How EU Finance Rules Could Impact Procurement Departments

The substantial financial commitment for companies and governments to transition from fossil fuels necessitates vast investment and innovation.

Transition finance – the organised financial support for corporate decarbonisation – is the essential bridge from high-impact business models to a low-carbon economy.

Government regulation is a key factor, as it can enable or restrict a company's financial options and access to capital for sustainability projects.

There is, however, an ongoing debate about what form this legislation ought to take, a debate with direct implications for a company's supply chain.

Sustainable procurement and regulatory hurdles

The European Union is proposing amendments to its Sustainable Finance Disclosure Regulation (SFDR), focusing on transition-related investments.

As part of Article 7 of the SFDR, the proposal would require transition funds to exclude "harmful" sectors such as weapons, coal and tobacco. This mirrors existing exclusions for EU Climate Benchmarks.

In effect, companies with substantial revenue from these sectors would be outside the scope of financial products marketed as supporting the net-zero transition.

For Jennifer Motles, Chief Sustainability Officer at Philip Morris International (PMI), this legislative approach is flawed. As PMI invests in a "smoke-free" future, Jennifer believes the EU’s proposals wrongly imply some industries are incapable of change.

In a LinkedIn post, she noted that, while Article 7 describes transition as companies "moving from higher harm to lower harm, investing in credible plans, making measurable progress toward better outcomes", the same text then prevents complete categories of companies from qualifying.

She argues that this creates "a system where the companies that most need to transition are categorically barred from accessing transition finance". 

Sourcing based on trajectory versus origin

The central issue in Jennifer's critique is the conflict between a company's origins and its future direction.

While most of PMI's revenue is still from traditional cigarettes, its less harmful products are growing.

"None of this matters under Article 7," Jennifer says. "Because we still produce tobacco, we’re out. Completely. No matter how far we’ve come. No matter how measurable our transformation is. No matter how fast we’re moving."

This raises difficult questions for businesses and their procurement partners. She asks: "If a company invests billions in transformation and still can’t qualify for transition finance, what’s the incentive to transform?"

For procurement leaders, this poses a risk. Suppliers undertaking costly transformations could be seen as less stable if cut off from key funding, potentially disrupting supply chains.

Global supply chains and financial gatekeeping

The EU debate on transition finance highlights a political preference for red-lining industries, like fossil fuels and tobacco.

These exclusions respond to public pressure against greenwashing, but they could make it harder for companies in those sectors to reform. Research shows unstable policy environments can distort investment in cleaner technologies.

If transition rules push controversial industries outside the sphere of labelled transition capital, their transformation may be slower or funded with less transparency.

Jennifer is clear that she is not asking for special treatment but for "coherence". She calls for criteria "based on trajectory, not origin", insisting that transition frameworks should reward measurable progress.

This reflects a wider concern that actors in high-emitting or lower-income economies fear being permanently labelled unsustainable.

Excluding whole industries can also deepen global inequality. This impacts regions dependent on carbon-intensive activities that lack public funds for a green transition.

Transition, she writes, is hard. Jennifer adds: "It requires capital, technology, political will and time. And it requires belief – from markets, from regulators, from society – that the journey is possible."

Effective transition finance must distinguish between genuine transformation and empty promises, without assuming some journeys are impossible from the start.