SFDR 2.0: what to do with grey and green?

On 20 November 2025, the European Commission (EC) published its long-awaited proposals to revise the Sustainable Finance Disclosure Regulation (SFDR), commonly referred to as SFDR 2.0. Expectations were high, particularly regarding the revision of product classification under SFDR 2.0.

New: sustainability-related product categories under SFDR 2.0

According to the EC’s proposal, SFDR 2.0 will introduce three new “sustainability-related”, in short, “green”, product categories, intended to address the shortcomings of the current SFDR framework:

• Article 7 products, i.e. products that contribute to a transition objective, hereinafter the Transition category;
• Article 8 products, i.e. products that integrate sustainability factors into the investment process, hereinafter the ESG basics category; and
• Article 9 products, i.e. products with an explicit sustainability objective, hereinafter the Sustainable category.

Please note that, while these categories may appear similar to the current Article 8 and 9 SFDR products, this is explicitly not the case. SFDR 2.0 introduces a different system from the current SFDR regime.

For each of the three green product categories, a fund must demonstrate that at least 70% of its portfolio genuinely aligns with the objective of that category. For example, a transition fund must show that at least 70% of its investments contribute to the intended transition objectives, while a sustainability fund must invest the same percentage in activities with a clear sustainability objective.

For Articles 7 and 9, the 70% threshold may alternatively be met by investing at least 15% in EU Taxonomy-aligned activities or by fully replicating an EU Climate Transition Benchmark (CTB) or an EU Paris-Aligned Benchmark (PAB).

In addition, all three green product categories are subject to mandatory sector exclusions. These exclusions are aligned with those applicable to the CTB and/or PAB, with the number and scope of exclusions varying by product category.

This article outlines the main changes SFDR 2.0 introduces at the product level, based on the current proposal and viewed from the perspective of fund managers.

From information classification to label

The proposed product categories demonstrate that the EC is moving away from the original objective of the SFDR classification system. Initially, compliance with disclosure requirements was intended to provide transparency on the degree of sustainability of a fund.

To the EC’s frustration, this transparency was in practice often used as a label or quality mark, inferred from the classification itself: Article 6, 8, 8+ or 9 SFDR. In market practice, these are commonly referred to as “grey” products (Article 6), “light green” products (Article 8) and “dark green” products (Article 9).

By aligning the three green product categories with the system used in the ESMA Guidelines on fund names (“ESMA Guidelines on fund names using ESG or sustainability-related terms”) of 21 August 2024, SFDR 2.0, like those guidelines, restricts the freedom to use a category name without meeting substantive minimum requirements.

No new insight for the investor

So far, so good, one might say. However, the question arises whether the average investor will have a clear understanding of the new green product categories. Admittedly, under the current classification it is not always clear to the average investor what the precise differences are between an Article 6, 8, 8+ and 9 SFDR product. We doubt whether this problem will genuinely be resolved by the new categories.

Let us explain. In addition to the green product categories mentioned above, SFDR 2.0 introduces a new Article 6a for funds without green ambitions – funds that are not classified as sustainability-related products under the new Articles 7, 8 or 9.

The rules for these products are broadly comparable to those for current Article 6 SFDR products. What is striking, however, is that references to sustainability factors are (still) permitted. Such references must be neutral and may not, for example, occupy more than 10% of the section describing the investment strategy.

The distinction between the new green product categories themselves, as well as their distinction from the grey Article 6a category, already appears quite complex for (retail) investors.

And there is more. SFDR 2.0 introduces additional “flavours”. In addition to product categories, SFDR 2.0 allows for a “topping” to be applied to a product category: the Impact Strategy topping.

The impactstrategy is not a standalone category but an "overlay" that may be used subject to certain conditions. Only Article 7 and 9 products that demonstrably meet the SFDR 2.0 requirements for an impact-related strategy may use the word “impact” in the name of, for example, a fund.

Finally, there are the combined products. These may consist of a blend of green funds, or a blend that also includes a grey fund. Each type of blend is subject to its own conditions. In our view, the multitude of possible combinations risks causing investors to lose oversight very quickly.

The system clearly incorporates a “pass or fail” mechanism: a product either meets the criteria of the Transition, ESG basics or Sustainable category, or it does not. This provides a set of minimum safeguards for investors within each green product category. A potential side effect, however, is that fund managers may have limited incentives to make their funds more sustainable than the category’s minimum requirements; whether a fund is 70% or 100% “green” makes no difference within this system.

All in all, the new green product categories effectively function as labels, albeit with more stringent substantive requirements. The odd one out is the grey category; in our view, it is unexpected that a grey fund may still be given a touch of green.

What to do when going green

The criteria for the new green product categories under SFDR 2.0, each with its own baseline requirements, are likely to reduce greenwashing. This approach had already been initiated by ESMA in its fund name guidelines and is therefore not entirely new.

However, in our opinion, the introduction of these new product categories does not resolve the issue of providing better insight into sustainable investing. For the average retail investor, the distinction between three green product categories, a grey category with a hint of green, the topping and the various blends is unlikely to be any clearer than under the current system.

Perhaps the SFDR 2.0 Level 2 measures will provide some additional clarity for (retail) investors, but we expect that Level 2 rules based on SFDR 2.0 will not fully address this issue.

Next month, we will take a closer look at the requirements under SFDR 2.0 for investment firms. What are those requirements? None! None? Yes, really – but that does not mean that investment firms can simply sit back and relax. Curious? Subscribe to our newsletter to stay informed.