Nuclear and gas addition to EU Taxonomy divides investors
European Union approves controversial taxonomy additions while critics claim the decision will hinder portfolio alignment to net zero.
The European Parliament has approved the addition of nuclear and gas to the European Union’s list of approved “green” investments after attempts to block the move failed.
The addition of the sectors to the EU Taxonomy is set to go ahead despite some countries, Germany and Switzerland included, threatening to take legal action against the EU Commission for the inclusion.
The proposal stated that gas and nuclear would be included in the taxonomy from 2023 and contains a clause stipulating that gas will only be considered “green” if it replaces coal generation.
The inclusion of fossil gas and nuclear in the taxonomy has been very controversial, and has divided opinion across EU member states and within the investment community.
German opposition
Germany announced in May that it would oppose the addition of nuclear energy.
According to a joint statement from the country’s environment ministry, and its economy and climate ministry: "The Federal Government has expressed its opposition to the taxonomy rules on nuclear power. This 'no' is an important political signal that makes clear: nuclear energy is not sustainable and should therefore not be part of the taxonomy."
Matt Feehily, senior managing associate at law firm Sidley Austin, explained to Net Zero Investor: “The inclusion of fossil gas and nuclear in the taxonomy has been very controversial, and has divided opinion across EU member states and within the investment community. [This is] both from a climate change mitigation perspective and also as a result of Russia’s invasion of Ukraine, following which the EU bloc’s continued reliance on Russian gas has been heavily criticised.”
Undermining the taxonomy
The additions were indeed divisive, with the $57trn-backed Institutional Investors Group on Climate Change (IIGCC), whose members include Allianz, Baillie Gifford and Robeco, firmly against the addition.
In an open letter to European member state representatives and MEPs, the IIGCC stated the addition of gas “hinders the capacity of our members to align their portfolios with net zero, undermining the whole purpose of the taxonomy and the substantial work that has been undertaken to develop it”.
For some asset managers, however, the addition of nuclear and gas has not diminished their faith in the EU Taxonomy.
French asset manager AXA IM commented that it continued to see the EU Taxonomy as “a valuable endeavour” in providing investors with a framework from which they could guide their efforts in adjusting portfolios to net zero.
This issue, Feehily explains, illustrates the “likelihood for international divergence, making cross-border investment in sustainable economic activities more challenging.” He further notes the UK is expected to share its own taxonomy later this year.
