The European Parliament’s largest group has agreed to back a rewrite of the Sustainable Finance Disclosure Regulation (SFDR) that its own coordinator on the Committee on Economic and Monetary Affairs (ECON) says does not match European People’s Party (EPP) policy.
The deal is about who may sit in a fund allowed to call itself “transition” or “sustainable” if they meet tests on capital spending and emissions.
Having such a label brings in a wider set of buyers and, in principle, cheaper money.
A majority in ECON has settled on a text under which fossil fuels can, but tobacco and prohibited weapons cannot, earn such a label.
Markus Ferber, who holds the group line in ECON, told Brussels Signal the party “does not like blanket sectoral exclusions” and that a text drafted “on a blank slate … would look different”.
The EPP earlier indicated it was open to more nuance in the regulation, being more friendly to business.
It will support the deal anyway. The committee votes on September 10.
The revision was sold as part of the EU’s simplification and competitiveness turn. The European Commission tabled it on November 20, 2025, proposing to replace the current Article 8 and Article 9 regime with three voluntary product categories: Sustainable, Transition and ESG Basics.
The compromise heading to the vote keeps exclusions by sector, not by performance, and carves out a transition pathway for only one of the banned industries, fossil fuels.
The Green Deal was built to steer money out of oil and gas, but member states have turned this around, in large part due to the high energy prices and effects of the war in Ukraine.
Tobacco, controversial weapons and firms in breach of the United Nations Global Compact or Organisation for Economic Co-operation and Development (OECD) guidelines stay out, whatever they spend on taxonomy-aligned capital expenditure or emissions cuts.
The tobacco exclusion applies to companies involved in the cultivation and production of tobacco. It does not distinguish combustible products from heated tobacco, and it does not refer to harm reduction, emissions, capital expenditure or a shift in sales mix.
Nicotine pouches and some vaping products contain no tobacco leaf; funds and data providers already treat them inconsistently.
Unlike oil and gas, the sector is not given a route into the transition category if it meets performance tests.
Similarly, in EU sustainable finance law, “prohibited weapons” is a narrower category than the defence industry as a whole.
The Commission has defined the category as four types banned by treaties to which most member states are party: Anti-personnel mines, cluster munitions, and chemical and biological weapons.
That wording was tightened in a delegated regulation adopted alongside the defence readiness package, which dropped the older term “controversial weapons”. MEPs tabled objections but did not muster the majority needed to block it, and the text was published in the Official Journal on December 30, 2025.
Companies that make conventional arms are not barred from sustainability- or transition-labelled products on that ground. Nuclear weapons are not on the banned list either.
Rapporteur Gerben-Jan Gerbrandy (Renew Europe, Netherlands) tabled a package on September 1. Shadow rapporteurs struck a political agreement the next day, brokered in large part by EPP shadow Luděk Niedermayer.
Of the hundreds of amendments in ECON, most of those on exclusions — many from the centre and the Right, including Ferber — sought to drop or narrow the bans.
Niedermayer then signed a deal that left them standing, save for oil and gas.
“It is not only the EPP’s position that determines the final outcome of negotiations and we had to strike compromises with other political groups to achieve a stable majority. This one was the best available in light of the political majorities, although it does not reflect 100 per cent EPP position,” Ferber said.
The present SFDR was “broken and needs fixing”, so the group had “a responsibility to move forward … even if not all elements are perfectly to our liking”.
The Council agreed its own negotiating mandate on June 24, introducing a fossil-fuel derogation tied to capital spending and emissions tests. Everything else remained excluded.
Italy, Poland, Portugal, Lithuania, Czechia, Hungary and Croatia objected.
Opponents of the deal, including a majority of EPP amendments on the point, reject the Commission’s approach, which boils down to a sector ban that judges a company by what it makes, not by how it is run.
A firm that cuts emissions and puts money into taxonomy-aligned work would then sit in the same box as one that does not.
They point out that the EU taxonomy already tries to measure that process, while the revised SFDR would attach a label to the industry.
The screens being copied in were written for climate benchmarks, rules for voluntary indices, and would become a condition of access to labelled funds.
UNITAB Europe and FETRATAB have warned ECON and the Committee on Agriculture and Rural Development (AGRI) that the tobacco ban hits about 30,000 family farms and thousands of small and medium-sized enterprises (SMEs), many in poorer rural regions.
On the growers’ own estimates, they put the wider chain at €223.7 billion of EU-27 GDP and more than two million jobs.
Tobacco growers say they want the same conditional route Parliament is granting oil and gas.
Exclusion shrinks the labelled investor pool, raises the cost of capital and removes any reward for transition, they note.
A plenary vote is expected in the week beginning September 14, with trilogue talks with the Council due to follow in late September or early October.
