Fully excluding new fossil fuel projects from the revised Sustainable Finance Disclosure Regulation (SFDR) is critical to achieving the EU’s climate commitments, safeguarding the integrity of the framework, and strengthening investor confidence, warn 133 organisations and experts in a new multi-stakeholder letter.
The joint letter, signed by civil society organisations, financial institutions, academics, and experts, urges the European Parliament and EU Member States to ensure that all funds falling under the three SFDR voluntary sustainable product categories consistently exclude companies developing new fossil fuel projects. Yet, the proposal presented by the European Commission in November falls short of this as it limits the exclusions to two categories.
Paul Schreiber, Senior Policy Analyst at Reclaim Finance, says: “The Commission proposal acknowledges that continued expansion of fossil fuels is not compatible with claims that funds support sustainability, the climate, or the transition. Yet, the proposal still enables ESG-labelled funds to prop up fossil fuel development, and so to mislead investors that rightfully expect these funds not to contribute to such harmful activities. Any fund with any form of green label must no longer contribute to fossil fuel expansion. MEPs and Member States must recognise that allowing otherwise would make a mockery of climate science and recent greenwashing court rulings.”
This is an issue with broader implications for the coherence of the SFDR framework. “The SFDR is intended to help direct capital toward investments that are aligned with EU climate objectives. Allowing funds classified within the ESG category to include fossil fuel developers would run counter to that purpose and introduce fundamental incoherence in the text. Maintaining the credibility of the framework requires clear, targeted, coherent exclusions. The scale and diversity of support behind this letter demonstrate that there is broad backing for excluding fossil fuel developers from all SFDR categories,” points out Thibault Girardot, Sustainable Finance Policy Officer at WWF EU.
While presenting the Draghi report in September of 2024, European Commission President Ursula von der Leyen stated that “the only way to ensure our long-term competitiveness is to shift away from fossil fuels and towards a clean, competitive, and circular economy”. As both Member States and the European Parliament are now expected to adopt their respective position in the coming months, the signatories call on EU co-legislators to create a final SFDR framework that is coherent and credible, leaving no room for provisions that would undermine its objectives.
