The chief executive officers of three influential institutional investor-focussed organisations have published an open letter to the UK prime minister to express strong opposition to the possible inclusion of natural gas activities in the UK’s green taxonomy.
The letter comes in response to media reports that the UK government is actively considering this step.
In an article in the Daily Telegraph last month a Whitehall source is quoted as saying that many investors with ESG targets were divesting from fossil fuels and “we don’t want that to be done at the detriment of natural gas”.
According to the source, the business secretary Kwasi Karteng “accepts the reality of the situation which is that we will need gas for decades to come and we need more developments in the North Sea”.
However, in their letter, the CEOs of the Institutional Investors Group on Climate Change (IIGCC), the Principles for Responsible Investment (PRI), and UKSIF, said that while the continued use of natural gas may be necessary as a bridge during the transition, especially as countries responded to the ongoing energy crisis, this did not mean gas should be considered green.
“Very important short-term considerations on energy security must not be conflated with the taxonomy,” wrote Stephanie Pfeifer, David Atkin and James Alexander.
“Excluding natural gas from the taxonomy will not deprive gas-related activities from funding in the capital markets. However, its inclusion will send very misleading signals to investors needing clarity on the alignment of their holdings with the UK’s objective of carbon neutrality.”
The CEOs also warned that including gas in the taxonomy, which would “dilute its scientific credibility”, would have detrimental impacts on wider disclosure requirements and investment products referencing it.
Greenwashing could become a far greater risk as a result of gas’s inclusion in the taxonomy, they argued, especially with the proposed criteria for funds to achieve a ‘sustainable’ label potentially being the proportion of a fund’s assets aligned to the taxonomy.
“Our global approach to climate change must be rooted in realism and as such we should recognise that natural gas may have a role to play in facilitating the transition in the long term,” said David Atkin, CEO at the PRI.
“However, ultimately, the UK’s taxonomy can and should aim to demonstrate maximum alignment with a science-based transition, which is inherently inconsistent with the inclusion of natural gas activities within the taxonomy.”
The investor groups’ letter comes after lawmakers in two European Parliament committees objected to the inclusion of nuclear and gas in the EU’s green taxonomy last week, although the plenary in early July is not expected to block the European Commission’s controversial proposal. This, too, has been met with criticism from investors alongside environmental groups.
According to EDHEC Infrastructure Institute, an investor survey it carried out shows the European Parliament committees’ vote is supported by investors as well as academic research.
Polling some 81 individuals from around the world that attended a webinar about the Institute’s analysis, it found that 60% strongly agreed that including gas risked acting against the aims and intentions of the taxonomy, with 71% also strongly agreeing that there was no need to provide fresh incentives for gas production investment.
EDHEC Infrastructure Institute’s own analysis was that there was no good financial reason to include gas in the EU green taxonomy.