Updated ICMA commentary and recommendations on SFDR 2.0
19 October 2026 In this updated position paper, ICMA provides more targeted feedback on the key rules for the future sustainability-related fund categories under SFDR 2.0 ahead of the EU trilogue process. The paper complements the initial positions and recommendations set out in ICMA’s February 2026 note.
ICMA welcomes the co-legislators’ converging positions on not adding new entity-level exclusions for use-of-proceeds (UoP) bonds under the proposed fund categories.
Otherwise, ICMA provides its commentary and alternative proposals below on how to improve the categorisation rules in several key areas:
- General exclusion regime for fossil fuel exposure: ICMA disagrees with the expansion of exclusions to cover legacy upstream fossil fuel revenues under the Transition category, as well as with the exception to the exclusion rule. ICMA proposes an alternative exclusion regime that distinguishes between fossil fuel types and between legacy exposure and new projects. Under such an approach, companies expanding their coal activities would face exclusions, while other companies would not, provided that they are decarbonising in line with a credible transition trajectory backed by a credible transition plan. ICMA also recommends a voluntary universal disclosure for all relevant funds, beyond ESG-categorised funds, based on credible transition plans to create incentives for transition investment.
- Treatment of standard (non-UoP) bonds of public entities: Eligibility should not be restricted to standard bonds issued by EU public entities. At a minimum, sustainability-linked bonds (SLBs) issued by all public entities—not only those in the EU—and aligned with the ICMA Principles should be allowed in the Transition category without any quantitative limit.
- Engagement: ICMA highlights that engagement processes are usually applied at the entity level by asset managers; may not necessarily be relevant to exposures already considered “sustainable”; and, if maintained, should be reported through ex-post disclosures under the ESG Basics and Sustainable categories.
- Examples of eligible investment types under the ESG Basics category (Article 8(2)): ICMA recommends: (i) more explicit wording clarifying that outperformance on ESG ratings can also be demonstrated at the portfolio level, rather than only at the level of individual assets; and (ii) adopting the EC’s approach to ensure that investments that outperform the average investment universe or reference benchmark on one specific, appropriate sustainability indicator can qualify, rather than requiring outperformance on two indicators.
