What the gas and nuclear debate around the EU taxonomy means for investors

At the beginning of January 2022, a key element of the EU’s sustainable finance policy came into effect — the green taxonomy, a kind of dictionary of sustainable activities. Investors must now disclose how their funds meet taxonomy climate-related requirements, while large companies need to report on how much of their business is in line with the taxonomy.

But an ongoing debate over whether natural gas and nuclear power should be included in the tool is overshadowing the taxonomy’s introduction. The EU announced at the New Year that it had begun consultations on including gas and nuclear after delaying a decision earlier in 2021 following pressure from sustainable investors, activists, and its own expert advisory group. The bloc faces pressure to avoid making countries that are highly dependent on fossil fuels feel they are being left behind in the transition. Meanwhile, critics say the EU risks hurting its reputation as a global leader in sustainable finance regulation.

To find out how investors are viewing the debate, we speak to Rachel Ward, policy programme director at the Institutional Investors Group on Climate Change, which represents more than €50 trillion of assets under management and has called on the EU to exclude gas from the taxonomy. “Gas cannot meet the prescribed requirements included in the taxonomy. To do so would be misleading,” she tells us in this episode of ESG Insider.

We also speak to Matthias Fawer, a senior analyst for ESG & Impact Assessment at Vontobel Asset Management, who says the proposal to include nuclear and gas in the taxonomy comes during the “difficult and delicate” transition period that is taking place until renewables can replace fossil fuels. And Alexander Lehmann, head of the Sustainable World Academy at Frankfurt School of Finance and Management, tells us that the proposal adds complications and potential risks for investors.

To learn more about the EU’s green taxonomy, listen to our earlier episode here: https://soundcloud.com/esginsider/defining-green-what-investors

We'd love to hear from you! To give us feedback on this episode or share ideas for future episodes, please contact hosts Lindsey Hall (lindsey.white@spglobal.com) and Esther Whieldon (esther.whieldon@spglobal.com).

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