor opt-out, the exclusions, the precise PAI indicator requirements, permitted Level 2 deviations and the position on sovereign debt — particularly the eligibility of general-purpose issuances under specific categories. These are some of the questions that will define the substance of the trilogue negotiations, which are expected to commence shortly, with the aim of reaching a final agreed text before the end of the year. For a full overview of where the process stands and what comes next, see our updated timeline and for our more detailed commentary on the various negotiating positions, please refer to the recording of our recent webinar here.
We will continue to monitor and report on trilogue negotiations as they unfold.
1. Timing and implementation
| Subtopic |
Commission proposal |
Council position (24 June 2026) |
Parliament position (5 October 2026) |
|---|---|---|---|
| General application date |
18-month implementation period after entry into force of Level 1. Note that the Commission will work on Level 2 measures during 2027, including consultations with the European Supervisory Authorities (ESAs) and the public. |
24-month implementation period after entry into force of Level 1. |
Aligns with the Council position. |
| Application date for insurance and pension products | Financial market participants (FMPs) of insurance-based investment products (IBIPs), pension products, pension schemes and Pan-European Personal Pension Products (PEPPs) must start applying product specific rules 12 months after the general application date (i.e. 30 months after entry into force of Level 1). |
FMPs of IBIPs, pension products, pension schemes and PEPPs can choose to postpone product specific rules by up to 12 months after the general application date. FMPs exercising this option must: (i) continue applying SFDR 1.0 to those products during the interim period; and (ii) inform clients accordingly. |
No change to Commission proposal. |
| Immediate relief on removed SFDR 1.0 obligations | No immediate relief on SFDR 1.0 obligations which are removed by SFDR 2.0. | From the entry into force of Level 1, the entity-level disclosure requirements under SFDR 1.0 relating to the consideration of principal adverse impacts (PAIs), the integration of sustainability risks in remuneration policies, and the disclosures applicable to portfolio managers and investment advisers are disapplied, as these requirements are removed under SFDR 2.0. | Aligns with the Council position. |
2. Opt-outs
| Subtopic |
Commission proposal |
Council position (24 June 2026) |
Parliament position (5 October 2026) |
|---|---|---|---|
| Closed-ended products | FMPs can opt-out of product-related SFDR 2.0 rules for closed-ended financial products created and distributed prior to the Level 1 application date. | No change to Commission proposal. | Aligns with the Commission and the Council regarding the opt out but clarifies that for such financial products, compliance with previous contractual commitments undertaken and sustainability disclosures made on the basis of SFDR 1.0 remain applicable and do not constitute sustainability claims under SFDR 2.0. |
| Professional investor products | All EU-domiciled funds (including alternative investment funds (AIFs), Undertakings for Collective Investment in Transferable Securities (UCITS) and European Long-Term Investment Funds (ELTIFs)), non-EU funds marketed into the EU under national private placement regimes, IBIPs, pension products (including PEPPs) and pension schemes remain within the scope of SFDR 2.0, for both retail and professional investors. The final proposal removed any opt-out for AIFs marketed exclusively to professional investors, which had featured in an earlier leaked draft. | FMPs can opt-out of rules on product categories, sustainability disclosures for non-categorised products and marketing rules for AIFs made available exclusively to per se professional clients under MiFID II. | FMPs can opt out of rules on product categories and sustainability disclosures for non-categorised products (but not on marketing rules) for AIFs made available exclusively to per se professional investors under MiFID II, subject to (i) no retail investor having access; and (ii) the FMP indicating its choice and the reasons for it in pre-contractual documentation. |
3. Construction of the 70% threshold across categories
| Subtopic |
Commission proposal |
Council position (24 June 2026) |
Parliament position (5 October 2026) |
|---|---|---|---|
| Phase-in period |
A minimum portion of 70% of a categorised financial product's investments must be made in accordance with the sustainability-related claim (i.e. the objective pursued or the sustainability-related considerations applied); FMPs are free to allocate the remaining investments for diversification, hedging or liquidity needs. Includes a phase-in period to be defined in Level 2 for financial products when implementing the strategy during which the 70% threshold may not be met. |
Introduces a cap on the phase-in period for financial products to meet the 70% threshold, which shall not exceed three years, unless shorter or longer phase-in periods apply to the implementation of the investment strategy under relevant sectoral legislation. | No change to Commission proposal. Includes a phase-in period to be defined in Level 2 for financial products when implementing the strategy during which the 70% threshold may not be met. |
