EU member states have confirmed a plan to allow ‘climate transition’ funds to invest in the expansion of fossil-fuel projects, provoking anger from environmental groups.
The European Council’s official negotiating position for the Sustainable Finance Disclosure Regulation (SFDR) was signed off by ambassadors today.
The law governs how financial market participants can promote their products when it comes to environmental and social claims, and is undergoing a major review this year.
According to the Council’s position, member states will push for a number of changes to the European Commission’s proposal, including the removal of a ban on ‘transition’ funds allocating capital to new fossil fuel activities.
The Commission proposed that any financial product wishing to market itself as supporting the transition to a more sustainable economy would have to exclude companies increasing the world’s supply of coal, oil and gas.
Funds calling themselves ‘sustainable’ would have to cut their exposure to fossil fuels completely under the Commission’s plan. But the Council wants to cuts the rules for the ‘transition’ category.
Instead, it wants companies to be eligible for inclusion in these types of funds if they have a public plan to decarbonise their Scope 1 and 2 emissions, and they allocate at least a fifth of their capital expenditures to activities that align with the EU’s green taxonomy.
The move has sparked outrage among environmental organisations, which note that the vast majority of energy companies’ emissions come from the use of their products after they have been sold, and therefore will not be captured by Scope 1 or 2 strategies.
Isabella Ritter, a senior EU policy officer at campaign group ShareAction said the proposal would “open the transition category to investments in companies that are still expanding their fossil fuel business, allowing them to be labelled as ‘transitioning’ while in reality they do the exact opposite.”
“This is essentially opening the door to greenwashing and betraying the trust of investors and consumers who believe they are putting their money into companies actively working on improving their environmental and social impact,” she added.
The European Parliament is still negotiating its position on the SFDR review.
Earlier this month, MEPs tabled more than 600 amendments to a draft position, and those requests are now being considered ahead of a committee-level vote scheduled for 15 July.
Among the amendments were demands from some influential MEPs for the removal of fossil-fuel exclusions from both the ‘transition’ and ‘sustainable’ categories.
Official negotiations between co-legislators will be able to go ahead once Parliament has agreed its position later this year.
