SFDR 2.0: Where do we stand now and what to expect next?

With SFDR 2.0, Liechtenstein and Swiss financial institutions will face new compliance requirements. The new regulation will affect Swiss financial institutions that produce, market and distribute investment products in the EU or that provide financial advice to clients in the EU. This includes asset managers, wealth managers, investment managers, banks, insurance companies, and financial advisers. The new requirements will require a reclassification of products, and a review of data collection and management systems as well as current reporting process and product documentation, including marketing materials. The compliance costs will be substantial, and the operational changes will be significant.

The final shape of SFDR 2.0 is still to be determined. The Commission's proposal set the baseline for negotiations, but both the Council and Parliament have moved away from this original text.

This blog provides a summary of the latest regulatory developments.

The current legislative status

1. Council position
   The European Council supports the three-category framework with emphasis on operational flexibility. Key elements include a 24-month transition period, mandatory disclosure of at least three PAI indicators for Sustainable and Transition products (with flexibility to use alternatives), permission for Transition funds to invest in fossil fuel companies if at least 20% of capital expenditure is Taxonomy-aligned and a credible greenhouse gas reduction strategy exists, and an opt-out for AIFs marketed exclusively to professional clients.
2. European Parliament’s ECON Committee position
   The ECON Committee adopted a more stringent position proposing over 600 amendments. Key elements include mandatory disclosure of a core set of PAI indicators across all three product categories, a 20% Taxonomy alignment threshold (versus the Commission's 15%), stricter fossil fuel exclusions (including a rolling three-year comparison and exclusion of companies with more than 1% coal revenue), mandatory engagement strategy disclosure, narrower scope (entity-level disclosures limited to largest participants; financial advice removed), and annual disclosure of fund allocation by category.
3. What they agree on
   All three institutions agree on replacing Articles 6, 8, and 9 with three clear product categories, a 70% investment threshold for each category, and removing the Article 2(17) sustainable investment definition.
4. Points open for negotiation
   Despite these areas of agreement, differences remain and will be central to the Trialogue negotiations, in particular with regard to fossil fuel exposure threshold, PAI indicators to be disclosed, criteria for ESG basic products, exemption with opt-out option for AIFs marketed solely to professional investors, scope of application, application timeline, and length of the transposition period

What happens next: the Trialogue timeline

The formal negotiations between the Council, Parliament, and Commission (Trialogue) is expected to begin in late October or beginning of November. The estimated timeline is:

• October 2026: Parliament plenary vote on ECON position
• Late October/ beginning of November 2026: Trialogue negotiations commence
• Mid-2027 (estimated): Final text agreed and published
• Late 2027/Early 2028 (estimated): Entry into force
• 2029–2030 (estimated): Compliance deadline assuming a 18-24 months transition period.

These dates are indicative and subject to change as negotiations progress.

What financial institutions should be doing now

SFDR 2.0 is coming. In the Trialogue the three legislative bodies will eventually reach a compromise and financial institutions that start preparing now will be best positioned to implement efficiently and cost-effectively.

To prepare for timely compliance, financial institutions should already start to do the following:

• Map your product portfolio. Assess how your current products would be classified under the new rules and the different positions.
• Assess your data infrastructure. Evaluate your current ESG data sources, reliability, and coverage. Identify gaps and determine what changes are needed.
• Develop compliance roadmaps for both scenarios. Create detailed implementation plans for both Council-aligned and Parliament-aligned outcome.
• Inform key stakeholders. Brief your Board and senior management on SFDR 2.0 implications and the regulatory timeline.
  

Ready to get started? Deloitte's Sustainable Finance team can help you assess yourexposure, plan your roadmap, and navigate the transition.

Authors

• Greta Cenotti, Manager, Audit & Assurance