SFDR 2.0 in Mid-2026: The Fog Is Lifting – Slowly, and in Instalments

Meike Borchers
Jul 17
9 min read

An update for real estate and infrastructure investors

When we wrote about SFDR 2.0 in January (SFDR 2.0: From Labels to Leadership – Why It Matters Now), the European Commission's November 2025 proposal was fresh off the press and the industry was still deciding whether to applaud, groan, or do both simultaneously. Six months on, the legislative machine has moved with – by Brussels standards – almost indecent speed. Time for an update: what has actually changed, what it means for real estate and infrastructure fund vehicles, and what remains genuinely unknown.

One caveat before we start, because precision matters here: only one of the two co-legislators has an adopted position:

· The Council agreed its negotiating mandate on 24 June 2026 but

· The European Parliament is still forming its position.

Much of what follows therefore distinguishes carefully between the Commission's proposal, the Council's adopted mandate, and the rapporteur's draft report – three different things, none of which is final law.

The good news: the three-category architecture (Sustainable – Transition – ESG Basics) is holding firm across all three texts. The interesting battles are now about who is in scope, how strict the criteria will be, and how long we all get to prepare.

Where the process stands

The European Parliament. ECON rapporteur Gerben-Jan Gerbrandy (Renew, NL) published his draft report on 28 April 2026 and presented it to the ECON committee on 3 June. ECON members subsequently tabled 610 amendments. A committee vote was scheduled for 15 July 2026 – but it did not happen: the vote was postponed after political groups failed to reach a compromise, with reporting indicating alignment on a carve-out to the Transition category's exclusions but no overall agreement. (Fittingly for a regulation full of phase-in periods, even the vote now has one.) No new vote date had been published at the time of writing; a plenary vote to establish Parliament's position is still expected in Q3, but the runway is tightening. Until ECON – and subsequently the Parliament – adopts a position, the proposals below remain the rapporteur's negotiating starting point rather than Parliament's settled mandate.

That starting point broadly endorses the Commission's shift from the Article 8/9 disclosure regime to a genuine, criteria-backed categorisation system, but pushes for more teeth. The rapporteur's draft proposes:

· mandatory disclosure of a limited set of PAI indicators across all three categories;

· comply-or-explain engagement disclosures; exclusion of fossil fuel expansion from the Sustainable and Transition categories; and

· removal of the safe harbours for funds using EU climate transition and Paris-aligned benchmarks.

For certain outperformance-based routes into the ESG Basics category, performance would be measured after excluding at least the bottom 20% of the relevant investment universe or benchmark. The rapporteur also proposes raising the Taxonomy-alignment safe harbour for meeting the 70% contribution condition from 15% to 20% – the other category requirements would still apply.

The Council. On 24 June 2026, the Council adopted its negotiating mandate. It preserves the Commission's categorisation framework and proposes targeted calibrations:

A partial categorisation opt-out for professional-only AIFs. Managers of AIFs made available exclusively to MiFID II per se professional clients (Section I of Annex II) could choose not to apply the categorisation provisions. Note the limits: it is not a complete exemption from SFDR, and elective professionals are not covered. Still – that per se professional description fits a large share of institutional real estate and infrastructure vehicles.
A longer runway. Application 24 months after entry into force, rather than the Commission's 18.
A defined phase-in for the 70% threshold. The ramp-up towards the 70% asset allocation threshold must be reflected in pre-contractual disclosures and should not exceed three years – a nod to private markets, where portfolio construction depends on deal flow, drawdowns and data availability.
Mandatory PAI substantiation for Sustainable and Transition products (not ESG Basics): at least three indicators from a list to be set by the Commission. The rapporteur, by contrast, wants limited mandatory PAIs across all three categories – one of several differences that trilogue will need to resolve.
A fossil-fuel compromise. The Council's Transition category could accommodate certain fossil-fuel companies where at least 20% of CapEx is Taxonomy-aligned and a time-bound emissions-reduction strategy is in place, accompanied by an additional PAI indicator. The rapporteur's draft points the other way, excluding fossil fuel expansion. Expect this to be a major trilogue fault line – particularly relevant for energy infrastructure portfolios.
A public-sector debt pathway. Certain general-purpose debt issued by EU public-sector bodies could count towards the Transition category's 70% threshold, subject to documented methodologies and capped at 15 percentage points of the portfolio – worth noting for infrastructure, insurance and pension portfolios.
A prescribed disclaimer, in defined circumstances. Where a non-categorised product chooses to include limited sustainability information, the Council would require a prescribed disclaimer. The rapporteur's draft goes further, wanting a prominent statement for non-categorised products more broadly – the wording and precise circumstances remain open.

What comes next. Trilogue negotiations can begin only once Parliament has adopted its negotiating position – and the postponed committee vote makes the previously expected early-Q4 2026 start for trilogues look more fragile. Nor is there yet an application date: the Commission proposed 18 months after entry into force, the Council proposes 24 – and entry into force itself cannot occur until the legislative process and publication are complete. On the current trajectory, late 2028 would be an optimistic earliest case, while application during 2029 appears increasingly plausible.

The updated milestone picture

Milestone	Status / Expected timing
Commission proposal, COM(2025) 841	Published 20 November 2025	✔
Commission feedback period	Closed 6 April 2026	✔
Rapporteur's draft report (Gerbrandy)	Published 28 April 2026	✔
Council negotiating mandate	Adopted 24 June 2026	✔
ECON committee vote	15 July 2026	Postponed, no new date announced yet
EP plenary vote / adopted position	Q3 2026 (date tbc)
Trilogue negotiations	Possibly from early Q4 2026
Political agreement (Level 1)	Open – dependent on trilogue
Level 2 delegated acts and implementing detail	Timing still to be determined
Application	No date fixed; late 2028 optimistic earliest case, 2029 increasingly plausible

(All forward dates are indicative – this is EU lawmaking, not a train timetable, and even train timetables… well.)

