SFDR reform recognizes incompatibility between fossil fuel expansion and transition

Paris, Thursday 20 November 2025 – The European Commission has excluded companies developing new fossil fuel projects from “sustainable” and “transition” funds in its proposal for reforming the Sustainable Finance Disclosure Regulation (SFDR), published today. The text, unlike the version leaked a few days earlier, recognizes that such practices are incompatible with climate-related claims. Reclaim Finance welcomes the strong signal that this sends, but stresses that the proposal is not robust enough, particularly as funds in the “ESG” category could still be invested in oil and gas developers. Reclaim Finance calls on Member States and MEPs to exclude these companies from all future SFDR categories.

The European Commission published its proposal for reforming the Sustainable Finance Disclosure Regulation (SFDR) today (Wednesday), establishing different categories of environmental funds and defining the non-financial information they must provide (1).

In its text, the Commission establishes three categories of funds: “sustainable” (Article 9), ‘transition’ (Article 7) and “ESG” (Article 8) – with the exact names of these categories to be defined at a later date. Following an appeal from more than 120 organizations, experts, and representativees from the financial sector (2), the text excludes companies developing new fossil fuel projects from both the “sustainable” and ‘transition’ fund categories (3). The “ESG” category now excludes coal companies but does not have any exclusions regarding the oil and gas sector, creating a risk that investors will be misled as they could assume that this category provides such minimum environmental guarantees.

The European Commission acknowledges in this proposal that companies like TotalEnergies or Shell, which develop new fossil fuels, cannot be considered to be in transition and cannot be included in the sustainable finance market. This text closes the door on the most blatant greenwashing practices, but it will need to be significantly strengthened to allow investors to make informed decisions.

Lara Cuvelier, sustainable investment campaigner at Reclaim Finance

The SFDR reform comes in the wake of numerous scandals revealing the presence of coal, oil, and gas companies in supposed “sustainable” funds (4), despite the demands of investors seeking responsible investments (5). It also follows the publication of guidelines by the European Securities and Markets Authority (ESMA) regulating the use of sustainability-related terms in fund names.

The text proposed by the European Commission will be examined by the European Council and the Parliament, and Reclaim Finance is calling on Member States and MEPs to demand the exclusion of companies developing new oil and gas projects from all SFDR categories. The NGO stresses that a robust SFDR regulation is essential to mobilize finance and savings in favor of the transition (7) and help bridge the current financing gap (8).projects from all SFDR categories. The NGO stresses that a robust SFDR regulation is essential to mobilize finance and savings in favor of the transition (7) and help bridge the current financing gap (8).

Contacts:

Helen Burley, international media, helen@reclaimfinance.org, +44 7703 731923.
Lara Cuvelier, Campaigner at Reclaim Finance, lara@reclaimfinance.org, +33 6 68 45 18 93

Notes:

See the European Commission’s proposal here and the Q&A here.
See the open letter “There is no room for fossil fuel developers in any sustainable finance categories” (September 2025).
For the “sustainable” and “transition” categories, the text proposes excluding companies that develop new projects for the exploration, extraction, distribution, or refining of coal, oil, and gas, as well as companies that develop or do not have a plan to phase out coal production and its use for electricity generation. It also applies the fossil fuel exclusions from the Paris-Aligned benchmark based on the revenue thresholds defined in Article 12 of Regulation 2020/1818 for the “sustainable” category, while the “transition” and “ESG” categories are only subject to the exclusion of companies deriving more than 1% of their revenu from coal.
Although the “transition” category now benefits from minimal exclusions, it nevertheless allows for the use of indicators and justifications that are clearly imprecise in terms of contribution to the transition. The texts proposes a new exclusion of coal companies, based on a 1% revenue threshold, for the “ESG” category, but no exclusions for oil and gas companies. Aside from the new coal exclusion, the “ESG category” broadly incorporates current ESG investment strategies (including “best in universe” and “best in class”) that have not demonstrated an impact in terms of emissions reduction and environmental action and mainly represent risk management methods.
See the investigation published by The Guardian in May 2025 and the investigations by Voxeurop in 2024.
The European Consumer Organization (BEUC), Sustainable Finance: Too green to be true?, October 2025
For details on workarounds implemented by asset managers, see: “New regulations: Are we heading towards more or less greenwashing of funds?” (January 2025)
The European Commission presents the mobilization of private finance, particularly through the Savings and Investment Union (SIU) initiative, as essential to financing European objectives.
According to I4CE, the EU’s climate investment gap reached €344 billion per year in 2023 (compared to €498 billion in investments made over the year).