Reforms to Europe’s sustainable fund labelling regime should impose strict exclusions on firms expanding fossil fuel production, including for transition-focused strategies, according to an open letter to the European Commission (EC).
A coalition of more than 120 financial institutions, civil society firms, and legal and financial experts has urged the EC to include strong safeguards against greenwashing in their update to the Sustainable Finance Disclosure Regulation (SFDR), due to be published in Q4 2025.
Following a two-year review, the EC is expected to replace current disclosure rules with three fund labels – transition and sustainable and ESG collection. This follows the recommendations of the Platform on Sustainable Finance, an advisory body, as well as guidelines issued last year by the European Securities and Markets Regulator (ESMA). These introduced minimum standards for investment vehicles claiming sustainable outcomes and characteristics.
The coalition said baseline exclusions were necessary for the fossil fuel sector, in light of scientific consensus on the need to halt new fossil fuel projects to limit global warming to 1.5°C.
“Developing new fossil fuel projects is a clear indication that a company is not planning to transition,” read the open letter, noting that a number of oil and gas majors are raising their production growth targets, maintaining the majority of their investments in fossil fuel development and “only marginally investing in sustainable energy”.
The signatories said that aligning SFDR minimum criteria with the ESMA guidelines or the Climate Benchmark Regulation is “clearly insufficient”, advocating for a strict exclusion.
“The Commission is considering the fossil fuel exclusions already embedded in the Climate Benchmark Regulation. Yet, the current Climate Transition Benchmarks still lack such exclusions. This is a glaring loophole that can, and must, be closed,” said Sébastien Godinot, Head of Sustainable Finance at the WWF European Policy Office.
Separately, investors representing US$1.3 trillion in assets have asked Norway’s Financial Supervisory Authority (FSA) to review state majority-owned energy firm Equinor’s climate disclosures, expressing concerns that the company’s claims of alignment with the Paris Agreement and a 1.5°C pathway may be misleading.
The investors argue that Equinor’s strategy — which includes growing oil and gas production to 2027, investing US$10 billion annually in new fossil fuel reserves, and lacking plans to cut absolute Scope 3 emissions before 2050 — diverges from science-based 1.5°C scenarios.
