EU Governments Relax Green Fund Rules for Fossil Fuel Firms
European Union member states have weakened proposed rules to allow fossil fuel companies in funds marketed as green by requiring only 20 percent of spending on sustainable activities.
National representatives on the Council of the European Union approved a negotiating position on June 24 that significantly weakens the European Commission’s original proposal for overhauling sustainable finance disclosure rules, according to Brussels Signal.
The Commission had initially sought to exclude any company that increases coal, oil, or gas supply from a newly created “transition” fund category under the revised Sustainable Finance Disclosure Regulation. Funds carrying a “sustainable” label would have been required to eliminate fossil fuel exposure completely.
The Council’s version takes a markedly different approach. Fossil fuel companies could now qualify for the transition label by dedicating just 20 percent of capital expenditure to activities aligned with the EU’s green taxonomy and committing to a time-limited plan for reducing operational emissions.
Critically, these emissions reduction plans would not need to address the carbon released when customers burn the fuels these companies produce and sell. Such downstream emissions represent approximately 85 percent of the fossil fuel sector’s total carbon footprint, according to International Energy Agency data.
The Council also agreed to permit fund managers who sell exclusively to professional investors to bypass the new labeling framework entirely. The revised regulation would establish three distinct categories: sustainable, transition, and ESG basics, replacing the current structure.
The Sustainable Finance Disclosure Regulation has been in force since 2021 and serves as a cornerstone of the bloc’s sustainable finance architecture linked to the European Green Deal. By the end of 2024, the market for investment funds making environmental or social claims had surpassed €9 trillion, according to industry association EFAMA.
Environmental Groups Condemn Industry Influence
Conservation and financial transparency organizations responded with sharp criticism. The WWF European Policy Office characterized the criteria as designed to serve the commercial interests of major fossil fuel corporations.
Reclaim Finance charged that national governments had capitulated to intensive lobbying by oil industry giants, specifically highlighting French energy conglomerate TotalEnergies. European Parliament records document that the company conducted approximately 35 meetings with Members of the European Parliament between January and June, with several explicitly addressing the SFDR review.
A Council spokesperson defended the position, stating that companies involved in fossil fuel activities retain an important function in facilitating the green transition, pointing to their role in low-carbon fuel development and electric vehicle charging infrastructure.
Parliamentary Vote Pending
The European Parliament has not yet finalized its own negotiating stance. A key committee vote is scheduled for July 15, after which formal trilogue negotiations between Council and Parliament representatives will commence once MEPs have agreed their position.
The outcome of these negotiations will determine whether fossil fuel companies expanding production capacity can continue accessing the rapidly growing sustainable investment market, or whether stricter exclusion criteria will be enforced.
With information from Brussels Signal
