What must a portfolio actually hold before you can market it as a Transition product?

On Thursday September 10, a committee of MEPs is expected to vote on a question most fund managers are still filing under “deal with later”:

Get the answer early, and you have a new category to build and sell around. Wait for the final rulebook, and you risk spending 2028 or 2029 re-papering products, rebuilding evidence and explaining to investors why the sustainability label on their fund has changed.

Here is the part that deserves more attention.

SFDR 2.0 is not simply tightening today's Article 8 and Article 9 regime. It is replacing the market's familiar classification architecture with three named sustainability categories:

• Transition — Article 7
• ESG Basics — Article 8
• Sustainable — Article 9

And across the proposed architecture sits one important common threshold: at least 70% of a categorised product's investments must satisfy the criteria relevant to that category.

Your current Article 8 or Article 9 status does not automatically carry across.

That is why Thursday, 10 September, matters — even though it will not produce the final law.

The labels you have spent years defending are being rewritten

The Commission proposed its overhaul of SFDR in November 2025. The Council agreed its negotiating position on 24 June 2026. Parliament's Economic and Monetary Affairs Committee, ECON, adopted its negotiating position on 10 September. The mandate is expected to be announced at Parliament's October I plenary, after which trilogue with the Council can begin..

All three stages point in the same broad direction: SFDR is moving away from a disclosure regime that the market turned into a de facto labelling system, and towards an explicit product-categorisation framework.

The proposed categories are:

• Sustainable — Article 9: for products investing in sustainable undertakings, activities or assets, or otherwise contributing to sustainability objectives.
• Transition — Article 7: for products directing capital towards companies, activities or assets moving towards a sustainability-related objective.
• ESG Basics — Article 8: for products integrating sustainability factors beyond the consideration of sustainability risks without qualifying as Sustainable or Transition.

The numbering is almost designed to cause confusion.

“Article 9” survives, but the new Article 9 would not simply mean today's Article 9 under another version of the regulation. It would contain a new eligibility framework, new exclusions and new disclosure requirements.

Article 6 does not disappear either. Baseline sustainability-risk disclosure remains. But the familiar market shorthand of “Article 6, 8 or 9 fund” would no longer describe the sustainability hierarchy in the way investors and distributors use it today. The Commission proposal also introduces Article 6a for non-categorised products. Those products may still disclose some information about how they consider sustainability factors, but those disclosures must remain secondary and cannot amount to the sustainability claims reserved for categorised products.

And there is no general automatic migration route from today's Article 8 or Article 9 into the new categories.

There are proposed exceptions and opt-outs — including provisions for certain pre-existing closed-ended products, while the Council also proposes allowing AIFs offered exclusively to professional investors to stay outside the categorisation regime. But for the mainstream product universe, the important point remains:

you will have to test the product against the new criteria rather than assume today's classification survives.

The 70% rule you should already be stress-testing

Each of the three proposed categories is built around the same basic architecture:

at least 70% of the product's underlying investments must satisfy the relevant category criteria.

That sounds like an allocation rule, but it is much more than that.

Because the real question is not whether 70% of the portfolio can be described as “ESG”, “green” or “transitioning”. The question is whether at least 70% survives the actual eligibility tests, exclusions and evidence requirements applicable to the category.

Pull your current Article 8 and Article 9 products and run that number honestly.

How many clear 70% after applying the relevant rules, with evidence you could put in front of a supervisor?

• Not 70% based on a generous interpretation of “promotes environmental characteristics”.
• Not 70% according to a vendor's ESG score.
• Not 70% because the investment committee thinks the company is “on a journey”.

Seventy percent that you can evidence investment by investment.

That is where recategorisation stops being primarily a legal problem and becomes a data architecture problem. You cannot prove a threshold you have never measured at holding level. And you cannot reliably measure the threshold if you do not have the data required to test the eligibility condition, the applicable exclusions, Taxonomy alignment, transition plans, adverse-impact indicators and — in some cases — the direction of a company's capital expenditure.

That work can start now. It does not depend on knowing every word of the final regulation.

