The EU’s Sustainable Finance Disclosures Regulation (SFDR) was an early piece of sustainable finance legislation that originally came into force in 2021. Most notably, the law attempted to create new fund categories for sustainable investments, known as Article 8 and Article 9 funds. Article 8 funds promote E&S characteristics, while Article 9 funds consider sustainability as their objective. However, implementation was plagued with difficulties, and the overly vague law caused significant confusion. After years of consultations and delays, a new version of the SFDR has surfaced. The leaked amendments are being referred to as “SFDR 2.0,” and they substantially rework the law. With major changes coming to Articles 8 and 9 funds, there is also the introduction of new Article 7 funds. Simmons + Simmons discusses the leaked draft:
“The three categories are proposed as follows (although please note that the client-facing name for each category is still to be specified by technical standards):
(i) transition-related objective (new Article 7)
(ii) integration of sustainability-related factors, beyond risk management (new Article 8)
(iii) sustainability-related objectives (new Article 9).
(While two of the categories retain the previous numbering from SFDR, we don’t recommend thinking of them as direct successors to the current Article 8/9).”
The draft indicates that SFDR 2.0 will also eliminate certain Principal Adverse Impacts (PAI) disclosures. These PAI disclosures have been a sticking point in the original legislation and are particularly tedious and difficult for firms required to make them. The official SFDR release is set for November 19, 2025, so we’ll have to see if the leaked draft aligns with the official version.
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