SFDR and Private Equity: what private equity managers and portfolio company CFOs need to know

The SFDR regulation imposes disclosure obligations on asset managers and private equity managers: understand which requirements apply, how to classify your funds and what to do to comply.

In brief

•Today the current SFDR applies (Articles 6, 8 and 9), with disclosures at entity and product level.
•The reform (SFDR 2.0) proposes replacing those articles with product categories, but it is not yet in force: the positions of the Council and the Parliament are negotiating proposals.
•Closed-ended funds that are fully raised before the new rules apply would, under the proposal, fall outside the new regime.
•The critical point remains collecting data from portfolio companies.

What is the SFDR?

Regulation (EU) 2019/2088, known as the SFDR, is part of the European Union's Action Plan on Financing Sustainable Growth. Its aim is to steer capital flows towards sustainable activities and strengthen transparency: it requires asset managers and other financial market participants to disclose sustainability information and to meet ESG disclosure requirements.

Why the SFDR matters in private equity

For a private equity firm, the SFDR intersects with investor expectations and with fund management. LPs increasingly ask for information on ESG risks and practices; during fundraising, the manager has to explain, clearly and consistently, the fund's sustainability characteristics and commitments. And where the SFDR applies, there are legal disclosures to meet. In force since March 2021, the regulation requires financial market participants to disclose how they integrate sustainability risks and what information they provide about their products.

In practice, the manager often depends on data from portfolio companies to prepare these disclosures and answer LP requests. The data may arrive in different formats and require collection, validation and consolidation work. Building this information into investment processes and tracking how the companies evolve helps support the fund's disclosures, identify risks and opportunities, and explain ESG performance to potential buyers at exit.

The European Commission has proposed reviewing the SFDR, but the proposal is still under negotiation. Until any new rules apply, managers must comply with the framework currently in force.

For the CFO of the portfolio company

When the fund manager asks for ESG data, the request stems from regulation, not from a passing preference. In our experience, Portuguese banks, like all European banks, tend to ask for similar data when assessing credit and green financing lines, in addition to other specific data the bank needs. Having a single, validated set of ESG data available avoids answering the same question several times.

What the SFDR requires today (SFDR 1.0)

Until SFDR 2.0 enters into force, the current regime remains fully in place. It rests on two levels: that of the management entity and that of each fund.

Mind the terminology

The SFDR is a disclosure regulation, not a rating system: it defines what a fund must disclose about how it treats sustainability, but it does not assign a score to its degree of sustainability. Articles 6, 8 and 9 are disclosure categories. They are not official sustainability labels or a certification of the fund, so an Article 8 or 9 fund does not, by itself, prove that it is sustainable: it indicates what the manager declares and has to disclose and substantiate.

Entity-level requirements

Art. 3

Disclose the policy on the integration of sustainability risks in the investment process.

Art. 4

Statement on the principal adverse impacts (PAI) of investment decisions. It is mandatory for managers with more than 500 employees and, for the rest, works on a comply-or-explain basis.

Art. 5

Explain how the remuneration policy is consistent with the integration of sustainability risks.

Product-level requirements

Article	Fund characteristics	Main disclosures
6	Integrates sustainability risks, without promoting ESG characteristics or having a sustainable objective.	How the risks are integrated and their likely impact on returns.
8	Promotes environmental or social characteristics and invests in companies with good governance practices.	Pre-contractual information (Annex II), on the website and in periodic reports, including the proportion of investments aligned with the Taxonomy.
9	Has sustainable investment as its objective, with the do no significant harm (DNSH) principle demonstrated for the environment and society.	Pre-contractual information (Annex III), on the website and in periodic reports, linking the objective to portfolio company data. Include the proportion of investments aligned with the Taxonomy.

EU Taxonomy

The EU Taxonomy is the classification system for economic activities considered environmentally sustainable, based on six environmental objectives, technical screening criteria for contribution, DNSH and minimum safeguards. Article 8 and 9 funds must disclose the share of investments aligned with the Taxonomy, so the EU-sustainable activities in the portfolio also become reporting data.

There are also the principal adverse impacts (PAI) at product level, such as GHG emissions in Scopes 1, 2 and 3 and gender diversity on governing bodies. These must be calculated and reported annually.

Fund names and greenwashing

To further prevent greenwashing, ESMA's guidelines on fund names, which also apply to AIFs and their managers, restrict the use of terms such as ESG, sustainability, transition or impact. The 80% threshold of investments aligned with the characteristic stated in the name is only part of the test, because there are exclusions that vary depending on the terms used and additional requirements for names linked to sustainability, transition or impact.

SFDR 2.0: what is changing and where the reform stands

20 November 2025
The European Commission presents the review proposal.
24 June 2026
The Council sets its negotiating mandate.
5 October 2026
The European Parliament announces its negotiating position, which is not yet the same as adopting its final first-reading position.
Not before 2028
Full application of the reform, still to be agreed.

