Document: EU Parliament wants tighter fossil fuel exclusions under sustainable finance rules

The European Parliament plans to advocate for stricter guidelines on classifying oil and gas firms as green investments under the EU's revised sustainable finance rules, according to a document revealed to POLITICO. This stance will likely lead to a clash with member nations seeking to relax limitations on fossil fuel enterprises under the Sustainable Finance Disclosure Regulation — an EU legislation designed to thwart greenwashing and promote sustainable investment choices.

According to the SFDR's new "transition" category, which encompasses companies shifting from less environmentally friendly to more sustainable operations, member countries suggest that fossil fuel companies should only be classified as green if they channel a larger portion of their capital towards green activities than into new fossil fuel projects over a three-year period.

This criterion may disqualify firms like TotalEnergies, a prominent French oil corporation that devotes 35% of its capital spending to new oil and gas projects and only about a quarter to clean energy initiatives. The European Commission's original proposal called for a full exclusion of the fossil fuel sector, a more stringent approach than the Parliament's recommendation.

In June, member nations agreed that oil and gas enterprises could be admitted to the transition category if they allocate no more than one-fifth of their capital expenditures to green activities, as outlined by the EU taxonomy. Members will vote on the Parliament's position on September 10, followed by a plenary vote the subsequent week.

Upon approval, the Parliament's stand will facilitate negotiations among member countries and lawmakers to reach a consensus. The Sustainable Finance Disclosure Regulation overhaul was proposed by the Commission in November, spurred by greenwashing concerns and complaints from fund managers regarding the regulation's intricacy and high costs.