From rule-making to rule-fixing: The latest developments in the SFDR and EU Taxonomy reviews

After several years of building the EU sustainable finance framework, the European Commission has shifted its attention from creating new rules to making existing ones more workable.

This is particularly evident in the ongoing reviews of the Sustainable Finance Disclosure Regulation (SFDR) and the review of the EU Taxonomy (EUT), two initiatives that will shape how investors navigate sustainability regulation in the coming years.

Sustainable Finance Disclosure Regulation

The SFDR review focuses on the rules governing sustainable investment products, including how they are categorised, disclosed and marketed to investors. The Commission's draft proposal, published in November 2025, would replace the familiar Article 8 and Article 9 classifications with a system of sustainability categories, including a dedicated transition category. For real estate, this is an important development because much of the sector's sustainability challenge lies in improving existing buildings rather than investing only in assets that already meet high sustainability standards.

With the Commission proposal now on the table, discussions have shifted to the European Parliament and the Council, where the political debate is only beginning to take shape. 

The European Parliament has not yet adopted its position and discussions continue on amendments to the rapporteur's draft report. While the initial draft placed strong emphasis on retail investor protection and combating greenwashing, recent proposed amendments suggest signs of recognition that the framework must also work for institutional investors. 

The Council has also not yet agreed on its negotiating position. Discussions are expected to continue under the Irish Presidency (July-December 2026). Member States remain divided on several politically sensitive issues, including the design of the proposed ESG Basics category, the credibility requirements for transition products and whether a limited set of mandatory Principal Adverse Impact indicators should be retained.

EU Taxonomy

The review of the EU Taxonomy pursues the same objective of simplification, but from a different angle. While the Omnibus I package focused on reducing reporting and disclosure burdens, the current review examines whether the Taxonomy criteria themselves can be made easier to apply in practice.

Rather than reopening the design of the Taxonomy, the Commission has focused on making the framework easier to apply in practice. The proposed amendments seek to improve consistency, remove ambiguities and better align the Taxonomy with more recent legislation, without altering its core structure.

For real estate, this distinction matters. Many of the practical challenges faced by investors are well understood, including overlaps between different activities under EUT and difficulties applying certain criteria in practice. While the current review may address some of these issues, it is unlikely to resolve all of them.

The question now is how many of the proposed simplification measures will ultimately make it into the final package. The Commission is now assessing the feedback received and is expected to adopt the final amendments later this year. While the original timetable pointed towards the second quarter of 2026, current expectations suggest adoption is more likely around October.

Conclusion

Both reviews now enter a decisive political phase. In the case of SFDR, the European Parliament and Council still need to agree their negotiating positions before interinstitutional negotiations can begin. For the EU Taxonomy, the focus shifts back to the Commission, which is expected to decide later this year which simplification measures will be incorporated into the final texts.

While the outcomes remain uncertain, the direction of travel is clear. The debate is no longer about expanding the sustainable finance framework. Instead, policymakers are increasingly focused on making existing rules more workable, more proportionate and better aligned with how investment decisions are made in practice.