| Catch-all for “other investments” across all product categories | Includes a catch-all provision across all three product categories for "other investments", "provided proper justification is included in the disclosures". | Clarifies the catch-all provision to specify that private and real assets can demonstrate compliance with the 70% thresholds through documented, asset-class-appropriate evidence and methodologies, providing illustrative examples of such assets (unlisted equity/debt, infrastructure, real estate, forestry holdings). | Includes that reliance on the catch-all provision must be accompanied by an explanation of why the investment does not fall within any of the other prescribed investment approaches. |
| ESG Basics |
The proposal suggests including the following approaches: (a) Investments with an ESG rating outperforming average rating of investment universe/ reference benchmark; (b) Investments outperforming investment universe on one specific sustainability indicator; (c) Investments favouring entities with strong sustainability track record; (d) Investments eligible for Transition or Sustainable in combination with (a), (b) or (c) above; and (e) Catch-all: Investments integrating sustainability factors beyond sustainability risks, with proper justification. |
Regarding (b), proposes outperformance on at least two specific sustainability indicators. Removes (c) as separate category. Introduces more prescriptive catch-all approach, requiring that the criteria applied give preference to undertakings or economic activities demonstrating a proven positive track record in processes, performance or outcomes related to sustainability factors, with proper justification. For private/real assets this may be demonstrated by documented asset-class appropriate evidence and methodologies (see above on the catch-all). |
Aligns with the Council position regarding (b), proposes outperformance on at least two specific sustainability indicators. Retains (c) as separate category. Introduces an additional requirement in the catch-all provision, where “proper justification” is replaced with a requirement for “clear and concise” justification which explains why the investment does not fall within any of the other prescribed investment approaches. |
4. Minimum exclusions
| Subtopic |
Commission proposal |
Council position (24 June 2026) |
Parliament position (5 October 2026) |
| Common exclusions |
Common exclusions apply to all product categories covering controversial weapons, tobacco production, violations of the UN Global Compact (UNGC) principles or the OECD Guidelines for Multinational Enterprises (OECD Guidelines), and coal production revenue. Additional exclusions for Transition and Sustainable relating to new fossil fuel production and coal production for power generation. Further additional exclusions for Sustainable covering oil fuels revenue, gaseous fuels revenue, and electricity generation from high-GHG-intensity sources. Minimum exclusions apply to all investments within the financial product, not only to the 70% of investments that qualify as eligible. |
Deletes the exclusion of companies that derive 1% or more of their revenues from exploration, mining, extraction, distribution or refining of hard coal and lignite from the Transition category. | Clarification of the exclusion relating to violations of the UNGC principles/OECD Guidelines by removing the cross-reference to benchmarks methodology and replacing it with a new standalone provision which excludes companies that are found in violation of the OECD Guidelines and the UN Guiding Principles on Business and Human Rights (UNGP) regarding “severe” human rights and humanitarian law abuses which have not been effectively addressed and, where appropriate, remediated. |
| Fossil fuels under Transition category | Products categorised as Sustainable or Transition may not invest in companies that develop new projects for the exploration, extraction, distribution or refining of hard coal and lignite, oil fuels or gaseous fuels. | Replaces the “new projects” exclusion for the Transition category with a broad revenue-based exclusion for all companies deriving revenues from exploration, extraction, mining or refining of hard coal/lignite, oil fuels or gaseous fuels. The exclusion is subject to a limited carve-out for such companies if they (i) allocate at least 20% of total capital expenditure to Taxonomy-aligned economic activities; and (ii) have a time-bound, measurable Scope 1 and 2 emissions-reduction strategy or phase-out plan compatible with the Paris Agreement. | Follows the Council’s suggestions to replace the “new projects” exclusion by a broad revenue-based exclusion subject to a carve-out. For the carve-out, two additional conditions (iii) and (iv) are added. Carve-out conditions in full are: (i) allocate at least 20% of total capital expenditure to Taxonomy-aligned economic activities; (ii) have a time-bound and measurable strategy to reduce Scope 1 and Scope 2 GHG emissions compatible with the Paris Agreement; (iii) where hard coal or lignite is used for power generation, have a time-bound and measurable phase-out plan; and (iv) over a rolling three-year period, allocate average capex to Taxonomy-aligned activities in excess of capex allocated to new hard coal/lignite, oil fuel or fossil gaseous fuel projects. |
