Updates on SFDR 2.0, ESRS and biodiversity

Italian Sustainable Investment Forum

SFDR trilogue negotiations set to begin; new proposals on sustainability reporting, biodiversity and sustainable investment

The European sustainable finance framework continues to evolve, with developments in the SFDR review and sustainability reporting. At the same time, new initiatives are addressing biodiversity restoration and climate transition financing.

SFDR 2.0: towards the trilogue 

The review of the Sustainable Finance Disclosure Regulation (SFDR) is entering a decisive phase. Following the European Commission’s proposal and the Council's adoption of its negotiating position, the European Parliament has also officially agreed on its mandate, paving the way for interinstitutional negotiations, which began at the end of October; the objective is to reach an agreement by the end of 2026. Parliament confirms the introduction of three voluntary categories of financial products – Transition, ESG Basics and Sustainable – with a minimum threshold of 70% of investments aligned with the strategy of the relevant category. Key issues for negotiation include the conditions under which fossil fuel companies may be considered transition investments, the treatment of sovereign bonds, simplifications for alternative investment funds (AIFs) marketed exclusively to professional investors, disclosure requirements for engagement and stewardship activities, and the reintroduction of some Principal Adverse Impact (PAI) indicators at product level. The negotiations will therefore be crucial to striking a balance between simplification, comparability and the credibility of sustainability claims. 

Sustainability reporting: ESRS for non-EU groups and digitalisation 

EFRAG has launched a consultation on the new ESRS-40a standards, designed for certain groups headquartered outside the European Union but with significant activities in the European market. Unlike the ordinary ESRS, which are based on double materiality, ESRS-40a focuses on impact materiality and does not require an assessment of financial risks and opportunities. The proposal also introduces a possible mixed approach, allowing companies to limit reporting to EU-related impacts for topics other than climate change. The consultation will close on 31 October 2026. In parallel, EFRAG has published a draft XBRL digital taxonomy for the revised ESRS, with a consultation open until 11 November 2026. The framework will make it possible to convert the information required by the standards into machine-readable data, improving accessibility, processing and comparability. 

Biodiversity: Italy’s National Nature Restoration Plan 

Italy has submitted its draft National Nature Restoration Plan to the European Commission, as required by the EU Nature Restoration Law. The document covers measures addressing terrestrial, coastal, marine, urban, river, agricultural and forest ecosystems, within a framework that includes intermediate targets for 2030 and 2040 and a longer-term horizon extending to 2050. Financing remains a central challenge: approximately one-third of the measures still lack cost estimates, and total financing needs have not yet been quantified. The contribution of private finance also remains undefined in terms of appropriate instruments and investment volumes, highlighting the need to establish stronger links between biodiversity restoration objectives and financing mechanisms.

EIB: greater focus on transition plans 

The European Investment Bank (EIB) has approved the second phase of its Paris Alignment for Counterparties Framework (PATH), which assesses the alignment of its counterparties with the objectives of the Paris Agreement. From January 2027, the new approach will shift the focus from climate-related disclosures alone towards the substantive assessment of transition plans and climate risks. The assessment will consider decarbonisation targets, planned investments, governance arrangements, adaptation strategies and the management of physical and transition risks. The framework will adopt a proportionate approach, focusing on high-emitting companies, businesses particularly vulnerable to climate risks and financial intermediaries with significant exposure.