Shai began his career on the buyside at what is now JP Morgan AM, before moving to the sellside where he worked in several research roles. He was Head of Research at Macquarie Group for 10 years before founding Integrum ESG in 2018. Shai has an M.A. from Cambridge University.
The EU Parliament has published its draft negotiating position on the Commission's proposed SFDR 2.0 reforms, proposing stricter requirements for ESG-labelled funds in several areas and extending mandatory PAI disclosures to product level across all three categories.
The European Commission published its proposed updates to SFDR 2.0 earlier this year, setting out a new three-category product framework to replace the existing Article 8 and Article 9 structure. That proposal now moves into trilogue negotiations and the EU Parliament has set out where it agrees, where it diverges and what changes it will push for.
The Parliament's draft position retains the overall architecture of the Commission's proposal but introduces material changes in several areas. For asset managers currently using broad ESG integration to maintain a categorised label, the proposed requirements are more demanding than those in the Commission's baseline.
This article summarises the key differences between the Commission's baseline proposal and the Parliament's draft, and explains what the changes could mean for funds currently classified as Article 8.
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Across six areas, the Parliament's draft either tightens the Commission's requirements or introduces new obligations that the Commission had not proposed.
The Parliament's draft explicitly preserves the three-category system and minimum criteria framework put forward by the Commission.
There is no structural renegotiation of the overall approach. This signals broad political agreement on the direction of reform, and limits the scope for fundamental reversals in trilogue.
Where the Parliament diverges is in the detail of what each category requires, and in the obligations that apply across all three.
The Commission proposed a broad ESG integration category with limited quantitative requirements. The Parliament's draft tightens this considerably.
Under the Parliament's position, funds seeking to carry the ESG Basics label must remove at least 20 percent of their worst-performing investments by sustainability rating or value before they can demonstrate ESG characteristics.
This is a higher bar than the Commission envisaged and requires a more deliberate and evidenced exclusion process at the portfolio level.
For funds currently classified as Article 8, this is the most direct change in the draft.
The Commission's proposal allowed funds tracking a Climate Transition Benchmark or Paris-Aligned Benchmark to use that alignment as a form of safe harbour, simplifying the path to category compliance.
The Parliament has removed this provision. Under the draft, benchmark tracking alone does not satisfy the requirements for any of the three categories.
Funds will need to demonstrate compliance on the basis of their own portfolio construction and methodology, independently of their benchmark.
The Commission sought to reduce the overall PAI burden, particularly at entity level, through fewer indicators and simplified disclosure requirements.
The Parliament is moving in the opposite direction at product level.
The draft introduces mandatory PAI disclosures across all three categories. A core set of PAIs, to be specified in Level 2 legislation, would apply to all products. In addition, funds would be required to report on further PAIs where they are material to the product strategy.
This represents a material increase in disclosure obligations for funds that currently sit within a categorised label while avoiding PAI reporting.
The Commission placed limited emphasis on engagement in its proposal.
The Parliament's draft strengthens this, requiring all three categories to disclose their engagement policies and the outcomes of engagement activity on a comply-or-explain basis.
This creates a disclosure obligation even for funds that do not engage actively, who would need to explain the absence of a policy.
Funds that do not fall into any of the three ESG categories would be required to carry an explicit disclaimer stating that the product does not meet EU sustainability category standards.
The Commission's approach permitted references to ESG factors with restrictions on claims.
The Parliament's draft mandates a direct negative statement rather than simply restricting positive ones.
| Area | Commission proposal | Parliament draft |
|---|---|---|
| Overall architecture | Three voluntary categories (Transition, ESG Basics and Sustainable) with 70% portfolio threshold and restrictions on ESG claims | Retained without structural change |
| ESG Basics category | Broad ESG integration with limited quantitative test | Requires removal of at least 20% of worst-performing holdings before demonstrating ESG characteristics |
| CTB / PAB benchmarks | Benchmark alignment can provide safe harbour | Safe harbour removed. Benchmark tracking alone is not sufficient to meet category requirements |
| PAI indicators (core structure) | Reduced burden, fewer indicators, simplified disclosures | Mandatory product-level PAI disclosures across all categories plus additional material indicators |
| PAI indicators (scope and flexibility) | Streamlined, reduced obligation at entity level | Mandatory core set of PAIs for all products specified in Level 2, plus additional PAIs where material to product strategy |
| Engagement disclosure | Less central in Commission proposal | Disclosure of engagement policies and outcomes required on a comply-or-explain basis across all categories |
| Non-categorised products | May reference ESG factors with restrictions on claims | Must carry an explicit disclaimer stating the product does not meet EU sustainability category standards |
For more on how Climate Transition Benchmarks and Paris-Aligned Benchmarks interact with the new SFDR framework, see our article CTB and PAB Exclusions Explained.
A large number of current Article 8 funds are expected to seek reclassification into the ESG Basics category under the new framework.
Many of these funds currently use a provision in the existing SFDR rules that allows them to avoid reporting on any Principal Adverse Impacts.
If the Parliament's position carries into the final text, those funds would face:
The path from Article 8 to ESG Basics is more demanding under the Parliament's draft than under the Commission's proposal. Funds that had assumed a straightforward reclassification may need to revisit that position.
For a full breakdown of SFDR 2.0 requirements and how they apply to your funds, Integrum ESG's SFDR Intelligence solution gives asset managers a current, verified view of obligations across the new categories.
Even for managers who are not directly affected by the ESG Basics changes, the Parliament's draft indicates a broader shift in the direction of product-level disclosure requirements. Across most of the contested areas, the Parliament's position proposes more disclosure and more evidence rather than less.
Two themes are particularly relevant for planning purposes.
First, the removal of the benchmark safe harbour means that classification decisions will need to stand on their own merits. A fund cannot rely on its index selection as a proxy for sustainability compliance.
Second, the extension of mandatory PAI obligations to product level across all categories increases the data and reporting infrastructure required to maintain a categorised label.
Managers with limited ESG data coverage or early-stage PAI reporting processes will need to assess the gap against what the Parliament's draft would require.
The Parliament's draft is a starting point for its negotiating position, not a final view. The Council of the EU will also develop its own position, and trilogue negotiations between all three institutions will determine the final text.
Full implementation remains expected from 2028, with technical standards to be developed through 2026 and 2027. The Commission's proposal is the current baseline, and the Parliament's draft does not change any immediate regulatory obligations.
The Parliament's draft does, however, indicate that stricter product-level requirements are likely to be part of the trilogue discussion. Asset managers should monitor developments and avoid treating the Commission's proposal as a settled outcome.
For a full overview of the Commission's original SFDR 2.0 proposals, see our earlier article: SFDR 2.0 Explained: What Asset Managers Must Do Next
The Parliament's draft does not change the immediate regulatory requirements. However, managers planning for the transition should revisit any assumptions made on the basis of the Commission's proposal alone.
In particular:
The Parliament's draft gives asset managers enough to act on now.
Funds mapping a path from Article 8 to ESG Basics need to revisit that assumption, and the PAI data requirements implied by the draft go well beyond what most currently produce.
Identifying where your funds sit under the new categories is the logical first step. Integrum ESG can run that assessment for you, across fund classification, PAI data coverage and exclusion policy gaps.
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