Adding gas to taxonomy could damage green bond credibility, EU warned

The inclusion of nuclear and gas would risk the EU taxonomy becoming less stringent than existing green bond standards and other green taxonomies.

The €93 billion Pensioenfonds Metaal en Techniek (PMT) will think twice before investing in EU green bonds that include exposure to natural gas, the fund’s CIO has warned.

“I think we will be very hesitant to invest in green bonds containing gas,” said Hartwig Liersch. “Of course, our decision will always depend on the information and details of the investment, but we will be very hesitant to do so.”

The comments were made at a European Parliament hearing on the proposed reclassification of nuclear energy and natural gas as green activities under the EU taxonomy – the third held on the subject to date. These discussions give MEPs the chance to receive input from a panel of experts ahead of an official vote to endorse the controversial changes to the taxonomy, currently scheduled for 14 June.

Liersch, who represented Holland’s largest private sector pension fund and the investment sector more broadly on the panel, clarified that while PMT is invested in companies that are run on nuclear energy, it is not directly invested in nuclear energy generation or its related infrastructure.

“We are currently looking into the risks and returns of nuclear energy compared to something like green hydrogen,” he said. “The question is also whether you really need pension money to be invested in this.”

Liersch’s remarks were echoed by the European Investment Bank’s climate change chief Nancy Saich, who said the bank would continue to use its in-house emissions threshold of 100g CO2e/kWh to define green investments – a limit that would exclude gas-fired power.

“My understanding from my capital markets colleagues is that investors are extremely clear that they do not want to see gas or nuclear in green bonds,” she said. “We sell a huge number of green bonds and sustainability awareness bonds, so I think that signal is clear for us.”

The inclusion of nuclear and gas within the taxonomy, which was proposed last year following pressure from EU countries dependent on the two energy sources, has been widely criticised for a perceived inconsistency with the taxonomy’s science-based approach and its underlying principle, which requires green activities to do “no significant harm” to environmental objectives.

Any revision of the taxonomy will be hugely influential for bloc-wide standards governing green investment products, including the EU’s flagship Green Bond Standard and Ecolabel, a sustainable fund label currently under development by the European Commission.

Sebastien Godinot, an economist for WWF who spoke on the same panel, said: “If the EU proceeds with this, the EU taxonomy would do worse than the common green bond market globally, which excludes gas and nuclear entirely. And that means the EU taxonomy could threaten the green credentials of the green bond market itself.

“In addition, there are already taxonomies developed in other jurisdictions such as China, Columbia, South Korea and by the ISO, which all have stricter criteria than the EU taxonomy, either on gas or on nuclear or on both. So that means there are already taxonomies elsewhere which are more ambitious and more demanding than the EU one.”

The hearings follow recent recommendations by the EU’s taxonomy advisory panel to create an extended “amber” taxonomy, covering intermediate activities that are neither green nor harmful, including potentially nuclear and gas. The Commission has not responded publicly to the proposals.

Referencing investor feedback from the recent RI Japan conference, Godinot said several people had raised the issue that “gas and nuclear would be more relevant in an amber taxonomy and not in a green one”.

Find out more about this topic from industry leaders at the RI Europe 2022 conference, taking place in person in London on 14-15 June.