Travers Smith's Sustainability Insights: Six fixes for SFDR 2.0

SFDR 2.0: Six fixes for private marketsCurrent SFDR 2.0 proposals risk sidelining private funds—imposing impractical rules, stifling innovation, and missing the unique strengths of private capital. Is the EU about to bake greenhushing into law?What’s at stake for private funds?Proposals that overlook private markets: The draft framework applies retail-focused logic to all, missing how private markets operate. Ill-fitting rules could disrupt strategies and burden sponsors with unintended consequences.Limits on communication with professional investors: Preventing tailored ESG disclosure does more harm than good. Professional LPs want detail, transparency, and meaningful engagement on ESG strategy—yet current rules encourage silence instead.A missed opportunity for genuine engagement: Private equity influences sustainability through stewardship and direct ownership. Engagement should be central—not sidelined—to all fund categories.Operational impracticalities: Rules on exclusions and portfolio alignment don’t match the realities of investing in illiquid assets. Holding managers liable for market events out of their control is unworkable. Similarly, one-year compliance for funds-of-funds is unrealistic.What Needs to Change?Permit open ESG dialogue with professional investors—exempting such communications from the tightest restrictions.Recognise engagement as a core component of private fund ESG.Give managers practical leeway on exclusions and portfolio reporting, including time to adjust in fund-of-funds.Rethink fund labels. “ESG Basics” risks confusion and is, quite simply, not fit for purpose.Practical Takeaways:Now is the moment for asset managers to shape the rules: engage with policymakers, highlight the operational realities of the industry, and push for changes that reflect how private markets actually deliver sustainable impact.Start preparing for late 2027, but focus on influencing the detail today.How will you use your stakeholder voice as SFDR 2.0 moves forward?Links:https://www.traverssmith.com/knowledge/knowledge-container/travers-smiths-alternative-insights-the-commissions-sfdr-proposal-fails-to-deliver-clarity/https://www.traverssmith.com/knowledge/knowledge-container/finalised-sfdr-20-proposals/