A proposal to classify nuclear energy and natural gas in the European Commission’s sustainable finance taxonomy has prompted a backlash from Germany and Austria, with the latter threatening to take legal action should it be included.
The decision to include the two energy sources in the taxonomy was published in the draft proposal last Friday, 31 December, following months of debates on how to adequately transition in the fight against climate change.
Germany and other EU member states have argued natural gas investment was crucial to help them exit from coal, while others have argued that its inclusion would undermine the EU’s credibility as a climate leader.
Countries are also divided on nuclear energy, with France, Poland and the Czech Republic arguing it should help with the transition, with Germany, Austria and Luxembourg opposed to its inclusion.
Austrian climate minister Leonore Gewessler said it would take the EU to court if the plans were implemented in its current guise, having sort legal action over the inclusion of nuclear energy.
Whether or not they are included in the taxonomy will have a major impact on the way investors and ETF issuers approach sustainable investing.
ETF issuers and index providers are notoriously tight-lipped on nuclear with many unwilling to make a call on a politically sensitive topic without some sort of regulatory standardisation, for risk of alienating part of their investor base.
Following the draft proposal, the European Commission opened a consultation with its member states running from 1-12 January. It will then discuss the changes with governments which could take up to six months.
As part of the consultation, the European Commission said any inclusion of gas or nuclear would have tight conditions such as coming from renewable sources or having low emissions by 2035.
It added it will amend the Taxonomy Disclosure Delegated act so investors “investors can identify if activities include gas or nuclear activities, and to what extent, so they can make an informed choice”.
The lack of transparency and consistency of data on ESG has been a huge issue for the industry.
Currently, the lack of standardised regulation across nations means that investors are currently reliant on voluntarily reported data and data estimated by the providers.
In November, the International Organisation of Securities Commissions (IOSCO) called on regulators to crackdown on ESG ratings and data products in a bid to stamp out greenwashing.
In the same month, a new global body was established to tackle greenwashing in financial products, including a “comprehensive global baseline of sustainability-related disclosure standards”.
The International Sustainability Standards Board (ISSB), set up by the International Financial Reporting Standards (IFRS) Foundation Trust, came after mounting calls for higher quality and universal disclosure on ESG performance indicators.