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ESG Investments Raise Concerns Over Fossil Fuel Financing

Oil and Gas

Business Honor
20 March, 2025

European ESG funds invested $134 billion in fossil fuels, highlighting concerns over misleading sustainability claims.

A new NGO report by Urgewald and Facing Finance shows that European ESG (Environmental, Social, and Governance) funds, branded under the EU's Sustainable Finance Disclosure Regulation (SFDR), have invested an astonishing $134 billion (123 billion euros) in firms with active fossil fuel expansion or no plausible strategy to divest from coal. The report spanned more than 14,000 ESG-tagged funds, and close to a third of those—approximately 5,000 funds—held stakes in oil and gas companies. This has also raised fears of greenwashing in the ESG market.

The report points out that six of the world's largest oil and gas corporations—TotalEnergies, Shell, ExxonMobil, Chevron, Eni, and BP—were invested in by these funds to the tune of $25.6 billion (23.5 billion euros). This has raised concerns, particularly with the increasing call for responsible investing and the EU's pledge to become carbon neutral by 2050. In spite of rules aimed at ensuring sustainability, the report indicates that most funds continue to finance fossil fuel projects, which counteracts efforts to combat climate change.

Article 8 and Article 9 funds under the SFDR are meant to have an emphasis on encouraging and ensuring sustainability objectives, respectively. According to the research conducted by Urgewald and Facing Finance, two-thirds of the funds (approximately 9,420) do not adhere to the regulations by the European Securities and Markets Authority (ESMA), since they lack ESG-related words in their titles. This opacity complicates it for retail investors to determine where their funds are being invested, unknowingly financing fossil fuel projects.

The report is consistent with earlier studies by environmental oraganizations, including Reclaim Finance, which concluded that much of the passive funds sold as "sustainable" by large asset managers in the U.S. and Europe is still significantly exposed to firms working on new oil and gas projects.