Financial research conducted by NGOs Urgewald and Facing Finance has exposed large-scale greenwashing within European ESG funds, revealing that over a third of the so-called Article 8 and 9 funds invest heavily in fossil fuel expansion projects.
Of the more than 14,000 ESG funds analysed, 4,792 were found to have invested over €123 billion ($134 billion) in companies either engaged in fossil fuel expansion or lacking a credible coal phase-out plan in line with the Paris Agreement. The six largest oil and gas multinationals—TotalEnergies, Shell, ExxonMobil, Chevron, Eni, and BP—accounted for €23.5 billion ($25.5 billion) of these investments.
TotalEnergies received the highest investment (€8.1 billion), despite its continued expansion in fossil fuel projects, including its controversial liquefied natural gas (LNG) project in Mozambique’s conflict-ridden Cabo Delgado province. The research also found that ESG-labelled funds had invested €4.5 billion in coal companies with expansion plans, with Glencore and its subsidiaries receiving €770 million.
Calls for stricter regulations
The findings have prompted renewed calls for regulatory clarity and stricter investment rules for ESG funds. Julia Dubslaff, a financial analyst at Urgewald, criticised the current system, stating: “Companies that push ahead with fossil fuel expansion projects in times of global warming are endangering our future. Those who violate sustainability principles so massively have no place in ESG funds. The fact that more than one in three funds that promote ecological or social characteristics nevertheless invest in expanding fossil fuel companies is misleading climate-conscious investors. Policymakers must prohibit such investments in all ESG funds through clear regulations.”
The European Securities and Markets Authority (ESMA) has introduced new rules for naming ESG funds, set to take effect on 21 May 2025. Under these guidelines, funds using terms such as “Environment,” “Sustainability,” or “Impact” must divest from most fossil fuel investments or remove these terms from their branding. However, the research shows that only 43% of the examined funds will be affected, as two-thirds (9,420 funds) do not contain ESG-related terms in their names and therefore remain outside ESMA’s scope.
Frederike Potts, financial analyst at Facing Finance, warned that without closing regulatory loopholes, many ESG-labelled funds will continue to invest in fossil fuels: “Retail investors in particular struggle to navigate the ESG jungle and often have no idea what dirty companies they are investing their money in. The ESMA guidelines provide a remedy here, at least for funds with sustainability and environmental terminology. But fossil fuel investments in other ESG funds must also be stopped. It is completely incomprehensible why funds with the term ‘transition’ are allowed to hold on to investments in companies that are slowing down the transformation of our energy systems with fossil fuel expansion projects. If these gaps are not closed, it will be a missed opportunity for consumer protection in Europe.”
Major financial institutions among top investors
The research identified several major financial institutions heavily invested in fossil fuels through their ESG-labelled funds. JPMorgan Chase led with €10.2 billion in fossil fuel investments across 105 funds, followed by Deutsche Bank subsidiary DWS (€8.7 billion across 178 funds) and BlackRock (€8.3 billion across 188 funds).
When focusing solely on funds using ESG-related terms that will be affected by ESMA’s guidelines, BlackRock tops the list with €6.4 billion in fossil fuel investments across 111 funds, followed by Crédit Agricole’s asset management arm Amundi (€3.6 billion across 152 funds) and UBS (€2.8 billion across 71 funds).
Upcoming EU policy revisions
The European Commission has announced a revision of the Sustainable Finance Disclosure Regulation (SFDR) by the end of the year. The proposed revision aims to introduce stricter product categories, potentially including fossil fuel exclusion criteria for ESG funds. Currently, the SFDR only sets reporting requirements for Article 8 and 9 funds without imposing minimum investment standards.
Fiona Hauke, Urgewald’s expert on financial regulation, stressed the need for more robust EU action: “The EU should finally become more demanding in regulating funds with ESG claims. The SFDR revision must clear the existing sustainability jungle through concrete requirements. Strict fossil fuel exclusions must apply to all ‘green’ investments. Among other things, it should be self-evident that companies with fossil fuel expansion projects and those that do not have serious exit plans for their coal businesses have no place in ‘transition’ funds. At a time when US President Trump is making sustainability the enemy, the EU should take a stand and strengthen this future-oriented sector.”
The upcoming EU regulatory discussions are expected to determine whether fossil fuel investments will continue under ESG labels or face stricter controls to align with global climate commitments.
