The decision by the European Commission to largely ignore the advice of the Platform on Sustainable Finance (PSF) and include criteria for natural gas and nuclear energy in its sustainability taxonomy has drawn strong criticism.
As recently as last week, the Commission’s advisory body had told the Commision that gas and nuclear energy should not count as sustainable activities.
Nathan Fabian, chair of the PSF, took to Twitter on Thursday to warn about the possible negative impact of the Commission’s decision to press ahead and effectively give the two energy sources a green label.
On Wednesday the Commission announced that it had adopted its proposal for the EU taxonomy to cover certain natural gas and nuclear activities, saying it made “targeted adjustments” in response to feedback.
In a statement posted on the social media platform, PSF’s Fabian said: “The evident departure from a science-based approach to determining when transitioning energy activities do or do not make a substantial contribution to climate change mitigation targets risks weakening the integrity of sustainable finance.”
The Dutch Pension Federation called on the European Parliament and the European Council to reject the proposed extension of the taxonomy with nuclear energy and gas.
“We do not support the current proposal because its proposed extension is not based on scientific consensus,” a spokesperson told IPE in an e-mailed statement.
The Institutional Investors Group on Climate Change (IIGCC), a group of mostly European pension investors and asset managers that collaborate to fight climate change, also voiced its disappointment with the Commission’s final proposal.
It had previously published an open letter calling on the Commission to exclude gas from the taxonomy.
The IIGCC’s chief executive officer Stephanie Pfeifer said: “For institutional investors, the inclusion of natural gas sends mixed messages and will negatively impact their ability to align their portfolios with net zero. Fundamentally, the signal to channel capital towards investments that restrict the increase in global temperature to 1.5°C is weakened.”
Nick Stansbury, head of climate solutions at LGIM, aired similar concerns. “As long as policymakers aspire to a net-zero climate outcome, there is little room for natural gas to continue to grow; it must shrink in the 2030s”, he said.
Investor confusion
Alix Chosson, senior ESG analyst at asset manager Candriam, sided with PSF chair Fabian, dismissing the Commission’s decision as “a political compromise” instead of a scientifically-based consensus.
The addition of nuclear energy and gas risked undermining the very intention of the taxonomy to create a Europe-wide sustainability standard, instead creating confusion at investor level, she added.
“We are now faced with the challenge of balancing contradicting views between the EU taxonomy and national labels on the inclusion of nuclear and gas in sustainable funds,” she said.
“We are now faced with the challenge of balancing contradicting views between the EU taxonomy and national labels on the inclusion of nuclear and gas in sustainable funds”
Alix Chosson, Candriam
“Although it is understandable that national labels can have specificities, the point of the taxonomy was to provide some common ground based on scientific consensus in order to support the EU sustainable finance agenda. The risk is to end up with multiple shades of green, creating confusions for companies and their investors.”
The IIGCC’s Pfeifer noted such confusion “increases greenwashing risks” and necessitated an update to the sustainable finance disclosure regulation (SFDR) to ensure end-investors are provided with full transparency over holdings in products they invest in, including any investments in gas-related activities.
The Principles for Responsible Investment (PRI) echoed this point. It said the EU sustainability taxonomy “can no longer be considered the gold standard for a sustainability performance benchmark” and that this would “push an additional burden onto investors who will need to carefully review the disclosures to ensure that their taxonomy-aligned investments can reflect criteria that are science-based”.
It said disclosure rules for businesses proposed by the Commission to help investors contained “major weaknesses” and would not allow investors to easily compare credible taxonomy ratios with and without gas and nuclear energy, risked rendering the disclosures ineffective, and could lead to unintended greenwashing.
“The addition of gas and nuclear have caused a rift among policymakers and market participants,” said Margarita Pirovska, director of policy at the PRI.
“We are facing an execution divide, between investors that will include these criteria and those who will remain committed to the initial intention of the instrument, with a stricter implementation of the taxonomy’s tenet.”
The next steps are for the Council and European Parliament to review the Commission’s proposed draft rules. They have four months for this, with a possible extra two months.
Important to act before ‘amber’ category, says EC
The Platform on Sustainable Finance and others have argued that activites such as nuclear energy and natural gas would be better off being addressed in the context of a separate ‘intermediate’ or ‘amber’ category under the taxonomy framework.
In a Q&A about the Commission’s decision, the Commission said that without pre-empting the work by the PSF on this, it had after lengthy consideration, taken the view that “the urgency of the transition-imperative can be to the extent possible addressed, in part, through the taxonomy regulation as it stands today”.
It said that developments in energy markets and Member States’ emissions trajectories, had only reinforced the need to make full use of existing provisions of the taxonomy regulation.
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