MEPs are on course to approve the European Parliament’s official position on the revised Sustainable Finance Disclosure Regulation (SFDR), including tightened eligibility rules for fossil fuel companies, sources have told Responsible Investor.
Under the Parliament’s requirements for the new Transition fund-labelling category, major oil producers including Total will likely be ineligible for inclusion at their current levels of expenditure.
Parliament’s ECON committee added a requirement for fossil fuel companies to spend “a higher average proportion of their total capital expenditure to taxonomy-aligned activities” compared with fossil fuel expansion to be eligible for inclusion in Transition funds.
This is set to emerge as a key sticking point when Parliament enters legislative negotiations with the Council of the EU, which represents member states.
Proposals from both Parliament and member states allow Transition category funds to hold fossil fuel firms, subject to allocating at least 20 percent of their capex to activities aligned to the EU’s green taxonomy, and having a time-bound and measurable strategy to cut Scope 1 and 2 emissions.
Total is currently the only oil supermajor that would comply with the 20 percent taxonomy-aligned capex requirement, according to its most recent filings.
However, the new requirement tabled by MEPs would likely scupper even Total’s chances for eligibility. The firm allocates around 11 percentage points more to fossil fuel expansion than to taxonomy-aligned activities.
A source in Parliament told RI that the new policy has “disappointed” a number of MEPs, especially French delegates, but that the “latest indication” was that objections would not be raised to the proposals.
Fossil fuel companies with expanding production – which cover virtually all major producers – had been barred under the initial SFDR 2.0 draft legislation, prompting industry pushback.
RI reported in June on lobbying by Total, which argued that the policy could impact Europe’s energy supply security and sovereignty.
‘We do not expect opposition’
The proposals will now be put on the agenda for the next sitting of Parliament, scheduled for the week of 5 October, but will likely not be put to an official vote.
According to procedural rules, a plenary vote will only be called if 72 MEPs object to the motion – otherwise it achieves automatic adoption.
The successful passage of the proposals through Parliament will depend on the support of the centre-right EPP, currently the largest parliamentary grouping.
Another parliamentary source involved in negotiations said that “given the broad support” in the ECON committee – including from EPP members – “we do not expect opposition” in the later plenary sessions.
Agreement on the SFDR legal text is expected to be achieved between Parliament and member state representatives by the end of the year or Q1 2027.
The regulation is due to take effect in 2029.