The European Commission took a major step towards including investments in gas and nuclear-based energy in the list of sustainable activities under the new EU taxonomy classification system, with the publication and presentation today of a Taxonomy Complementary Climate Delegated Act proposing criteria and disclosure rules for their inclusion.

The EU Taxonomy is part of the EU Action Plan on Sustainable Finance, established by the EU Technical Expert Group on Sustainable Finance (EU TEG). The taxonomy is a classification system enabling the categorization of economic activities that play key roles in contributing to at least one of six defined environmental objectives, starting with climate change mitigation and climate change adaptation, and no significant harm done to the other objectives.

The EU Taxonomy regulation went into effect at the beginning of this year, following the approval of the EU Taxonomy Climate Delegated Act (CDA), starting with the first two objectives, climate change mitigation, climate change adaptation, although the assessment of gas and nuclear energy as eligible areas for green investment remained ongoing.

Earlier this year, the European Commission announced that consultations have begun on the inclusion of gas and nuclear energy as green investment areas under the EU Taxonomy classification system. While gas and nuclear energy are often viewed as transition energy sources that will be required to facilitate the shift from fossil-based power to a greener energy system, their proposed inclusion has met significant resistance from some member states, such as Germany and Austria, along with sustainable investment groups who have warned of challenges to investors as they aim to channel capital towards environmentally sustainable activities.

Commenting on the new rules, Stephanie Pfeifer, CEO of Institutional Investors Group on Climate Change (IIGCC), said:

“For institutional investors, the inclusion of natural gas sends mixed messages and will negatively impact their ability to align their portfolios with net zero. Fundamentally, the signal to channel capital towards investments that restrict the increase in global temperature to 1.5 degrees is weakened.”

The proposal has even met opposition from the EU Platform on Sustainable Finance, an expert group of the European Commission tasked with advising it on the development of sustainable finance policies, who warned recently that including nuclear and gas would risk undermining the sustainable Taxonomy framework, and would include criteria for activities not aligned with Europe’s environmental goals.

In today’s presentation, the Commission said that it has considered the feedback that it has received on the proposal, resulting in adjustments to the criteria and disclosure and verification requirements rules for nuclear and gas in the Taxonomy. Under the rules, for example, new nuclear power plant projects will only be recognized until 2045, and gas-related activities will be required to have lifecycle emissions below 100gCO2e/kWh. The proposals also introduces disclosure obligations on companies and financial market participants to report on the degree to which gas and nuclear energy activities are included in their KPIs.

Valdis Dombrovskis, Executive Vice-President for an Economy that Works for People, said:

“Our mission and obligation is climate neutrality. We need to act now if we are to meet our 2030 and 2050 targets. Today’s Delegated Act is about accompanying the EU economy in the energy transition, a just transition, as a bridge towards a green energy system based on renewable energy sources. It will accelerate the private investment we need, especially in this decade. With today’s new rules, we are also strengthening transparency and disclosures of information, so that investors make informed decisions, thereby avoiding any greenwashing.”

The Commission also said that it will explore further amendments to the disclosure frameworks of financial products to provide investors with enhanced transparency into exposures to fossil gas and nuclear energy activities.

Despite the amendments, sustainability-focused groups continued to oppose the proposals. Sebastien Godinot, Senior Economist at WWF European Policy Office, said:

“The European Commission has allowed European governments to drag this Taxonomy Act into the gutter – and this fiasco is going to create a huge mess in financial markets. Scientifically speaking this Act is a fraud, which must be rejected to protect the credibility of the whole EU Taxonomy. No right-minded financial institution should use this Act to make its green finance decisions, since they would still be exposing themselves to the risks of greenwashing, reputational damage, stranded assets, lock-in, and legal complications.”

The proposals will now move on to the European Parliament and Council, and will formally be established unless at least 72% of member states representing at least 65% of the EU population, or a majority of the European Parliament members, object to it within 4 months.