The Commission wants to exclude companies exploring new fossil fuel projects from these funds, since exploration is not aligned with the objectives of the Paris Agreement to limit global warming to 1.5 degrees over pre-industrial levels. But EU governments want these companies to be included if they also spend at least a fifth of their annual net investments, called capital expenditure, on green projects.
This aligns with the fossil fuel sector’s argument that new oil and gas projects are important as Europe attempts to reduce its dependence on fossil fuel imports from a few big producers, which they say the Iran war has made more urgent.
But sustainable finance experts say this could make it harder for investors to fund companies with a credible plan to become greener.
“We can debate the precise definition of fossil fuel expansion. However, an oil major that continues to develop new oil fields cannot credibly claim to be transitioning, even if a fraction of its investments … goes into renewable energy,” said Pierre Garrault, a senior policy adviser at the European Sustainable Investment Forum. The idea could “confuse” people looking to invest their savings, he added.
The Council of the EU, which represents EU governments in Brussels, still needs to convince the European Parliament and the Commission of its plan before the rules can be updated.
“It’s the most political point of the SFDR, a file which in general is quite technical and has a broad consensus of support,” said a Parliament official working with Renew MEP Gerben-Jan Gerbrandy, who leads the negotiation on this file. “But this is now the source of political tension, both in the Council and we expect the same in the Parliament,” they added.