Investigation Uncovers European Green Funds’ Hidden Activities

SFDR rules are not strict enough regarding green-labelled funds and do not ban fossil fuel investments.
Oil giants, including Shell and ExxonMobil, continue to operate with free rein in the absence of clear green rules.
Under SFDR’s current rules, 480 investment companies have directed funds into fossil fuel firms.

Many European so-called 'green' funds have covert intentions, reveals an investigation by Voxeurop and The Guardian.

These funds have pumped over $33 billion into oil and gas giants, including TotalEnergies, Shell, ExxonMobil, Chevron, and BP, who continue to extract oil with free rein, dislocating animals, people, and larger wildlife in marginalised regions.

Although infamous for contributing to climate change, these companies are widely featured in green investments such as Sustainable Global Stars and Europe Climate Pathway.

According to investment firms, having a stake in these companies will influence their environmental actions. However, the climate think tank Carbon Tracker says that oil companies have no proper climate plan aligned with global climate goals. To make matters worse, many have weakened their climate strategies over the years. As a result, critics rebut the claims of investment firms and see this as a fig leaf hiding the actual truth.

Environmentalists say this will only mislead stakeholders, who, by and large, believe that the money is being used to develop and support green projects, but instead, it flows to companies that ratchet up global warming.

Campaigners flag this as a greenwashing attempt when something is presented as environmentally friendly but actually is not. Robeco, an investment firm, has even removed the term 'sustainable' from its fund following questions about motives.

If we look at current EU rules, they do not ban fossil fuel investments in green funds. The EU’s Sustainable Finance Disclosure Regulation (SFDR) still includes—or at least identifies—those funds as green, even if they invest in fossil fuel companies.

ALSO READ: UK Banks Linked to £75bn in Fossil Fuel Projects Abroad

The SFDR includes Article 8 and Article 9 funds aimed at supporting environmental or sustainable goals, and over 480 investment companies have already invested in fossil fuel companies under these categories. JP Morgan, BlackRock, and DWS were the largest investors among them.

To tackle this issue, the European Securities and Markets Authority (Esma), in August 2024, introduced rules with regard to the use of green terms and fund naming. They are intended to reduce or thwart greenwashing and will apply to funds by the end of May 2025. However, these guidelines are not legally binding. Regulators in respective EU countries have the authority to monitor compliance and take action against violations.

Campaigners are demanding much stricter and clearer rules to curb the broader greenwashing issue at its root. They brook no fossil fuel investments in ESG or green-labelled funds and want the SFDR rules updated to reflect investors' expectations when it comes to sustainable investing.

ALSO READ: New Rules for Green Funds: What Investors Need to Know

Oil companies are seemingly attempting to water down the situation. For instance, TotalEnergies reaffirmed that its climate strategies are in line with the Paris Agreement. Shell appears to be in silent mode, as is the case with many other companies. In the meantime, BlackRock and JP Morgan have started removing sustainability terms from their funds, facing reprimand for acting too late.

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Source: The Guardian