The fossil-fuel test Parliament is taking into trilogue

This is where the current negotiations become commercially interesting.

Everyone broadly agrees on the purpose of the Transition category: it should direct capital towards companies, activities and assets that are not sustainable yet, but are credibly moving in that direction.

The disagreement is over what “credibly” means when the company is still in the fossil-fuel business.

The Council's June position already sets a two-part test for fossil-fuel companies: at least 20% of capital expenditure must go to EU Taxonomy-aligned economic activities, and the company must have a clear, time-bound strategy to reduce greenhouse-gas emissions. ESG Today's reporting on the Council mandate describes that strategy as covering Scope 1 and Scope 2 emissions.

Parliament has now retained that baseline but added a third test: the company must direct more capital towards sustainable activities than towards new fossil-fuel projects. That makes Parliament's position materially stricter — but the difference is narrower and more precise than a simple 'Council permissive, Parliament restrictive' split.

It would exclude new projects for the exploration, extraction, distribution or refining of coal, lignite, oil or gas. Coal-fired power generation would also face exclusion unless backed by a time-bound and measurable phase-out plan.

Under ECON's adopted position, fossil-fuel companies would face a three-part hurdle for inclusion in the Transition category::

1. At least 20% of capital expenditure must be EU Taxonomy-aligned.
2. The company must direct more capital towards sustainable activities than towards new fossil-fuel projects.
3. It must have a clear, time-bound emissions-reduction strategy.
   The Council already supports the first and third elements. Parliament's additional capital-allocation test is therefore the key point of divergence heading into trilogue.

Miss one, and under that compromise the investment would fail the fossil-fuel test. That is a very different standard from simply saying that an oil major has a transition plan. It asks where the company's money is actually going, and that may turn out to be one of the most consequential ideas in the entire SFDR revision.

A company can publish a net-zero strategy. It can publish targets. It can describe transition projects. But if it is still directing more capital towards prolonging its oil and gas operations than towards Taxonomy-aligned activities, Parliament's compromise effectively says: the capital allocation tells us more than the story.

That is the kind of bright line that can turn a Transition category from a marketing concept into an auditable investment rule. It is also exactly the kind of issue that remains unresolved.

Council and Parliament now agree on the three-category architecture, the 70% threshold and two of the three fossil-fuel tests. The key unresolved question heading into trilogue is whether Parliament's additional capital-allocation test survives.

The risk is not choosing the wrong side. It is building only one scenario

Suppose you build a Transition product around the Council's two-part fossil-fuel test — 20% Taxonomy-aligned CapEx plus a time-bound emissions-reduction strategy. If trilogue lands closer to Parliament's three-part test, holdings may fall out of the 70% qualifying bucket because their capital allocation still favours new fossil-fuel projects. Then trilogue lands closer to Parliament.

You may discover that holdings you expected to count towards your 70% no longer qualify. Now reverse it.

Suppose you construct the portfolio around the strictest Parliament test and the final regulation lands closer to the Council. Your product may still comply — but you may have constrained its investable universe more than the final rules required. That does not mean managers should wait.

It means they should scenario-model both outcomes.

For every holding that matters to the Transition threshold, you should be able to ask:

• Does it qualify under the Commission architecture?
• Does it qualify under the Council position?
• Does it qualify under Parliament's latest compromise?
• What data determines the answer?
• Which holdings change status when one assumption changes?

That is much more useful than trying to predict which institution will “win”.

Why “wait and see” is the expensive option

The natural instinct is to let the political process settle first.

The problem is timing.

ECON has now adopted Parliament's negotiating position. Once the mandate is announced at the October I plenary, trilogue with the Council can begin. The focus therefore shifts from whether Parliament will adopt a position to how far the Parliament and Council texts can be reconciled. Then comes final adoption, publication and implementation.

The Commission originally proposed that the revised regime should apply 18 months after entry into force. The Council proposes extending that to 24 months, and Parliament's draft work has also supported a 24-month period.

So the precise application date is not settled. Depending on when the legislation is finally adopted and which implementation period survives trilogue, the operational deadline could land around 2028 or 2029.

That sounds distant until you list what has to happen first.

