PMI, the EU and the Ethical Debate Over Transition Finance

For companies and governments to transition away from fossil fuels requires nothing short of a war effort financially. With so much change required in such little time, investments and innovations will have to be vast.

Transition finance – the umbrella term for any form of organised support for corporate decarbonisation – is seen as the bridge between today's high‑impact business models and tomorrow’s low‑carbon economy.

National and international governments have a huge role to play in this process, whether or not sustainable investments come directly from them. When it comes to sustainability, the pen can be just as powerful as the purse.

Governmental regulations can affect the way that companies are able to act and can help to open or close doors financially.

That said, there is a fiery debate over how this kind of legislation should look. 

How can regulations encourage sustainability?

The EU is currently proposing some amendments to its Sustainable Finance Disclosure Regulation (SFDR), with a particular focus on transition investments.

The changes, which form part of Article 7 of the SFDR, would require transition funds to exclude sectors including "harmful" sectors, including weapons, coal and tobacco, mirroring the exclusions for EU Climate Transition and Paris‑Aligned Benchmarks.

In practice, this means that any company deriving significant revenue from these products is automatically outside the perimeter of products that can market themselves as supporting the transition.​

For Jennifer Motles, Chief Sustainability Officer at Philip Morris International (PMI), this kind of legislation misses the mark.

PMI has made a concerted effort in recent years to move towards a "smoke-free" future by investing in products like vapes and nicotine pouches.

Jennifer believes that the EU's proposals are tantamount to suggesting that some industries and companies can never truly change.

In a recent post on LinkedIn, Jennifer she notes that Article 7 describes the transition as companies "moving from higher harm to lower harm, investing in credible plans, making measurable progress toward better outcomes", before pointing out that the same text then bars entire categories of companies from qualifying at all.

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

Trajectory versus origin

At the heart of Jennifer's critique is the tension between where a company comes from and where it is going.

While the majority of PMI's revenue is still generated by its cigarette brands like Marlboro and Chesterfield, its less harmful products like Zyn and IQOS are becoming increasingly popular.

"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 leads to a set of uncomfortable questions. "If a company invests billions in transformation and still can’t qualify for transition finance, what’s the incentive to transform?" she asks.

If the market treats a business "identically whether you stay the same or radically change, why bear the cost and risk of change?"

This debate speaks to the difficulty in both funding and legislating such a societal overhaul. For Jennifer, a transition built solely on exclusions risks disrupting progress.

The politics of who gets to transition

The EU’s definition of transition finance emphasises financing improvements that move activities towards climate‑neutral and environmentally sustainable performance at a pace compatible with the Paris Agreement.

Of late, the politics of sustainable finance have increasingly favoured having red lines under industries like fossil fuels and tobacco.

These exclusions respond to public pressure and to a desire to prevent greenwashing, but it could be argued that they make it difficult for companies to change their ways fully. ​

Around the world, scholars and policymakers are wrestling with how political and financial risks are shaping the energy transition and the planet's response to climate change.

Research shows that unstable policy environments and inconsistent financial signals can delay or distort investment in cleaner technologies.

When transition rules are designed in ways that push controversial industries entirely outside access to labelled transition capital, the risk is that transformation either happens more slowly or is financed less transparently.

Gatekeeping, incentives and global justice

Jennifer is explicit 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 and credible plans rather than freeze companies in the image of their past.

It is a plea that echoes a wider concern in global debates about sustainable finance, where many actors in high‑emitting or lower‑income economies fear being written off as permanently brown.

Excluding whole industries or regions from transition‑labelled capital can deepen global inequality, especially where economies remain dependent on carbon‑intensive activities and lack the fiscal space to fund change from public budgets alone.

The ongoing debate

The SFDR reform is trying to solve real problems: boosting credibility, simplifying disclosures and giving investors clearer categories for green, ESG and transition products.

After all, robust exclusions can reduce the risk that transition funds quietly back companies expanding fossil fuel production or ignoring human rights.

Nevertheless, Jennifer suggests that the industries that most need to change are having their mission made all the harder by these kinds of regulations.​

Transition is, as she writes, "hard".

"It requires capital, technology, political will and time. And it requires belief – from markets, from regulators, from society – that the journey is possible."

If transition finance is to live up to its name, it will have to wrangle with how to distinguish unfulfillable promises from genuine transformation, all without assuming from the outset that some journeys are impossible.