Inclusion of gas and nuclear in EU Taxonomy would ‘add more nuance to the ESG debate’, says Goldman Sachs’ research arm

Meanwhile, Net Zero Asset Owner Alliance tells RI it won’t issue a statement on European Commission’s controversial plans, despite reports

The research arm of US financial heavyweight Goldman Sachs has weighed in on the EU’s controversial plans for its green taxonomy, suggesting that the inclusion of natural gas and nuclear power in its classification system “opens the door to more nuanced views” on what constitutes green. 

On New Year’s Eve, the European Commission sent a draft legal text to member states as well as members of the EU Platform on Sustainable Finance, a 57-strong group of advisors including financial market players, academics and NGOs, with details on how it plans to classify nuclear and natural gas activities in the EU Taxonomy. 

The proposal, which would see nuclear and some natural gas activities labelled green, has prompted a strong backlash, including from $50trn investor coalition, the Institutional Investors Group on Climate Change (IIGCC), who warned the EU last week that its plan to include gas in the taxonomy “would seriously compromise Europe’s status as a global leader in sustainable finance”.

Goldman Sachs Asset Management International is a member of that body.  Goldman Sachs declined to comment on the membership of its UK-based asset manager to the IIGCC and the recent paper on the taxonomy by its research arm – which is independent of both Goldman Sachs’ corporate and asset management businesses.  

In November, Bloomberg reported that it had seen a confidential draft document from the Net Zero Asset Owner Alliance (NZAOA) in which the UN-backed body said it planned to “reject” the inclusion of gas and nuclear in the taxonomy.  

Since then, the report has been frequently referred to as a sign that investors are largely opposed to the move. But RI understands the NZAOA is not publishing a position on the gas and nuclear inclusion. A spokesperson for the Alliance, which represents investors overseeing more than $10trn in assets, told RI “there has been no letter from the NZAOA opposing the inclusion of gas and nuclear in the EU's taxonomy” and that the body is “not issuing any statement on the taxonomy”. 

In its paper, Goldman Sachs’ research arm ventured that the inclusion of certain gas and nuclear activities in the taxonomy would “add more nuance to the ESG debate”.  

Many ESG funds and ESG fund labeling schemes, it wrote, “include hardline exclusions around companies with nuclear or fossil fuel exposure that are likely to remain in place”. Therefore, “even if natural gas and nuclear are included in the Taxonomy, we see investors remaining critical of supporting such technologies outright,” it continued. But the authors added, their “inclusion into the Taxonomy would add more nuance to the ESG debate and exclusion exceptions may be made where companies with nuclear or gas exposure meet the strict Taxonomy criteria”. 

The financial giant’s team also added that the inclusion of both activities in the taxonomy would “help provide some guarantee to Europe’s volatile energy supply, especially as renewables scale” and “potentially provide an incentive for natural gas to play a larger role in Big Oil’s transition to Big Energy, helping drive an acceleration in the phasing out of coal”. 

Will Martindale, Group Head of Sustainability at European investment group Cardano, described the researchers’ position as a “misstep” on LinkedIn.  

The taxonomy, he argued, “is a disclosure tool to understand what’s green”. “It doesn’t prohibit investment in gas nor nuclear, rather it’s an environmental classification tool, and the thresholds should be science-led. Institutional investors that may not have climate resources need confidence in the classification.”

Martindale, who was formerly Director of Policy and Research at the Principles for Responsible Investment, also said that the proposed move by the EU “sends the wrong political message that gas is green” at a time when similar taxonomies are under development elsewhere such as in the UK and Canada.  

Goldman Sachs also declined to comment on Martindale’s criticisms of its research paper and a request for how much it finances both gas and nuclear activities in Europe. 

As previously reported by RI, investors sceptical about the inclusion of nuclear and gas in the Taxonomy have welcomed the Commission’s announcement that the proposed move will also come with additional disclosure rules specifically around nuclear and gas. This would effectively mean they could opt out of investments claiming Taxonomy-alignment based on their nuclear and/or gas activities.  

Philippe Zaouati, CEO of Mirova, told RI: “This clearly shows that the Commission has understood that this is essential for the taxonomy to remain a usable tool for investors.  In fact, this creates a two-speed taxonomy […] with a ‘political’ taxonomy and a ‘practical’ taxonomy,” he added. “We will ask our data providers for these figures and on our side we will only use the figure without gas and nuclear.” 

And Andreas Hoepner, Professor, Operational Risk, Banking & Finance, University College Dublin and a member of the EU Platform on Sustainable Finance, told a WWF webinar on the Taxonomy last week that the Commission’s move “is an own goal, certainly” in terms of “a usability and uptake perspective among institutional investors”. “This particular move to define nuclear and gas as green opens up a lot of opportunities for potential other jurisdictions to come up with a taxonomy that investors will eventually prefer [for] their actions,” he added.  

The European Commission’s consultation on the taxonomy proposal is closing on 21 January. It is expected to be handed to the European Parliament and Council by the end of the month who will have four months to object to it before it automatically enters into force. If adopted the new Delegated Act would apply from Jan 1st, 2023.