‘Rethinking of SFDR reporting’ required if EU Taxonomy includes gas and nuclear, says Eurosif

European sustainable investment industry body and PRI both flag risks around including nuclear and gas in EU Taxonomy as political debate intensifies

Classifying gas and nuclear as green or transitional activities under the EU Taxonomy will result in less transparency for investors and could require a rethink on reporting under the EU’s Sustainable Finance Disclosure Regulation (SFDR), Europe's sustainable investment forum has said today.  

Including the controversial activities in the Taxonomy will result in “undermining confidence in sustainable investment fund disclosures” as it would mean they would be disclosed as Taxonomy-aligned by investment funds under the SFDR, the industry association said in a statement.  

Eurosif explained that while Taxonomy reporting rules under the SFDR require investors to disclose whether activities invested in are transitional (which gas and nuclear could be classified as under the Taxonomy), they do not require investors to disclose specifically which sectors these activities are in.  

“It will be complicated for investors to distinguish between an investment fund with a 5% alignment composed of renewable energies and another fund with 5% alignment coming from natural gas and nuclear energy assets, with little ability to understand that difference under the current reporting rules,” it said.  

“This would result in less transparency, a greater risk if misselling and potentially putting ambitious sustainable investment strategies at a disadvantage compared to more conventional investment strategies,” it added. “This outcome cannot be in line with the initial policy intent. Therefore, any inclusion of natural gas and nuclear energy would require rethinking the SFDR reporting.”  

This comes as the EU is under increasing pressure to include nuclear and gas in some way in the list of sustainable economic activities defined by its Taxonomy regulation, despite concerns about nuclear waste and water usage and the International Energy Agency’s Net Zero 2050 pathway saying no new gas plants can be built and existing plants need to be phased out in the OECD by 2035. 

Political discussions around the Taxonomy’s future are continuing to intensify as Member States on 7 December will vote on the first set of climate rules (that exclude gas and nuclear), while the Commission is expected to soon publish a long-awaited additional set of climate rules for gas and nuclear power.  

Last week, Austria’s energy and climate minister Leonore Gewessler said the government is prepared to sue the EU if it moves ahead with plans to include nuclear power in the Taxonomy, while the Finnish government announced it will vote against the first set of rules because of concerns around rules around forestry and bioenergy being too stringent.  

Notably, Eurosif said member states should approve the delegated act regardless of the decision on gas and nuclear. “The adoption of the act is essential for the EU sustainable finance architecture to function properly: companies need it to start their reporting, financial institutions to start reporting how their SFDR financial products align with it and for financial advisors to appropriately advise investors on sustainable investment options.” 

Meanwhile, the Principles for Responsible Investment (PRI) has again weighed in on the Taxonomy’s future saying including criteria for gas-fired power and nuclear energy in the list of sustainable economic activities “is the wrong approach”. It has published paper reiterating comments it made in a Euractiv article last month, saying that “the inclusion of gas-fired power would seriously compromise the EU Sustainable Taxonomy’s ability to act as an independently and scientifically designed tool for guiding investment into environmentally sustainable activities in line with the EU’s goal of reducing emissions by at least 55% by 2030”.  

The PRI says it recognises both gas and nuclear are needed in the near term, but highlights that energy policy considerations and defining green activities under the Taxonomy are two different policy questions. 

“The European Commission and EU member states should therefore explore possible alternatives, developing a framework that recognises gas-fired electricity and nuclear energy as short-term transition activities towards reaching net-zero emissions by 2050,” it added. One such option would be to extend the Taxonomy to have a separate list of intermediate economic activities and transition pathways, as per a proposal set out in a draft report by EU advisors in the Platform on Sustainable Finance, the PRI said.