| Permitted deviations from exclusions | Empowers the Commission to define permitted deviations from exclusion criteria in Level 2, including for the purposes of hedging. | Clarifies the Level 2 delegation to specify that permitted deviations should cover delayed divestment from illiquid assets alongside hedging. | Clarifies the Level 2 delegation by stating it should also permit deviations where the FMP has taken all reasonable measures within its control, the deviation is of limited duration, and it is transparently disclosed to investors. |
5. Credible transition strategies
|
Commission proposal |
Council position (24 June 2026) |
Parliament position (5 October 2026) |
| Permits a broad range of transition investment approaches outside of Climate Benchmarks and Taxonomy which can be determined by the FMP, including credible transition plans, science-based targets, portfolio transition targets or other credible contributions to transition. |
Additional credibility requirements for approaches determined by the FMP: (i) appropriate, documented and regularly updated due diligence process. (ii) monitoring to assess progress, including processes to address underperformance. (iii) when relying on company transition plans or science-based targets, FMPs must examine governance/resources, existence of targets/milestones and strategy and actions. |
Aligns with Council on additional credibility requirements. |
6. Engagement strategy
|
Commission proposal |
Council position (24 June 2026) |
Parliament position (5 October 2026) |
|
Engagement can be a supplementary Transition investment approach: investments accompanied by credible sustainability-related engagement strategies, provided such strategies target specific changes, set milestones, measure progress against targets, and include escalation if expected changes do not occur and only in combination with another investment approach. No stand-alone recognition in any of the product categories as an eligible investment approach. |
Adds additional operational requirements for the engagement investment approach under the Transition category: FMPs must have: (i) documented due diligence processes; (ii) ongoing monitoring processes; and (iii) processes to address underperformance, including at portfolio level. |
Aligns with Council on additional operational requirements. Adds a new disclosure across product categories, requiring FMPs to describe their sustainability-related engagement strategy, including the proportion of the portfolio covered by engagement activities and how the strategy has been implemented in alignment with the product's sustainability-related objectives, or to provide a clear and reasoned explanation if no such strategy is pursued. |
7. Approach to sovereign debt
| Subtopic |
Commission proposal |
Council position (24 June 2026) |
Parliament position (5 October 2026) |
| Use of proceeds instruments | EU Green Bonds (Taxonomy alignment) and other use of proceeds instruments can be eligible for Transition and Sustainable. Note that all sovereign debt is in principle eligible for ESG Basics (see below). | Clarifies the proposal made by the Commission without substantive change. All use of proceeds instruments can be eligible for Transition and Sustainable. | Same position on EU Green Bonds and use of proceeds instruments as Commission and Council. Adds that loan facilities provided by public sector bodies, where the proceeds satisfy the same conditions as use-of-proceeds bonds, can be eligible for Transition and Sustainable. |
| General purpose sovereign debt | General purpose sovereign debt (GPSD) may count for ESG Basics using available methodologies. |
GPSD issued by EU public sector bodies may count for Transition 70% threshold up to a maximum of 15% of the portfolio if FMP can demonstrate alignment with transition objectives based on formalised and documented methodologies. For ESG Basics, GPSD must be assessed using formalised and documented methodologies and be aligned with the product’s sustainability-related claims. |
Same position on GPSD as Council in the context of Transition (alignment based on formalised methodologies, max. 15%) and ESG Basics (use of appropriate available methodologies). Adds that GPSD held in the non-eligible 30% of the portfolio must not be inconsistent with the product's Transition, ESG Basics or Sustainable objective/strategy. |
|
Definition of public sector bodies |
“Public sector bodies” includes central governments or central banks, regional governments or local authorities, multilateral development banks and international organisations. | The Council narrows the definition of “public sector bodies” by removing multilateral development banks. | Aligns with Council on definition of “public sector bodies”. |
8. Safe harbours
| Subtopic | Commission proposal (20 November 2025) |
Council position |
Parliament position (5 October 2026) |
| Safe harbours for Transition category |
Includes the following safe harbours for the Transition category: · portfolios replicating or managed in reference to an EU Paris-Aligned Benchmark (PAB) or EU Climate Transition Benchmark (CTB); and · financial products with ) 15% of investments in Taxonomy-aligned economic activities. |
No change to Commission proposal. CTB / PAB benchmark alignment or )15% Taxonomy-aligned investments. | No change to Commission proposal. CTB / PAB benchmark alignment or )15% Taxonomy-aligned investments. |
| Safe harbours for Sustainability category |
