EU Member States agreed Wednesday on a position for the revision of the Sustainable Finance Disclosure Regulation (SFDR) that moves away from science as the benchmark for a credible green transition. Instead, it allows investments in companies that still expand fossil fuel activities to be categorised as “transition funds” intended to support the decarbonisation of the economy.
“Governments have twisted a regulation meant to distinguish genuine sustainability and transition efforts from greenwashing,” said Thibault Girardot, Sustainable Finance Policy Officer at WWF European Policy Office. “The Council’s approach risks actively deceiving investors by selling the illusion that their money supports the sustainable transition, when, in reality, it may end up funding the climate crisis. It will also fail to mobilise the money needed for the EU’s 2030 climate objectives, while prolonging fossil fuel dependence.”
The most concerning changes relate to the Transition category, where the Council allows companies expanding fossil fuel production to qualify, contrary to the Commission’s proposal to exclude them.
The criteria set in the Council text are minimal. First, companies must ensure that 20% of their long-term investments are in green activities aligned with the EU Taxonomy. However, the proposed 20% figure is static and fails to incentivise progress over time, countering the principle of a transition pathway. Second, companies must have a plan to reduce their operational emissions. Yet, this does not apply to emissions from the fuels they sell, even though these account for around 85% of their total carbon footprint, according to the International Energy Agency.
In addition, the Council’s text removes key safeguards that previously excluded coal power companies from the Transition category. This creates a loophole where utilities developing new coal plants or lacking phase-out plans could still qualify.
“These criteria are not built to identify companies that are credibly changing course”, added Thibault Girardot. “They are built to cater to the commercial interests of a handful of fossil fuel giants that only slightly diversify their activities, without ever putting their core business on a path to net-zero”.
Beyond this, the Council introduces a major loophole affecting the scope of the SFDR. For products sold to professional investors, from large insurers to small local pension schemes, it creates an opt-out without credible justification. This could halve the scope, fragmenting the market and undermining the level playing field the SFDR is meant to ensure. This is particularly damaging for smaller players who cannot assess sustainability claims independently and rely on the standardised, comparable information the SFDR provides.
WWF calls on the European Parliament to reject the Council’s approach and anchor the SFDR revision in science, ensuring clear, credible guidance for investors and excluding major polluters.