Both the Council's and the Parliament's positions are negotiating proposals, not rules in force. They are similar in structure and differ on thresholds and conditions, such as the minimum level of Taxonomy alignment (20% for the Parliament and 15% for the Council) and the treatment of fossil fuels in the transition category, among others.

70%

of investments must follow the category's strategy

20% / 15%

minimum Taxonomy alignment: Parliament / Council

18 vs 24

months after entry into force: Commission / Council and Parliament

Proposed change	What it means for a PE manager
Product categories	The proposed SFDR review provides for three product categories: Transition (Article 7), ESG Basics (Article 8) and Sustainable (Article 9). Funds that combine categories, such as funds of funds, fall under Article 9a, and the rest under Article 6a.
70% threshold	At least 70% of investments must follow the category's strategy, with their own sector exclusions. For ESG Basics, for example, a limit of 1% of revenue from coal and lignite applies.
Marketing	Only categorised products will be able to use sustainability terms in communications.
Less disclosure	Entity-level disclosures disappear and product-level information is reduced. Portfolio management and advisory services fall outside the scope.
Closed-ended funds	Under the proposal, closed-ended funds that are fully raised before application would be excluded, with no transitional relief for those still fundraising.
Timeline	The Commission proposed 18 months after entry into force, and the Council and the Parliament point to 24, still to be agreed. Full application is not expected before 2028.

Point of attention

PE funds that promote ESG improvements through active ownership of their companies may not find a direct match in the proposed categories. The eligibility of private assets is also still under discussion. For that reason, before choosing the disclosure category of a new fund, it is prudent to follow how the negotiations evolve.

How to prepare for compliance: five steps to turn legal compliance into value

1. Map the funds by stage. Separate the funds that are fundraising, those that are fully raised and those still being designed, because the proposal treats each situation differently.

2. Test the current classification against the proposed criteria. For each Article 8 and 9 fund, check whether the 70% threshold and the exclusions would be met today and which category is most likely.

3. Review documentation and communications. Align prospectuses, website and LP presentations with what the fund really does, including the fund name against ESMA's guidelines.

4. Define a single data set and request it in a single format. Fix the PAI and Taxonomy metrics, with deadlines and owners at each portfolio company, and provide for ESG reporting in the investment agreements. For companies with fewer than 1,000 employees, the VS (Voluntary Standard, formerly VSME), the voluntary European standard, can serve as a common basis for collecting many of these data, since the Comprehensive module, which is added to the Basic one, includes several of the PAIs. If possible, audit the data.

5. Build ESG into acquisition due diligence. At exit, potential buyers or investors may carry out their own ESG due diligence. Organising and tracking the data from the acquisition onwards helps answer those requests faster and more consistently.

PAI: what to ask portfolio companies for (examples)

Environmental

Energy consumption and emissions in Scopes 1, 2 and 3.

Social

Average gross hourly pay of men and women, to calculate the unadjusted gender pay gap.

Governance

Composition of the governing body, policy on compliance with the United Nations Global Compact and the OECD Guidelines for Multinational Enterprises, and its monitoring.

Practical examples

Illustrative scenarios, with no specific funds or managers.

Buyout fund currently fundraising, today under Article 8

As the fund is still fundraising, it will have no transitional protection. The team should estimate whether it reaches 70% of investments with a defined ESG strategy and whether the exclusions of the target portfolio are compatible, deciding between ESG Basics and Transition.

Fund fully raised before SFDR 2.0 applies

Under the proposal, it would fall outside the new regime and keep its current documentation. Even so, LPs continue to ask for PAI and alignment data, and portfolio companies may be approached by banks, so data collection remains useful.

Fund of funds with different strategies

If it combines funds from different categories, it may fall under Article 9a, provided that 70% of investments follow one of the categories. The quality of the underlying funds' data therefore becomes a criterion for selecting managers.

Industrial or healthcare portfolio company

A CFO who receives a PAI data request from the manager benefits from preparing, just once, energy consumption, Scope 1 and 2 emissions, workforce data and governance policies. The same file can serve the LP questionnaire, a European bank's assessment for a green line and a future exit due diligence.

What Sustanya offers

Sustanya helps fund managers and their portfolio companies turn a scattered process into an auditable data routine.

✓

Standardised collection of ESG data from portfolio companies, in a single format and with tracked deadlines.

✓

Fund-level consolidation, with no manual Excel, linked to the source data.

✓

Preparation of SFDR reporting and LP questionnaires from the same data set.

✓

ESG due diligence.

✓

Sustainability implementation acceleration plans to track how portfolio companies progress.

Explore the Sustanya platform demo and see how to consolidate your portfolio data.

Book a Demo