Form South German Confederation is a unique unification decision that's not to be confused with the regular unification decision. It's only available for Austria instead of the three South German States.
The requirements are to have sphered or control all South German majority provinces. Those are the provinces of Baden, Württemberg and Bavaria as well as Prussian controlled Sigmaringen.
The three south German nations starts in Austrias sphere, so the only thing lacking is Prussia's Sigmaringen to enact the decision.
Unity among the South German states! Austria has formed the South German Federation without becoming the SGF! Instead it will simply be a Vassal of the Austrian Empire. It is very hard to keep it under Austrian leash since it will usually grow to Great Power status.
Ingame description
While Germany was not united until the proclamation of the German Empire, following the Franco-Prussian war, rising nationalism in the 19th century had meant that unification had been on the cards long before that, with the Frankfurt assembly of 1848 being an important forerunner. By achieving a dominant position among the South German states, we can form the South German Confederation.