SFDR: what changes for SMEs with investors
The SFDR is changing the rules for companies that have investors: understand the impact on ESG reporting and what to do to respond to requests from those who invest in your company.
When an investor mentions the SFDR in a meeting, a CFO's first question is whether the regulation applies directly to the company. The short answer is no.
The SFDR (Sustainable Finance Disclosure Regulation) requires asset managers, funds and other financial market participants to disclose how they integrate sustainability into their products. The portfolio company has no direct obligations, but it is the source of the data the investor needs to meet theirs. That is how the regulation reaches SMEs, and the ongoing review, known as SFDR 2.0, is expected to simplify disclosures. Even so, SMEs will continue to receive requests for information.
In brief
- •The SFDR applies to funds and managers. The impact on a portfolio SME is indirect and takes the form of data requests and investment conditions.
- •The SFDR 2.0 proposal is still under negotiation in November 2026. Application is expected to be pushed to late 2028 or 2029.
- •Having credible ESG data from now on reduces the risk of the company being left out of a fund or a deal.
How the SFDR reaches a portfolio SME
Manager and fund
Required by the SFDR to disclose how they integrate sustainability into their products.
Data request
The investor needs data to meet their obligations.
Portfolio SME
No direct obligations, but it is the source of the data.
The SFDR has been in force since 2021. It distinguishes three types of financial products, and requires managers to disclose indicators associated with the principal adverse impacts (PAI), environmental and social, of their investment decisions.
Article 6
Financial products with no sustainability focus.
Article 8
Products that promote environmental or social characteristics.
Article 9
Products with a sustainable investment objective.
To calculate these impacts for a private equity fund, a manager with several portfolio companies needs data from each one, such as:
Greenhouse gas emissions
Energy consumption
Social matters
Governance policies
What SFDR 2.0 proposes
The European Commission presented the proposal in November 2025. The regime moves from a disclosure logic to a product logic, in which a fund can only use a category if it meets defined criteria.
| Element | Current regime | SFDR 2.0 proposal |
|---|---|---|
| Classification | Articles 6, 8 and 9 | Sustainable, Transition and ESG Basics categories, plus products with no category |
| Threshold | No quantitative threshold defined in the regulation | At least 70% of investments aligned with the category's objectives |
| Exclusions | Depend on the product | Increase with the level of ambition, including controversial weapons, violators of the UN Global Compact and activities linked to fossil fuels |
| Adverse impacts (PAI) | Reporting at entity and product level | Product-level reporting in the Sustainable and Transition categories, relying on information from portfolio companies |
Points still in dispute
The Parliament's ECON committee proposes adding the exclusion of companies in breach of OECD or UN norms on human rights, where the abuses are not remedied.
The proposal provides for an optional exemption for certain closed-ended funds created and distributed before the date of application of the new SFDR. The scope of the exemption, the treatment of earlier disclosures and the rules for funds still fundraising remain subject to legislative negotiations.
What this means for your company
Four concrete effects for a portfolio SME:
1. Data requests continue
Scope 1 and 2 emissions, energy, and social and governance policies continue to be requested on a recurring basis.
2. Eligibility: credible targets and plans
In the Transition category, the proposed criteria may include credible transition plans, science-based targets or engagement strategies with defined milestones. In the Sustainable category, the manager will have to demonstrate that the investments contribute to environmental or social objectives under the applicable criteria. SMEs with targets, transition plans and ESG strategies will therefore be better placed to attract investors.
3. Exclusion screening
Activities involving breaches of international human rights norms may prevent the company from fitting into a category.
4. Access to capital
A portfolio company that does not provide data or has no targets can make it harder to classify the fund and weigh on an investment or exit decision.
What to do now
1. Ask the investor which category the fund intends to fall into. The answer defines which requirements, data, targets and exclusions will count for your company.
2. Organise the baseline data. Gather documents on energy consumption, Scope 1 and 2 emissions, waste, number of employees and internal policies in a single file.
3. Use the VS as a single reference. The VS (Voluntary Standard, formerly VSME) is the voluntary European standard for companies not covered by the CSRD, and its Basic module, with 11 disclosure requirements, covers much of what an investor asks for, while the Comprehensive module, which is added to the Basic one, includes several of the PAIs.
4. Set targets and a simple transition plan. An emissions reduction target, with a defined base year and owner, for example, helps show the investor that there is a concrete commitment.
5. Check the exclusions. Confirm whether any activity of the company or its supply chain may be on the exclusion lists and document the analysis.
Book your ESG assessment
Understand what data your investor will ask for and how to prepare it without duplicating work. The Sustanya team helps organise your company's information.
Book an ESG assessmentRead also
SFDR and Private Equity: what private equity managers and portfolio company CFOs need to know
The SFDR seen from the manager's and the portfolio company's side
SFDR Article 6, 8 and 9: what each disclosure category means for your funds
The differences between the three SFDR disclosure categories
VS (formerly VSME) explained: a practical guide for SMEs
The European voluntary reporting standard for SMEs
Did you enjoy this article?
Subscribe to our newsletter
Receive our ESG articles and updates directly in your inbox.
Subscribe to the newsletter