Trilogue negotiations between the European Commission, the Council of the EU and the European Parliament on the review of the Sustainable Finance Disclosure Regulation commenced on 22 October 2026. Industry engagement with the law-makers is ongoing, as there continues to be areas of divergence between their positions.
The European Commission (“Commission”) published its proposal to amend the Sustainable Finance Disclosure Regulation (“SFDR”) on 20 November 2025 with the aims of creating simpler rules, lowering the administrative burden and improving investors’ ability to understand and compare sustainability-linked financial products. The key proposed changes include:
- the deletion of disclosures regarding principal adverse impacts (“PAIs”) at entity level to avoid a duplication of requirements imposed under the Corporate Sustainability Reporting Directive (“CSRD”);
- significant reduction in product-level disclosures;
- setting up three categories for “sustainable”, “transition” and “ESG basics” products with new minimum criteria; and
- the definition of “sustainable investment” set out in Article 2(17) to be replaced with a simplified form of specific investment requirements for the three product categories.
Full details of the Commission’s proposal, including the proposed category-specific criteria and exclusions, are set out in our earlier briefing note.
The Council of the EU (“Council”) reached an agreement on its negotiating position on 24 June 2026. The European Parliament’s Economic and Monetary Affairs Committee (“ECON”) voted on its position on 10 September 2026. Trilogue negotiations under the stewardship of the Irish Presidency of the Council commenced on 22 October and the Council and European Parliament are hoping to reach agreement before the end of this year.
Summary of Institutions’ Positions
All three texts broadly support the concept of the three categories for sustainability-related products. They are aligned in terms of the removal of the do no significant harm principal and entity level disclosures of principal adverse impacts (“PAIs”); and voluntary reporting for products not categorised as sustainability-related financial products. As both the Council and Parliament are aligned on permitting an opt-out for alternative investment funds marketed exclusively to professional investors, this opt-out is likely to be carried into the final text.
Key issues for the trilogue negotiations are: whether PAI disclosures should be mandatory under each category, the scope of the investment thresholds under each category (including general-purpose issuances by public sector bodies and sovereign, sub-sovereign and supranational debt issuances), the minimum criteria applicable to the transition category in particular, and the range of applicable exclusions.
Ongoing Industry Engagement
Both the European Funds and Asset Management Association (“EFAMA”) and Irish Funds continue to engage with key stakeholders to ensure that industry’s views are considered and reflected in the final agreement.
The table below summarises the key areas of agreement and those areas where the final position is still being debated.
| Areas of Agreement | Areas for Debate | |
| Product Categories | Three product categories – ESG Basics (Article 8), Transition Funds (Article 7) and Sustainable Funds (Article 9) – with precise criteria on which investments count towards the 70% investment threshold in each category.
Both the Council and the European Parliament propose allowing ESG Basics funds to include investments in general purpose sovereign debt (“GPSD”) of public sector bodies in the 70% investment threshold while Transition funds should be able to invest up to 15% of their portfolio in GPSD of EU public sector bodies. Sustainable funds should not be able to count GPSD in their investment threshold. | European Parliament proposes that ≥ 20% Taxonomy alignment would be required in order for deemed compliance with the 70% investment threshold to apply (as opposed to ≥ 15% proposed by Commission) for the Transition and Sustainable categories.
Extent of permitted exposure to fossil fuel companies. |
| Principal Adverse Impacts | Removal of reporting of PAIs at entity level. | Whether mandatory reporting of up to three PAIs should be required at product level. |
| Professional Investor Opt-out | Council and European Parliament opt-out for AIFs marketed exclusively to professional investors. | There is a lack of clarity as to whether “professional investor” within the meaning of MiFID II or within the meaning of the Alternative Investment Fund Managers Directive (“AIFMD”) will apply. |
| Reporting for products that are not categorised as sustainability-related financial products | Voluntary reporting. | Council supports a mandatory statement confirming that the product does not meet the minimum criteria to qualify as a sustainability-related financial product.
European Parliament supports a mandatory disclosure related to whether and how the products consider sustainability and a mandatory statement confirming that the product is not categorised under the EU standards for defining sustainable financial products and therefore is not required to disclose its negative environmental impact. |
| Engagement Strategy Disclosure | European Parliament proposes that all categorised funds be required to disclose their engagement strategy or explain why no such strategy is pursued. |
Timing
Both the European Parliament and the Council texts provide for a 24 month transition period. If agreement is reached by the end of this year, the revised SFDR would apply from Q1 2029, with the burden-relieving provisions to apply immediately from the date of entry into force. It will be critical to successful implementation that the revised regulation, the Level 2 measures adopted under it and the related updates to MiFID II and the Insurance Distribution Directive on sustainability preferences apply from the same date. The staggered implementation of the first iteration of the SFDR, with Level 1 and Level 2 requirements applicable from different dates, led to legal uncertainty and implementation challenges which should be avoided in this revision.
Please get in touch with your usual Asset Management and Investment Funds Department contact or any of the contacts listed in this publication should you require further information in relation to the material referred to in this briefing note.
