SFDR (Sustainable Finance Disclosure Regulation)

The Sustainable Finance Disclosure Regulation (SFDR), formally Regulation (EU) 2019/2088, is the European Union rule that sets out how financial market participants and financial advisers must disclose sustainability information. Its purpose is to bring transparency and comparability to the market, helping investors understand how environmental, social and governance (ESG) factors are taken into account and reducing the risk of greenwashing. The main disclosure obligations have applied since March 2021.

What is the SFDR?

The SFDR is a core piece of the EU Sustainable Finance Action Plan, alongside the EU Taxonomy. It applies to financial market participants (such as asset managers, insurers offering investment products and pension providers) and to financial advisers. The regulation works on two levels:

• Entity level: firms must publish how they integrate sustainability risks into their investment processes and how they consider the adverse impacts of their decisions on sustainability factors.
• Product level: each financial product must disclose its sustainability profile, so investors can compare like with like.

The Article 6, 8 and 9 classification

The best known part of the SFDR is the way it classifies financial products into three groups, which the market often uses as informal labels:

• Article 6: products that do not specifically promote sustainability features. Firms still disclose how they handle sustainability risks, or explain why these are not relevant.
• Article 8 ("light green"): products that promote environmental or social characteristics, provided the companies invested in follow good governance practices.
• Article 9 ("dark green"): products that have sustainable investment as their explicit objective.

The SFDR also requires the disclosure of Principal Adverse Impacts (PAI): a set of indicators that capture the negative effects of investments on sustainability factors, including greenhouse gas emissions, exposure to fossil fuels and other environmental and social metrics.

SFDR 2.0: the 2025 review

The Article 8 and 9 regime was widely criticised because those provisions were designed as disclosure rules, not as product labels, yet the market treated them as such without clear criteria. To fix this, on 20 November 2025 the European Commission published a proposal to overhaul the regulation, often called SFDR 2.0. The proposal would replace the Article 8/9 approach with three clearer, retail-friendly product categories, generally referred to as Transition, ESG Basics and Sustainable, each with a minimum portfolio threshold (around 70%), common exclusions and shorter, standardised disclosures.

The proposal is still going through negotiation between the European Parliament and the Council during 2026, and the new rules are expected to apply only towards the end of the decade after a transition period. Until then, the current SFDR framework and its Article 6/8/9 categories remain in force.

How the SFDR connects to the carbon footprint

To meet SFDR obligations, firms need reliable data about the companies they invest in, and emissions are central to that. The PAI indicators include greenhouse gas emissions and carbon footprint metrics, which means investee companies are increasingly asked to measure and disclose their emissions across the three scopes defined by the GHG Protocol:

• Scope 1 emissions: direct emissions from sources the company owns or controls.
• Scope 2 emissions: indirect emissions from purchased electricity, heat or cooling.
• Scope 3 emissions: indirect emissions across the value chain, including suppliers and transport.

How the SFDR fits with other EU rules

The SFDR does not work in isolation. It is closely tied to the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS), which provide much of the underlying corporate data that investors rely on, and to the EU Taxonomy, which defines which activities count as environmentally sustainable. The wider Omnibus simplification package is reshaping several of these rules in parallel.

How Manglai supports SFDR-related reporting

Whether you are an investee company asked for emissions data or a firm preparing your own disclosures, good numbers start with measurement. At Manglai we help companies calculate their carbon footprint across Scopes 1, 2 and 3 and prepare auditable sustainability data that can feed SFDR and CSRD reporting. Discover how Manglai can help you.