Why “Green” EU Investment Funds Should Not Finance New Fossil Fuels

A broad coalition of 133 organisations, financial institutions, academics and experts - including The Climate Reality Project Europe - has signed an open letter calling on EU policymakers to close a critical loophole in Europe’s sustainable finance rules.

At the centre of the debate is the Sustainable Finance Disclosure Regulation (SFDR), a framework that helps classify investment funds as “sustainable,” “transition,” or “ESG.” These labels matter: they guide how billions of euros are invested and shape what ordinary savers believe they are supporting. The European Commission has already proposed excluding companies developing new fossil fuel projects from two of these categories. That is an important step.

However, under the current proposal, fossil fuel developers could still be included in funds labelled “ESG basics.” In simple terms, this means that investment products marketed as environmentally responsible could still finance companies expanding oil and gas production. Given the clear scientific consensus that no new fossil fuel expansion is compatible with limiting global warming, this would seriously undermine the credibility of Europe’s green finance rules.

The signatories are therefore urging the European Parliament and EU Member States to extend the exclusion of fossil fuel developers to all SFDR categories. If a fund claims to be sustainable or environmentally responsible, it should not finance new fossil fuel expansion. Ensuring this would strengthen investor trust, prevent greenwashing, and better align financial markets with Europe’s climate commitments