Council of EU adopts negotiating position on SFDR 2.0

The Council of the EU has announced that it has agreed its negotiating mandate on proposed reforms to the Sustainable Finance Disclosure Regulation (EU) 2019/2088 (SFDR) — known as the SFDR 2.0 proposal, adopted in November 2025. The SFDR requires market participants to disclose how they integrate social, environmental and governance sustainability risks and adverse impacts into their investment offers. The reforms aim to simplify the sustainability-related transparency requirements, reduce administrative burdens, and improve the comparability of financial products for investors.

Overall, the Council supports the proposed changes which include the introduction of three new product categories— "sustainable", "transition", and "ESG basics", to replace the current framework and address concerns around existing concepts that have led to greenwashing. However, its negotiating mandate also introduces the following amendments:

• For products classified as "sustainable" or "transition", firms disclosing principal adverse impacts will have to use at least three prescribed indicators (to be set by the European Commission) to support claims and improve cross-product comparability.
• Investments in fossil fuel companies may qualify as transition investments where 20% of capital expenditure is aligned with EU taxonomy (green classification) rules and the company has a clear, time-bound emissions reduction strategy; such investments will be subject to a fourth mandatory adverse impact indicator.
• General-purpose issuances by EU public sector bodies may be included in the "transition" category under certain conditions.
• Alternative investment funds marketed exclusively to professional investors may be exempt from applying the categorisation provisions.

The Council's mandate will form the basis for negotiations with the European Parliament once it has adopted its own respective position.

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