• Sustainable (new Article 9) — funds with a sustainability objective.
• Transition (new Article 7) — funds investing in companies on a credible path to sustainability.
• ESG Basics (new Article 8) — funds integrating sustainability factors.

Under both versions, at least 70% of a fund's portfolio must meet the relevant category criteria . That is a significant increase from today's de facto 50% minimum for Article 9 funds under ESMA guidelines.

Taxonomy-alignment threshold raised from 15% to 20%

The Commission's November 2025 proposal set a 15% EU Taxonomy-alignment threshold for a fund to qualify as Transition or Sustainable, with the power to adjust it later by delegated act . The Council raised that entry threshold to 20% — a move that aligns with the European Parliament's own draft position, which also adopted a 20% requirement .

The practical impact may be limited: according to a 2024 report from the EU Platform on Sustainable Finance, 44% of current Article 9 funds already meet the 20% threshold . Still, the increase raises the floor for all new labelled products.

Fossil fuel companies get a clearer path into Transition funds

This is where the Council position diverges most sharply from the Commission's original text. Under the Commission's proposal, the Transition category excluded companies with ≥1% revenues from hard coal or lignite, companies developing new fossil fuel projects, and companies not phasing out coal or lignite for power generation .

The Council's position narrows these exclusions . Under the Council text, fossil fuel companies that are expanding operations can still qualify for Transition funds if two conditions are met :

• The company allocates 20% of its capital expenditure to economic activities aligned with the EU Taxonomy.
• It has a clear, time-bound strategy to reduce greenhouse gas emissions.

To enhance transparency, such investments also become subject to a fourth mandatory indicator when assessing principal adverse impacts . The Council made this change to "recognise their important role and contribution in transition" .

The Council position is therefore more permissive on fossil fuel inclusion compared to the Commission's original text. Environmental advocates have generally viewed this narrowing of exclusions as a significant weakening of the regulation . The European Economic and Social Committee (EESC), an EU advisory body, had previously called for stronger transition plan requirements, including a mandatory Paris-aligned fossil fuel phase-out plan for companies in Transition funds .

Entity-level PAI and remuneration disclosures are gone

Both the Commission and Council agree on a major simplification: eliminating firm-level principal adverse impact (PAI) disclosures and website publication requirements . Financial market participants will no longer need to disclose how they consider PAI at the entity level. The Commission also proposed removing remuneration policy disclosure obligations, and the Council follows this approach .

The 70% minimum investment threshold stays

Both institutions require that at least 70% of a fund's investments meet the relevant category criteria — sustainable investments, transition investments, or ESG factor integration . This replaces today's de facto 50% minimum for Article 9 funds and is designed to improve comparability and prevent greenwashing .

Key differences at a glance

The Council position is broadly more permissive on fossil fuel inclusion in Transition funds and stricter on the taxonomy-alignment entry threshold (20% vs 15%) compared to the Commission's original text.

What comes next: trilogue negotiations

With the Council's position now agreed, the real bargaining begins. Trilogue negotiations between the European Commission, the Council, and the European Parliament will reconcile the three positions into a final text .

Key open points:

• Scope of fossil fuel exclusions: The Parliament's draft version also takes a tougher line on exclusions, so this will be a central fight .
• Taxonomy threshold: Both Parliament and Council are at 20%, but the Commission may push back toward its original 15% .
• Professional-investor opt-out: The leaked draft included a carve-out for alternative investment funds marketed only to professional investors, but both the Commission's formal proposal and the Council position removed it. The Parliament may seek to reintroduce it .

Application date: January 2029

The target application date is January 2029, giving the industry and regulators roughly 2.5 years to implement the new categories and disclosure rules after the regulation is adopted .

• Sustainable (new Article 9) — funds with a sustainability objective.
• Transition (new Article 7) — funds investing in companies on a credible path to sustainability.
• ESG Basics (new Article 8) — funds integrating sustainability factors.

Under both versions, at least 70% of a fund's portfolio must meet the relevant category criteria . That is a significant increase from today's de facto 50% minimum for Article 9 funds under ESMA guidelines.

Taxonomy-alignment threshold raised from 15% to 20%

The Commission's November 2025 proposal set a 15% EU Taxonomy-alignment threshold for a fund to qualify as Transition or Sustainable, with the power to adjust it later by delegated act . The Council raised that entry threshold to 20% — a move that aligns with the European Parliament's own draft position, which also adopted a 20% requirement .

The practical impact may be limited: according to a 2024 report from the EU Platform on Sustainable Finance, 44% of current Article 9 funds already meet the 20% threshold . Still, the increase raises the floor for all new labelled products.

Fossil fuel companies get a clearer path into Transition funds

This is where the Council position diverges most sharply from the Commission's original text. Under the Commission's proposal, the Transition category excluded companies with ≥1% revenues from hard coal or lignite, companies developing new fossil fuel projects, and companies not phasing out coal or lignite for power generation .

The Council's position narrows these exclusions . Under the Council text, fossil fuel companies that are expanding operations can still qualify for Transition funds if two conditions are met :

• The company allocates 20% of its capital expenditure to economic activities aligned with the EU Taxonomy.
• It has a clear, time-bound strategy to reduce greenhouse gas emissions.

To enhance transparency, such investments also become subject to a fourth mandatory indicator when assessing principal adverse impacts . The Council made this change to "recognise their important role and contribution in transition" .

The Council position is therefore more permissive on fossil fuel inclusion compared to the Commission's original text. Environmental advocates have generally viewed this narrowing of exclusions as a significant weakening of the regulation . The European Economic and Social Committee (EESC), an EU advisory body, had previously called for stronger transition plan requirements, including a mandatory Paris-aligned fossil fuel phase-out plan for companies in Transition funds .

Entity-level PAI and remuneration disclosures are gone

Both the Commission and Council agree on a major simplification: eliminating firm-level principal adverse impact (PAI) disclosures and website publication requirements . Financial market participants will no longer need to disclose how they consider PAI at the entity level. The Commission also proposed removing remuneration policy disclosure obligations, and the Council follows this approach .

The 70% minimum investment threshold stays

Both institutions require that at least 70% of a fund's investments meet the relevant category criteria — sustainable investments, transition investments, or ESG factor integration . This replaces today's de facto 50% minimum for Article 9 funds and is designed to improve comparability and prevent greenwashing .

Key differences at a glance

The Council position is broadly more permissive on fossil fuel inclusion in Transition funds and stricter on the taxonomy-alignment entry threshold (20% vs 15%) compared to the Commission's original text.

What comes next: trilogue negotiations

With the Council's position now agreed, the real bargaining begins. Trilogue negotiations between the European Commission, the Council, and the European Parliament will reconcile the three positions into a final text .

Key open points:

• Scope of fossil fuel exclusions: The Parliament's draft version also takes a tougher line on exclusions, so this will be a central fight .
• Taxonomy threshold: Both Parliament and Council are at 20%, but the Commission may push back toward its original 15% .
• Professional-investor opt-out: The leaked draft included a carve-out for alternative investment funds marketed only to professional investors, but both the Commission's formal proposal and the Council position removed it. The Parliament may seek to reintroduce it .

Application date: January 2029

The target application date is January 2029, giving the industry and regulators roughly 2.5 years to implement the new categories and disclosure rules after the regulation is adopted .