More than 120 signatories including organisations such as Reclaim Finance, financial institutions as well as legal experts urged Brussels in an open letter to offer "sufficient safeguards to prevent greenwashing".

The European Commission will propose how to revise the 2021 rules known as the Sustainable Finance Disclosure Regulation later this year.

Under the current rules, there are three different labels to help investors gauge the sustainability of financial products.

The highest level must have a sustainable investment objective, while products categorised at the second highest level must meet less stringent environmental, social, and governance (ESG) criteria.

A third category is for funds that do not meet any of these requirements.

"If the European Commission truly wants to tackle greenwashing in the financial sector, then it must at the very least exclude fossil fuel expansion from the entire range of sustainable fund categories," Paul Schreiber of Reclaim Finance said in a statement.

The rules are intended to encourage investments in sustainable activities but critics say they are too vague. Various organisations including financial sector authorities and regulators have urged a thorough review of the categories.

The European stock market regulator, ESMA, earlier this year required funds that use the terms "ESG" or "sustainable" in their name to exclude firms whose revenues are more than one percent linked to coal or 10 percent linked to oil.