• Every affected product has to be assessed.
• Every intended category has to be supported by evidence.
• Every relevant holding has to be tested against category criteria and exclusions.
• Taxonomy, PAI, fossil exposure and transition-plan data may have to be sourced or rebuilt.
• Investment mandates may need changing.
• Product governance has to change.
• Names, prospectuses, pre-contractual disclosures, periodic disclosures, websites and marketing materials may need rewriting.
• Distributors need the new categorisation.
• Investor communications need preparing.

And all of this will happen while delegated rules and implementation details are themselves being finalised.

Firms that treat the application date as the date to start will compress all of that work into the most expensive part of the regulatory cycle. Firms that start mapping now can use the intervening period to make portfolio and data decisions rather than document changes under deadline pressure.

What is certain enough to act on

The final SFDR 2.0 text is not fixed.

That distinction matters.

Eligibility tests can change. Exclusions can change. PAI requirements can change. The treatment of professional-only AIFs can change. Fossil-fuel rules can change. Technical methodologies can change.

But the direction of travel is unusually clear.

The Commission and Council are already aligned around a three-category architecture — Sustainable, Transition and ESG Basics — and around a 70% minimum threshold for categorised products. Parliament's work is proceeding within the same basic architecture, even while arguing over what should count inside it.

That is enough to start building against, but not enough to make an irreversible final classification decision. It'seEnough to prepare the system that will make that decision.

There is an important difference.

What to do before trilogue closes

You do not need the final text to make progress.

You need to separate the structural elements that are converging from the technical rules that are still moving.

1. Map every SFDR product against four possible outcomes now.

Do not assume Article 8 becomes ESG Basics or Article 9 becomes Sustainable.

Model:

• Sustainable;
• Transition;
• ESG Basics; and
• non-categorised.

For each product, record why it could qualify — and what prevents it from qualifying today.

2. Stress-test the 70% threshold at holding level.

Do not calculate only the percentage.

Calculate the percentage after eligibility tests and exclusions.

Then flag products sitting close enough to the line that a trilogue amendment, portfolio movement or missing data point could change the result.

3. Build an evidence-gap register.

For every holding that affects category eligibility, identify the evidence you actually possess.

Where relevant, that may include:

• EU Taxonomy alignment;
• Scope 1 and Scope 2 emissions;
• fossil-fuel revenue exposure;
• PAI indicators;
• transition plans and targets;
• capital-expenditure allocation;
• engagement evidence;
• applicable exclusion tests.

The longest lead time may not be rewriting a prospectus.

It may be getting reliable evidence from the underlying companies.

4. Scenario-model Transition against both Council and Parliament.

For fossil-fuel exposure in particular, run at least two rule sets.

Do not wait for trilogue to discover which holdings become problematic under the stricter scenario.

Make the difference visible now.

5. Treat recategorisation as product governance, not document editing.

A category is not a paragraph in a disclosure.

It is the output of the portfolio, evidence, methodology and governance underneath it.

The prospectus comes last.

6. Prepare the investor explanation early.

Some products will change label even though their underlying investment strategy changes little.

Others may have to change investment strategy to keep the sustainability positioning investors bought.

Those are very different conversations.

You want to know which conversation you are going to have before your investors do.

The bottom line

The 10 September ECON vote did not give the market a final SFDR 2.0 rulebook.

What it may do is give us a much clearer view of how hard Parliament intends to push on the questions that determine what the new categories actually mean — especially Transition.

The winners will not be the managers who correctly predict whether the Council or Parliament gets its preferred fossil-fuel wording into the final regulation. They will be the managers who already know, holding by holding, what changes under each version. That is the shift SFDR 2.0 should trigger now.

Stop thinking of recategorisation as a future disclosure exercise. Start treating it as a portfolio-data and evidence problem.

The three-category architecture is strongly converging. The 70% threshold is strongly converging, but the detailed eligibility rules are not.

And that is precisely why the preparation window is open now. The question is no longer whether Brussels has finished writing the rulebook. It is whether your systems are already capable of telling you what happens when Brussels changes a rule.

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