SFDR 2.0: European Parliament moves closer to a more workable framework for private markets

The European Parliament’s ECON Committee has adopted its position on the review of the Sustainable Finance Disclosure Regulation (SFDR), bringing the EU a significant step closer to a revised sustainable finance framework. If approved by the Parliament in plenary next month, trilogue negotiations with the Council and the European Commission on the final text are expected to begin shortly afterwards.

The Parliament’s compromise text contains several welcome improvements for private equity and venture capital. In particular, it moves the framework closer to a number of positions Invest Europe has consistently advocated: greater proportionality for professional investors, stronger recognition of transition investing and active ownership, and a simpler disclosure regime focused on meaningful information rather than box-ticking exercises.

A more proportionate approach for professional investor funds

A key development is the introduction of an optional exemption from the new SFDR product categories for alternative investment funds marketed exclusively to professional investors. This reflects the reality that institutional investors do not select private market funds based on standardised labels alone. Instead, they conduct detailed due diligence, engage directly with fund managers and often negotiate their own sustainability requirements. The Parliament’s approach therefore recognises that different investor groups require different forms of information and protection.

Recognition that transition finance matters

The Parliament has also strengthened the proposed Transition category, helping ensure that SFDR better reflects how sustainable outcomes are delivered in practice. Rather than focusing solely on companies that are already sustainable, the revised approach gives greater recognition to investments in businesses pursuing credible transition pathways. This is particularly relevant for private markets, where fund managers create value through active ownership, operational improvement and long-term engagement with portfolio companies.

Simplification and more meaningful disclosures

For managers, the Parliament’s position would also simplify implementation and reduce operational burdens. Among others, the text maintains the removal of entity-level Principal Adverse Impact disclosures and streamlines disclosure requirements around the new product categories. It also provides greater flexibility to use supplementary indicators where standard metrics do not adequately capture a strategy’s sustainability characteristics. Together, these changes should reduce complexity, compliance costs and legal uncertainty while improving the relevance of sustainability disclosures.

The Parliament additionally proposes a longer implementation period and grandfathering provisions for existing closed-ended funds, providing managers with more realistic timelines to adapt products, systems and investor communications.

Key issues for trilogue negotiations

As negotiations move into trilogue, several important issues remain.

Invest Europe will continue to advocate for rules that allow managers to explain their sustainability approach even where they choose not to use an SFDR category, preserving meaningful transparency for professional investors. Further refinements are also needed to ensure the framework fully reflects the realities of long-term private market investing, including:

1. the role of stewardship and active ownership;

2. appropriate treatment of divestment periods; and

3. calculation methodologies, threshold testing and compliance mechanisms designed for private assets rather than replicating models developed for public markets.

The treatment of impact investing will also warrant close attention during negotiations. Any future framework should recognise the diversity of impact investment strategies and avoid definitions that could unintentionally exclude commercially viable investments that deliver measurable environmental or social outcomes.

Overall, the Parliament’s position represents a positive step towards a more practical and workable SFDR framework for private markets. The focus now shifts to trilogue negotiations, where preserving these improvements will be essential to ensuring that SFDR supports long-term investment, transition finance and sustainable growth across Europe.