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Season’s greetings from Quartic. Please note that we are operating with reduced office hours over the holidays.
Blog & Insights
Author: Nicholas Blain
A leaked European Commission draft (which first became public on 6 November 2025) has suggested the scrapping of the current Article 6/8/9 framework and replacing it with three new product categories, provisionally labelled Articles 7, 8 and 9.
The draft suggests minimum 70% portfolio thresholds along with mandatory exclusions. Entity-level PAI (Principal Adverse Impacts) disclosures would be removed, with the potential for Alternative Investment Funds, or AIFs, to opt out of the product category regime.
UCITS ETFs are likely to need to comply as soon as rules become applicable, as no transitional relief seems to apply.
Formal publication is expected in the coming weeks, after which the EU law-making process will begin.
SFDR is the EU Sustainable Finance Disclosure Regulation. Since March 2021 it has required asset managers and advisers to disclose how they consider sustainability, both at the product level and at the firm level. Products have been self-identified under three “articles”:
SFDR dovetails with other EU regulations: the EU Taxonomy (a detailed list of business activities that count as environmentally sustainable), CSRD (Corporate Sustainability Reporting Directive) and MiFID II suitability (how client sustainability preferences are handled).
Note that these points are from the leaked draft: details may change when the proposal is formally published.
The current Article 6/8/9 labels would be retired, with three new mandatory categories being introduced for those retail-facing products that fall within scope:
Each category would come with minimum investment commitments (reportedly 70% of the portfolio aligned to the category’s purpose), mandatory exclusions (linked to benchmark-related exclusion lists), and permitted investment types spelt out in detail. Names of the categories may still change in delegated acts within individual EU member states.
At the moment, Principal Adverse Impacts disclosures can be a real burden to the financial market participants (FMPs) that need to provide them. The draft would abolish them at both the entity and product levels, replacing them with product-level minimum exclusions aligned with ESMA fund-naming guidance logic. Although investing clients may still be looking for equivalent information, many managers will breathe a sigh of relief to see the end of PAI requirements.
Templates for precontractual, website and periodic product disclosures would be shorter (reports suggest around two pages for precontractual), with websites allowed to link to those templates. New regulatory technical standards, or RTS, will follow.
It looks as if some products can be kept outside the scope of the new regulation:
By contrast, it seems likely that UCITS ETFs and other retail-facing products will have no transitional relief, meaning that compliance would be needed immediately the new regime becomes live.
For the first time in SFDR, the leaked draft explicitly recognises “impact”: not as a standalone label, but as a sub-category available where a product’s intentionality, theory of change and measurable positive outcomes are clear (much along the lines of the GIIN’s definition of impact investing). The leak also points to reserved use of “impact” language for products genuinely pursuing measurable outcomes. For teams running impact-focused portfolios, this provides meaningful recognition of their strategies.
You may be familiar with the UK Sustainability Disclosure Requirements or SDR. Under the SDR the FCA already has a dedicated “Sustainability impact” label with its own criteria and a 70% investment policy threshold. It seems quite likely that the language and data that investors will request under SDR or SFDR 2.0 will converge.
UCITS investment funds, which are designed to be marketable to retail customers throughout the EU, are likely to be within scope of SFDR 2.0 as soon as it comes into effect. Open-ended AIFs, including ETFs, may similarly be within scope immediately. Operations teams should be ready to incorporate new regulations rapidly once formal timetables are published.
Note that not all AIFs are included: “professional-only AIFs”, which are not available to retail customers, can opt out of SFDR 2.0 requirements. The flip-side of this is restrictions on naming: if a fund is outside SFDR regulations then the manager won’t be able to label it as sustainable.
Certain other existing closed-ended funds that are no longer marketed are also reported to be out of scope.
The leak itself was on 6th November; publication by the Commission is expected to be around 19th November.
In terms of when SFDR 2.0 may come into force, this depends on the EU legislative process, followed by delegated acts by member states. Given past lead times, 2027-28 seems the earliest date on which this can happen in practice.
There is no automatic mapping from the old to the new regime: each product will need a fresh review. Some very broad rules of thumb:
Marginal cases (for instance products incorporating broad exclusions alongside active stewardship) will need line-by-line testing against permitted investments and exclusions that are still being finalised.
As mentioned above, the leaked draft suggests that there will be restrictions on the use of sustainability terms in the naming, and marketing, of products that are outside the respective categories. Similarly, terms relating to impact can only be used when they genuinely apply. This is comparable to the UK SDR anti-greenwashing and naming rules that have come into effect since last year.
Although EU and UK requirements remain very distinct, the SFDR draft demonstrates quite a strong element of convergence between the two, with both trending towards clearer product types, guardrails on naming and marketing, and disclosures that are more usable with (and understandable by) non-expert retail customers.
Firstly, with formal publication due soon the main immediate action is to keep an eye out for SFDR 2.0 being released officially.
After this, practical steps for different market segments include:
Overall, any convergence between UK and EU regimes must be a positive step for firms operating across both regions. Since Brexit, there has been a tendency in the UK to deviate from EU norms and standards, causing an inefficient increase in the regulatory burden. Regardless of who moved first in this case, the proposed changes to SFDR bring the EU and the UK closer together, which must be welcome news from a purely practical perspective.
The sustainability angle is also positive, with a particular bonus of having impact investing formally included. This will help consumers and teams that are running intentional, outcome-oriented strategies. The drop of PAI requirements may lower the noise, but investors will continue to expect (voluntary) metrics that provide clarity.
There may be an operational pinch for retail products that must comply with limits and exclusions from day one. Given advance warning, firms will need to prepare for this rapid transition.
Simplification with teeth: the change in SFDR from potentially ambiguous self-descriptions to a regime of clear categories and thresholds should help to reduce confusion and promote comparability.
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