Includes the following safe harbours for the Sustainable category: · portfolios replicating or managed in reference to PAB; and · financial products with ) 15% of investments in Taxonomy-aligned economic activities. |
No change to Commission proposal. PAB benchmark alignment or )15% Taxonomy-aligned investments. | Aligns with Commission and Council on PAB benchmark alignment. Requires a higher threshold of ) 20% for financial products relying on investments in Taxonomy-aligned economic activities. |
9. PAI indicators
| Commission proposal (20 November 2025) |
Council position |
Parliament position (5 October 2026) |
|
Fully voluntary PAI indicators for the Transition and Sustainable categories: FMPs may choose to comply with the PAI disclosure requirement by using appropriate sustainability-related indicators. The Commission is tasked with defining PAI indicators based on existing indicators and the ESRS for voluntary use in Level 2. |
PAI indicators made partially mandatory for the Transition and Sustainable categories: FMPs must use at least three indicators from the Level 2 list that are most relevant to the product's objective(s). FMPs may use alternative indicators only where they can demonstrate that none of the listed indicators is relevant. In addition, where a Transition product is permitted to invest in hard coal and lignite, oil fuels or gaseous fuels, an additional mandatory indicator on the proportion of investments in companies active in the fossil fuel sector must be disclosed. |
PAI indicators made mandatory and applicable indicators depend on the product category: · For the Transition category, minimum mandatory indicators are: (i) exposure to companies active in the fossil fuel sector; and (ii) GHG emissions (both drawn from the Level 2 list); plus at least one additional relevant indicator from that list. Where no listed indicator is relevant, another transparent methodology may be used. · For the ESG Basics category, minimum mandatory indicator on exposure to companies active in the fossil fuel sector; other relevant PAI indicators may be disclosed voluntarily. · For the Sustainable category, minimum mandatory indicators are: (i) exposure to companies active in the fossil fuel sector; (ii) GHG emissions; (iii) activities negatively affecting biodiversity-sensitive areas; and (iv) exposure to companies without processes and mechanisms to monitor compliance with the UNGP and OECD Guidelines; other relevant PAI indicators may also be disclosed. |
10. Impact add-on
| Commission proposal (20 November 2025) |
Council position |
Parliament position (5 October 2026) |
|
Impact add-on available for Transition and Sustainable categories, not for ESG Basics. The impact add-on requires additional pre-contractual and periodic disclosure requirements, including the intended impact and impact theory, and provisions to measure, manage and report on the desired impact (including investment and investor contribution). The use of the term 'impact' in product names is restricted to products using the add-on. |
No change to Commission proposal regarding availability of impact add-on for Transition and Sustainable categories and additional disclosure requirements. Amends recital (20) by requiring “the objective of intentionality to achieve real-world impact and the measurement of such impact” within a theory of change accompanied by ad-hoc reporting on outcomes, thereby anchoring the concept explicitly to real-world outcomes rather than pre-defined targets. Describes that the contribution of impact investing should aim to address “various environmental and social needs, in particular those otherwise underserved by market or public interventions.” This introduces the concept of additionality at recital level: the signal that the impact add-on is intended for strategies targeting gaps left by market failures or insufficient public intervention. |
Aligns with Commission and Council on availability of impact add-on for Transition and Sustainable categories and additional disclosure requirements. Recital (27a) suggests that the Platform on Sustainable Finance build a subgroup to advise the Commission on relevant issues (e.g. implementation, data availability, credible international standards and approaches), which may contribute to the impact add-on as well. |
11. Rules for combined products (fund of funds, multi-option products)
| Commission proposal (20 November 2025) |
Council position |
Parliament position (5 October 2026) |
| Financial products that invest in at least two categorised financial products (e.g. funds-of-funds, IBIPs) may either qualify as a categorised financial product themselves (if the portfolio as a whole meets the relevant category criteria, including the 70% threshold and the minimum exclusions), or, where this is not the case, they may make limited disclosures on the share of their investments in categorised financial products to investors. |
Extensive clarifications added: • Non-categorised investment options of packaged retail and insurance-based investment products (PRIIPs) can be considered as direct investments aligned with category requirements; • How to determine to which category a product meeting the 70% threshold is allocated: products investing solely in Sustainable products and other Sustainable eligible investments qualify under Sustainable; products mixing Transition and Sustainable investments qualify under Transition; products mixing investments from all three categories qualify under ESG Basics; • The type of disclosures made by PRIIPs offering investment options, including via references and weblinks where not feasible within the 10% limit; • Disclosure on share of categorised products for products remaining below 70% applies regardless of number of categorised products held (“at least two” is removed); and • FMPs may rely on information from a portfolio manager mandated to invest in accordance with product category requirements. |
