SFDR 2.0 – Key Implications for Asset Managers
The European Commission now offers the Sustainable Finance Disclosure Regulation (SFDR) 2.0. This rule shifts the past method to a product framework. It aims to bring clear links and limits to sustainable investing.
Introduction of Three New Product Categories
Under SFDR 2.0, asset managers must sort funds. Each fund joins one of three groups. Each group rests on two main points:
- A 70% investment threshold that ties funds to clear goals.
- Exclusion rules that ban investments in sectors like tobacco, controversial weapons, human rights violators, coal, and fossil fuel expansion.
The Categories Explained
| Category | Definition & Objective | Investment Criteria & Exclusions |
|---|---|---|
| Transition (Article 7) | Funds show clear, measurable transition aims. | At least 70% of investments help the transition; funds must drop tobacco, weapons, human rights violators, and major coal/fossil fuel companies. |
| ESG Basics (Article 8) | Funds add ESG factors beyond risk control. | At least 70% of investments support the ESG plan; funds must drop the above sectors and those with high coal revenue. |
| Sustainability (Article 9) | Funds act on sustainable assets or targets sustainability goals. | At least 70% of investments boost sustainability; funds must drop all fossil fuel actions and high emitters. EU Paris benchmarks, taxonomy rules, and European Green Bonds are eligible. |
For the first time, the rule spots impact investing. It fixes a link between intent and measurable outcome, mainly for Transition and Sustainability funds.
Practical Implications for Asset Managers
- SFDR 2.0 sets higher rules for all funds. It affects even lighter green Article 8 funds.
- The bans may stress global fund sponsors who serve both EU and US clients. Early planning is key.
- New technical rules will bring clear steps. They lower the need for lengthy pre-contractual and website notes.
- The rule drops ideas like “Do No Significant Harm” or good governance. Instead, clear bans take their place.
- Firms can mention sustainability in non-categorised products. However, they must do so fairly. The mention must stay subtle and avoid marketing or naming products.
- Manager-level notes on adverse impact and pay get removed. Yet, notes on sustainability risk remain.
- There is no full grandfather clause. Closed-ended funds may opt out. Open-ended funds must shift strategies.
Additional Notes
- SFDR 2.0 narrows its focus. It does not include portfolio managers or financial advisors. This change may affect how MiFID sustainability choices work.
- Key investor documents (KIIDs) under PRIIPs will soon list product type and sustainability aims.
Timeline & Next Steps
The draft regulation will travel the EU law process. It may change during this route. The rule then takes effect 18 months after Official Journal publication. Full use is likely in mid-2027 or later.
Conclusion
SFDR 2.0 makes a strong change to EU sustainable finance rules. It sets strict product groups, clear investment targets, and open notes for asset managers. Managers must update plans, design funds clearly, and report honestly to match new standards.
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