EU lawmakers push for stricter fossil fuel limits in sustainable finance rules

The European Parliament's economic affairs committee has voted on a negotiating position that would tighten how fossil fuel companies can qualify for a new "Transition" category under the EU's Sustainable Finance Disclosure Regulation (SFDR), the bloc's main rulebook for sustainability labeling in financial products. The committee's version goes further than the EU Council's proposal, requiring companies in that category to direct more capital toward sustainable activities than toward new fossil fuel projects.

The overhaul follows a 2023 European Commission review that found the SFDR's existing disclosure categories too complex and vulnerable to being used as informal — and potentially misleading — sustainability labels. Under the plan being negotiated, products would be sorted into three tiers: "Sustainable," "Transition" for companies on a credible path to cutting emissions, and "ESG Basics" for products that consider environmental and social factors without meeting the top two standards.

The committee's position adds a requirement that fossil fuel companies in the Transition category direct at least 20% of capital spending toward taxonomy-aligned activities, and requires all categories to screen out companies linked to human rights violations. Parliament is expected to vote on the position in its October plenary session.

Based on reporting by Mark Segal for ESG Today. Read the original: https://www.esgtoday.com/eu-lawmakers-propose-tougher-fossil-fuel-rules-for-new-sfdr-transition-investment-category/