Supervisors plan public hearing on EU disclosure regulations amid backlash over fossil fuel definitions

Investors, service providers and civil society sound alarm over omission of oil & gas in new standards

EU market regulators are to hold a public hearing on new sustainability disclosure requirements which have been criticised for excluding oil & gas from their definition of fossil fuels.

Under recently-released draft technical standards, which set out the scope of sustainability‐related disclosures in the financial services sector, asset managers and others have to disclose their exposure to “solid” fossil fuels such as coal and lignite – but not oil & gas.

Despite the high carbon emissions associated with coal, oil & gas remain the largest contributor to global emissions. Recent analysis by HSBC described lowering oil production volumes as “the single most impactful lever” to bring down the carbon intensity of the energy sector.

The hearing is part of an ongoing consultation on the disclosure standards, organised by the three European Supervisory Authorities: the European Securities and Markets Authority, the European Insurance and Occupational Pensions Authority and the European Banking Authority. Respondents have until September to participate.

“This hearing is important because the framework is still under discussion and could really benefit from investor feedback” Ladislas Smia, Mirova

Nico Fettes, Head of Climetrics at CDP, described the draft standards as “falling short of investor-led climate disclosure standards” such as those endorsed by the Taskforce for Climate Related Disclosures (TCFD) and the CDP.

Fettes said to RI: "The TCFD explicitly makes sector-specific recommendations for both the coal and the oil & gas industries, particularly around carbon reserves as a major stranded assets risk, and since 2018 CDP has also provided investors with sector specific data for both coal and oil & gas companies.

“Excluding oil & gas exposures from the Sustainable Finance Disclosure Regulation could undermine the goals of increasing transparency in these high impact sectors."

Data relating to oil & gas exposures are particularly material for sustainability-focused investors and service providers.

David Harris, sustainability chief at FTSE Russell and a former member of the expert group whose early recommendations formed the basis of the EU Sustainable Finance Action Plan – under which the Disclosures Regulation falls – said that data on oil & gas exposure are increasingly being used by investors and index providers to ‘tilt’ passive portfolios. FTSE Russell currently factors in the equivalent emissions of all reported oil & gas reserves, in addition to coal reserves, when developing index solutions.

Ladislas Smia, Co-Head of Responsible Investment Research at French sustainability specialists Mirova, said the forthcoming disclosure standards were due to have “a strong impact” on how asset managers communicate product sustainability to clients.

“This hearing is important because the proposed framework is still under discussion and could really benefit from investors’ feedback,” he said.