Why real asset managers should pay particular attention

1. The AIF opt-out is a double-edged sword – and not yet safe. On paper, a categorisation opt-out for per se professional-only AIFs removes a compliance burden for exactly the vehicles that dominate institutional real estate and infrastructure. In practice, three caveats:

The opt-out appears only in the Council's mandate. It was not in the Commission's final draft and does not feature in the rapporteur's report – making it a prime candidate for trilogue horse-trading.
Even if it survives, your LPs won't disappear. Pension schemes, insurers and funds of funds are likely to keep demanding SFDR-style sustainability information for their own regulatory and policy purposes. No common standard may simply mean less harmonisation, not less work.
Voluntary opt-in remains possible – and a recognisable category label may prove commercially valuable in fundraising, precisely because it is voluntary.

2. The closed-ended exemption may matter just as much. Separately from the AIF opt-out, both the Commission and Council texts envisage relief from mandatory categorisation for certain closed-ended funds that are closed to new investments when the new regime takes effect. For closed-ended real estate and infrastructure vehicles already past their fundraising period, this could ultimately be the more significant carve-out – though the final scope and cut-off mechanics remain to be settled, and the exemption does not extend to vehicles still raising capital.

3. The Transition category remains the strategic opportunity for brown-to-green. Industry voices, including INREV, have consistently argued that a transition category will attract capital into real estate, since long-term assets generally need retrofitting to become sustainable – something the old Article 8 catch-all never rewarded. In its response to the Commission's call for evidence, INREV expressly supported the Transition category for brown-to-green real estate strategies, while calling for real-estate-specific KPIs, flexibility and appropriate ramp-up arrangements. The Council's three-year phase-in cap on the 70% threshold makes the category more habitable for drawdown structures – though three years is not forever, and acquisition pipelines will need to be underwritten with the threshold in mind. Helpfully for global strategies, the Council would also recognise assets meeting comparable non-EU sustainability standards for the Sustainable category, subject to disclosure and justification.

4. The criteria are getting harder, not softer, at the Parliament's end. The bottom-20% screen for outperformance-based ESG Basics routes, mandatory PAIs across categories, engagement disclosure and fossil fuel exclusions in the rapporteur's draft all point one way: whatever category you claim, you will need the data, governance and evidence trail to substantiate it. Eurosif has also flagged that criteria and thresholds still need adapting to different asset classes – explicitly including real estate and private assets – through more detailed technical empowerments. Translation: the real-asset-specific detail will land at Level 2, on a timetable yet to be determined, and the industry needs to keep engaging until it does.

What we know – and what we honestly don't

Areas of emerging convergence – but not yet settled:

Strong support for three categories: Sustainable, Transition and ESG Basics
A 70% investment threshold as the core quantitative architecture
Removal of entity-level PAI reporting and a shift towards product-level substantiation
Tighter controls over sustainability-related names and marketing claims
Recognition that transition strategies require a distinct regulatory category

These points have support across the Commission proposal, the Council mandate and the rapporteur's draft – but none is final until the legislative process is complete.

Genuinely open:

Whether the professional-only AIF opt-out survives trilogue
Treatment of fossil fuels in the Transition category (Council accommodation vs. rapporteur exclusion)
Final thresholds and safe harbours (15% vs 20% Taxonomy safe harbour; benchmark safe harbours; the bottom-20% screen)
The PAI regime: which categories, how many indicators, defined by whom
Disclaimer wording and circumstances for non-categorised products
The application date (18 vs 24 months after an entry into force that has no date yet)
Grandfathering, the closed-ended exemption scope, and migration mechanics for existing Article 8/9 funds
Everything at Level 2 – including whether real estate finally gets sector-appropriate KPIs and DNSH criteria

Our recommendations – unchanged in principle, sharper in practice

The advice from our January article stands; the last six months have added precision:

Re-map your product range against all three categories – and against the "none of the above" scenario, where restrictions on sustainability claims are tightening in both co-legislators' texts. Knowing which of your vehicles would fail the claim test is cheaper to discover internally than via a supervisor.
Stress-test the 70% + phase-in mechanics against your deployment reality. For funds in or entering their investment period, model whether your pipeline plausibly reaches the threshold within three years – and what the pre-contractual disclosure of that ramp-up would look like.
Don't bank on the AIF opt-out or the closed-ended exemption. Prepare as if categorisation applies; treat any carve-out as an option, not a plan. And ask your LPs what they will require regardless of what Brussels decides – investor demand may make the opt-out academic.
Get your PAI and engagement data house in order. Both co-legislators want mandatory PAI substantiation in some form – they differ on scope, not direction – and the rapporteur wants documented engagement strategies. Asset-level data availability is the pinch point for real assets; start there.
Run the naming and claims audit across fund names, factsheets and pitch decks. The "in or out" logic features in all three texts, even if the exact disclaimer mechanics differ.

The honest bottom line

SFDR 2.0 will not apply tomorrow – but the design decisions your funds face are being made now. Many open-ended, evergreen and still-fundraising vehicles launched in 2026–2027 are likely to encounter the new regime during their lives, although the final grandfathering and opt-out provisions will matter. Waiting for legal certainty means designing today's products for yesterday's rules.

At Karteria Partners we continue to run our "MOT" (TÜV, for those so inclined) for investment vehicles: a senior, practical review of where your products would land under SFDR 2.0, what would need to change, and in which order – investable, evidence-based, and refreshingly free of 80-page memos. If you'd like to talk through your best route into the new regime, we're happy to discuss.

Transparent claims, backed by sources – as always. This update reflects the position as at 16 July 2026.