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The path to truly green investments is fossil-free

Posted on 15 May 2025

Parts of the Sustainable Finance Disclosure Regulation (SFDR) create confusion and allow greenwashing, say WWF and Urgewald.

In a briefing published today, the organisations outline why and how the upcoming review of the law is an opportunity to transform the problematic elements, achieve a true level playing field among investors, and prevent greenwashing. The briefing is endorsed by eight other organisations and coalitions.¹

Sebastien Godinot, Senior Economist at WWF European Policy Office, said: “The case is clear: the EU committed to net zero emissions and a decarbonised energy system, requiring the phase-out of fossil fuels, as emphasised repeatedly by European Commission President von der Leyen. To ensure consistency, all ESG fund categories under SFDR must exclude investments in companies with fossil fuel expansion projects or without a coal phase-out plan, while more is needed for fully green funds.”

The SFDR plays a crucial role in raising awareness on sustainability issues among investors, but Articles 8 and 9 present challenges. They require investors to disclose if their funds are “light green” or “dark green” without providing clear, measurable indicators. This ambiguity has led to confusion, complexity, greenwashing, and misuse of these disclosures.² While the latest guidelines on fund names issued by ESMA, the EU’s securities authority, are a significant step towards tackling greenwashing in the sector, they cannot address the issues inherent in Articles 8 and 9. As a result, private investors notably struggle to determine the extent to which Environmental, Social, and Governance (ESG) funds invest in fossil fuel companies.³ The upcoming revision of the SFDR offers a crucial opportunity to improve transparency and clarity in ESG investments by setting clear standards. This can strengthen ESG-focused industries, help to accelerate the green transition of companies, and provide a sustainable alternative to the more reactive trends currently seen in the US finance sector.

WWF and Urgewald advocate for the development of SFDR Articles 8 and 9 into sustainable product categories with clear, measurable, simple mandatory standards, emphasising the need for targeted exclusion criteria, particularly the exclusion of fossil fuels, to ensure true sustainability. To facilitate the practical implementation of these exclusion criteria, the briefing recommends building on two granular databases of coal and oil and gas companies, created by Urgewald: the Global Coal Exit List (GCEL) and the Global Oil and Gas Exit List (GOGEL).

“It is crucial to address the weak points of the SFDR. Companies actively pushing fossil fuel expansion projects are a major obstacle to the transformation of the European energy markets. They should not be eligible for any ESG funds, including ‘transition funds’ under SFDR. Urgewald’s databases enable the easy implementation of such targeted exclusions”, said Fiona Hauke, senior researcher at Urgewald.

The databases developed by Urgewald are available at no cost, regularly updated, trusted by hundreds of investors globally, and utilised to meet the sustainable finance label requirements in France and Belgium. They are recognised by EIOPA and recommended by the global climate Science-Based Targets Initiative (SBTi), among others.

Notes to Editor
The Sustainable Finance Disclosure Regulation (SFDR) mandates financial market participants to disclose sustainability information, aiding investors who aim to fund companies and projects with sustainability objectives in making informed decisions. Additionally, the SFDR enables investors to evaluate how sustainability risks are incorporated into the investment decision-making process. The requirements started to apply in March 2021, with Level 2 requirements applying as of January 2023.⁴

¹ The briefing paper is endorsed by Finanzwende e.V., Reclaim Finance, ReCommon, ShareAction, the Sustainable Finance Observatory, Transport & Environment, Frank Bold, and the Sustainable Banking Coalition.
² https://www.urgewald.org/en/medien/esg-funds-greenwashing-eu
³ https://www.urgewald.org/en/medien/esg-funds-greenwashing-eu
⁴ https://finance.ec.europa.eu/sustainable-finance/disclosures/sustainability-related-disclosure-financial-services-sector_en

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From greenwashing to clarity: Excluding fossil fuels in SFDR categories

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