To move into law it will still need to be approved by the European Council and European Parliament, which suggests implementation in 2027 or 2028, and may be subject to amendments.[1]
The regulation is designed to support transparency for financial market participants, and offers guidelines on how sustainability risks are integrated in investment decision process of various funds.[2] However, the regulation was used as a product labelling system without necessarily being designed with that purpose in mind, and so it was hoped SFDR 2.0 would bring clearer, but also binding criteria, for the different categories of classification.
The changes were leaked on 6 Nov 2025, and the majority of labelling details were confirmed in the final proposal for Article 6/7/8/9. A simplified interpretation is shown in Table 1 and 2.
What are the changes to the labels?
The distinction between Article 8 and 9 does seem to have been made clearer, where rather than how significant the commitment to sustainable investing is, the split now seems to be whether the factors are integrated into decision-making, compared to part of the objective of the fund. It is clarified that 70% of assets must meet the overall categorisation, rather than the 80% guidance suggested by ESMA which had been applied to SFDR 1.0.
However, it is Article 7 which has undergone a more substantial shift. Previously this was often left-out of consideration as its disclosure was restricted to basic considerations around Principle Adverse Impacts (PAI) on a product level.
In SFRD 2.0 Article 7 has been individually designated as the transition category, and it can be argued to have leap-frogged Article 8 to become the second most stringent label, both due to the requirement to have an explicit objective, but also by having stricter exclusions.
A transition investment is defined to be “[meeting] a clear and measurable transition objective related to sustainability factors, including environmental or social transition objectives […] measured using appropriate sustainability-related indicator(s)”.
A separate list is provided of investments which are included, such as investments replicating the EU climate transition benchmark, those with credible science-based targets, or those with credible engagement strategies including escalation actions if changes do not happen.
What about sustainable fixed income products?
From a fixed income point of view, evidencing sustainability at the asset level has been a challenge, which is why use-of-proceeds bonds, where funds are restricted to certain uses, have found such a natural home in Article 8 and 9 funds. Here to see the eligibility criteria refer to both trajectories, and also transition objectives, gives a clearer linkage with securities tied to delivering sustainability improvements, such as Sustainability-Linked Bonds.[3]
However, there is perhaps some ambiguity in the objective to meet transition objectives. Does this mean only SLBs that achieve their targets can be included? Would this therefore lean issuers towards easier-to-achieve, and so less ambitious targets to retain their eligibility? How will the boundary of how to make a target achievable but still sufficiently ambitious to be considered transition be defined? How does this interplay with the requirement to have escalation actions should trajectories not be achieved? There’s more to clarify, but it should still open the door for kpi-linked structures that are tied to transition objectives.
2025 remains a significant year for the SLB market; a record number of securities will report on their targets offering insight into overall transition performance.[4] Our conversations with investors on this process has confirmed both that SLBs have struggled to find space in a regulatory-designated sustainable investment portfolio, but also that the accountability and transparency towards targets is increasingly being considered as an indicator across the analysis of the full debt stack.
It may be that with Article 7 requiring evidence of clear and measurable targets, that an ambitious SLB affords all debt from a given issuers into such funds, and so supports investor demand for the product, and transparency as to the funding benefits for ambitious issuers.
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[1] "Commission simplifies transparency rules for sustainable financial products", EU Commission, 20 Nov 2025.
[2] “Sustainability-related disclosure in the financial services sector”, EU Commission, accessed 20 Nov 2025.
[3] For more details on this structure please see "Sustainability-Linked Bond Handbook", AFII, 12 May 2024.
[4] "A watershed year for the SLB market", AFII, 15 Jul 2025.