Aligns with Council clarifications. |
12. Disclosures
| Subtopic | Commission proposal (20 November 2025) |
Council position |
Parliament position (5 October 2026) |
| Entity level disclosures | FMPs must publish on their website their policies on the integration of sustainability risks in their investment decision-making process. | No change to Commission proposal. | Aligns with Commission and Council on sustainability risks. Adds further disclosure for all FMPs: (i) the proportion of AuM and (ii) the proportion of the number of financial products invested in each product category, relative to total AuM and total number of products managed. |
| Data and estimates |
Obligation to disclose “upon request”: · regarding external data providers: the name, contact details and, where applicable and available, the methodology in relation to data or estimates used for categorised products; · regarding estimates: the methodology, main assumptions and precautionary principles regarding missing datapoints. |
Replaces obligation to disclose “upon request” with a requirement to state in website disclosure how data and estimates are used and sourced; the identity and contact details of data providers and, where available, a methodology overview; and the assumptions and precautionary principles applied where source data is missing or estimated. | Specifies that the Commission, working with the ESAs and national competent authorities, may issue non-binding recommendations to improve the transparency, reliability and comparability of data or estimate methodologies used by FMPs. Such recommendations shall not require disclosure of confidential information, trade secrets and proprietary methodologies. |
| Commission review of SFDR 2.0 |
The Commission shall review the application of SFDR 2.0 within three years of the revised rules coming into force regarding: · practices regarding the categorisation of products · practices regarding the use of data and estimates · whether these practices and the functioning of this SFDR 2.0 are inhibited by data availability or quality issues · adjusting the proportion of investments in Taxonomy-aligned economic activities needed to apply the relevant safe harbour under the Transition and Sustainable categories |
The Commission shall review the application of SFDR 2.0 within five years of the revised rules coming into force regarding the points specified in the Commission proposal and: · the inclusion of structured products in the scope of SFDR 2.0 · increasing the threshold for the conditional carve-out from the revenue-based screen for Transition products and the appropriateness of introducing a mandatory periodic increase |
The Commission shall review the application of SFDR 2.0 within three years of the revised rules coming into force regarding the points specified in the Commission proposal and: · whether the names of the categories of sustainability-related financial products remain clear, effective and understandable for end-investors, taking into account supervisory experience, market developments and, where appropriate, consumer testing · whether the scope of SFDR 2.0 is appropriate to achieve its objectives, including whether PRIIPs should be included |
13. Naming and marketing rules for non-categorised products
| Commission proposal (20 November 2025) |
Council position |
Parliament position (5 October 2026) |
|
Non-categorised products may disclose whether and how they consider sustainability factors but must ensure that such information is not a central element of those disclosures and does not constitute sustainability-related claims reserved for categorised products. Information is considered not to be a central element where it is secondary in terms of breadth and positioning, neutral, and limited to less than 10% of the volume occupied by the presentation of the financial product's investment strategy. |
The prohibition on making sustainability claims does not include ESG Basics-level integration claims. Adds a mandatory disclaimer for non-categorised products that include sustainability information: “This financial product does not meet the minimum criteria to qualify as a sustainability-related financial product under European Union law.” |
Specifies that sustainability information disclosed by non-categorised products must accurately represent the true composition of the product's investments and must not refer to voluntary sustainability-related labelling schemes whose features do not go beyond the requirements of Articles 7, 8 or 9 in terms of objectives, investment approaches, governance or transparency requirements. Also adds a mandatory disclaimer for non-categorised products, with different wording from that of the Council: “the financial product is not categorised under the EU standards for defining sustainable financial products and thus is not required to disclose its negative environmental impact”. |
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