Investors told CNBC that the EU’s controversial plan to include nuclear energy and natural gas in its sustainable investment rankings is confusing and could lead to further greenwashing.
As the executive body of the European Union, the European Commission hopes to make it easier for financial markets to decide what sustainable investment is. Therefore, it proposes a green classification system or taxonomy aimed at making sustainable investment more transparent.
Classification has been harsh criticism Including natural gas and nuclear energy. The committee sees these two sources as a means to “facilitate the transition to a future based primarily on renewable energy.”
However, critics such as Austrian officials and environmental activists believe that these products should not receive the green label, even temporarily.
The plan has not yet become law, but investors who aim to benefit from clearer guidance have raised some concerns.
“This will bring some confusion to the distributors,” said Francesco Filia, CEO of Fasanara Capital, of the EU classification. Fasanara Capital had $3 billion in assets under management as of October.
Filia said that the EU’s efforts to recognize nuclear energy and natural gas as “transitional” are difficult to understand because it seems to be the tacit recognition of the unsustainability of these energy sources. He added that his team will continue to make sustainable investments in accordance with the standards previously set by the fund.
His views have been recognized by others.
Isobel Edwards, a green bond analyst at asset management company NN Investment Partners, said that before the EU implements a new classification, if investors want to allocate funds to nuclear or natural gas projects, they must fully explain how they can consider doing so to be sustainable. Now, she says, investors only need to say “this is just a taxonomy”-it’s easier to justify these decisions.
Edwards said that investors hope that regulators and legislators can provide more help in information disclosure, which is one of the main difficulties of sustainable investment. The lack of standardized reports makes it difficult for money managers to compare investment opportunities, including their degree of sustainability.
With more and more attention paid to sustainable investment. According to Reuters, the MSCI World ESG Leaders Index rose by about 20% in 2021, the highest annual increase in history.
Fabio Ranghino, director of strategy and sustainability at asset management company Ambienta, told CNBC that the EU’s classification is not confusing, but just one of many tools.
“For us, nuclear energy is not a bad word, it is about waste management,” he said, adding that the nuclear projects being built today are different from those built in the 1950s.
However, he did say that as the economy adapts to the new energy mix, “we will experience a few years of chaos” because both private and public companies must be able to report their sustainability indicators.