New NGO research uncovers massive greenwashing in European ESG funds

Extensive financial research by NGOs Urgewald and Facing Finance has uncovered massive greenwashing in European ESG funds, also known as Article 8 and Article 9 funds. More than 14,000 ESG funds traded in European markets were analyzed. Well over one-third (4,792 funds) invested more than EUR 123 billion^[1] in companies actively pushing fossil fuel expansion projects or lacking a credible Paris-aligned coal phase-out plan.^[2]

The six oil and gas majors TotalEnergies, Shell, ExxonMobil, Chevron, Eni and BP alone account for investments worth EUR 23.5 billion. All of these companies are supercharging the climate crisis through their massive oil and gas expansion plans. The biggest investments are in TotalEnergies (EUR 8.1 billion). The EU's largest oil and gas producer is expanding its business, especially in frontier countries such as Mozambique. Its LNG project in the violence-ridden province of Cabo Delgado demonstrates how fossil fuel expansion is violating the human rights of local communities.^[3]According to the NGOs’ research, European ESG funds also invested a total of EUR 4.5 billion in coal companies with expansion plans. Glencore and its subsidiaries were at the top of that list with a total of EUR 770 million. 

Julia Dubslaff, Finance Researcher at Urgewald, comments: "Companies that pursue fossil fuel expansion projects in the midst of a climate crisis are jeopardizing our future. Their presence in ESG funds violates the very concept of sustainability. The presence of fossil fuel expansionists in over one-third of the funds that claim environmental or social traits misleads climate-conscious investors. The European legislator must set clear rules for all ESG funds and put an end to this travesty."

New ESMA guidelines: Many funds fall through the cracks

The new rules on the naming of ESG funds, presented by the European Securities and Markets Authority (ESMA)^[4], are a step in the right direction. ESMA specifies ESG investment criteria for funds with names related to the following categories of terms: "Environment", "Sustainable", "Impact", "Transition", "Social", and "Governance". However, Urgewald and Facing Finance’s research shows that of the almost 14,300 Article 8/9 funds examined, two-thirds (9,420 funds) are not covered by the new ESMA guideline since no ESG- or sustainability-related terms appear in their names.

With regard to fossil fuel investments, the new rules cover only 43 percent of funds,^[5] whose names contain terms from the categories "Environment", "Sustainability" or "Impact". Such funds will have to sell most of their fossil investments or change their names as of May 21, 2025, when the new ESMA guidelines come into effect. For the fossil investments in the remaining 57 percent that contain other terms or no terms from the ESMA catalog, nothing will change.^[6]

The consequences of this porous guideline are evident, for example, in the ESG funds’ investments in oil and gas majors. Up to EUR 17.1 billion, or a good two-thirds of the total “green” investments in TotalEnergies, Shell, ExxonMobil, Chevron, Eni and BP, are safe under the new ESMA requirements. 

Frederike Potts, financial analyst at Facing Finance, says, "Retail investors in particular can hardly see through the ESG jungle and often have no idea in what dirty companies they are investing their money. The ESMA guidelines at least provide a remedy for funds with sustainability and environmental terms. However, fossil fuel investments in other ESG funds must also be curbed. It is beyond reason why funds with the term 'transition' in their name are allowed to keep investments in companies that are slowing down the transformation of our energy systems and pursuing fossil fuel expansion projects. If these loopholes are not closed, it will be a missed opportunity for consumer protection in Europe."

Change the fund’s name or divest? A question of investor conscience

According to the two NGOs, affected ESG funds that contain terms from the "environment", "sustainable" or "impact" categories have invested around EUR 38 billion in fossil fuel companies with expansion projects or no Paris-aligned coal phase-out plans.  According to the new ESMA guidelines, funds with corresponding sustainability-related names may only invest in companies that meet the criteria for the so-called "Paris-Aligned Benchmarks" (PAB). Most of the fossil fuel companies considered by Urgewald for this research report are not PAB-compatible. ESG funds invested in such companies have two options as of May 21, 2025: sell their fossil fuel instruments or remove the relevant sustainability terms from their names. In the latter case, the portfolio could remain as dirty as before. Only the first option protects consumers and has a potential positive climate impact.  

Dubslaff adds: “Fund managers should seize this opportunity and divest their fossil fuel holdings. In doing so, they can enhance their reputation and prove to customers that they are serious about their climate-conscious fund products. At the same time, they can send an important signal to fossil fuel developers: If your business harms the climate, the people, and the planet, you’re out." 

There is still no unified approach as to how national supervisory authorities will deal with the classification and interpretation of the terms. Looking at terms like “children”, “prudence” or similar, it is still unclear how they will be treated in the future vis-a-vis fossil fuel investments. At the time of data collection, the “Fonditalia 4 Children” fund, for example, invested in Enel and China Yangtze Power Co Ltd, both of which are pursuing gas-fired power expansion projects. The “Eurizon Fund - Absolute Prudent” invested in major coal expansionist Glencore and in EDP Energias de Portugal, which is growing its gas-fired power plant fleet.

Investment companies most affected: DWS is heavily exposed to fossil fuels

The financial research also reveals which investment companies on the EU market are currently particularly deep in coal, oil and gas with their Article 8 and Article 9 funds. JPMorgan Chase, the world’s biggest fossil fuel banker, is in the lead with an investment volume of EUR 10.2 billion, spread across 105 investment funds. In second place is the Deutsche Bank subsidiary DWS with EUR 8.7 billion spread across 178 funds, ahead of one of the world’s biggest fossil fuel investors, BlackRock, which comes in third with a volume of EUR 8.3 billion spread across 188 funds. The German Allianz^[7] is in 6th place with EUR 3.7 billion (133 funds), followed by the Swiss UBS in 7th place, also with EUR 3.7 billion (124 funds).

Looking only at those funds in the ESMA categories "Environment", "Sustainable" or "Impact", a different picture emerges. Here, BlackRock is in the lead with EUR 6.4 billion in fossil investments in 111 funds, followed by Crédit Agricole (including its asset manager Amundi) from France with EUR 3.6 billion in 152 funds. In third place is the Swiss UBS with EUR 2.8 billion in 71 funds, followed by Northern Trust (EUR 2.3 billion in 28 funds) and DWS (EUR 1.6 billion in 101 funds).

Outlook: SFDR overhaul must close the gap for Article 8 and Article 9 funds

The European Commission has slated an overhaul of the Sustainable Finance Disclosure Regulation (SFDR) for end of 2025. To date, this regulation lacks any minimum requirements for fossil fuel investments and only formulates reporting requirements for Article 8 and Article 9 funds.

Fiona Hauke, Urgewald expert for financial regulation, comments, "The EU should show more ambition in regulating funds with ESG claims. The SFDR overhaul must cut through the current sustainability jungle by providing clear guidelines. For all ‘green’ investments, strict fossil fuel exclusions should apply. Similarly, it should be a no brainer that so-called transition funds need to exclude companies that are developing new fossil fuel expansion projects and that have no Paris-aligned coal phase-out plan. At a time when the US president is waging a war on sustainability, the EU should step up to the plate and strengthen this future-oriented sector.”