EU regulators propose greater disclosure for gas and nuclear
European Commission to decide whether to approve new standards for improving transparency of financial products in coming months.
Greater disclosure of investors’ exposure to fossil gas and nuclear energy could allow investors to make more informed decisions under new proposals from European regulators.
Earlier this week, the three European financial supervisory authorities – the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA) – published regulatory technical standards (RTS) for disclosure of fossil gas and nuclear energy.
The inclusion of a yes/no question in fund templates of the Sustainable Finance Disclosure Regulation will identify whether managers intend to invest in gas and nuclear activities.
Beverley Gower-Jones, managing partner of the Clean Growth Fund, said greater transparency would make negative screening easier. However, it will be down to fund managers whether the yes/no tick boxes influence investment decision-making.
She said: “Currently pension fund managers do not have to ask individuals whether they want to put their money into funds that invest in fossil fuel projects.
“The yes/no tick box could be the first step towards a joined-up decision-making chain with the person whose pension it actually is.
“At the moment, that chain is broken because the fund manager makes the investment decisions but if the individual were asked if they wanted to invest in fossil fuel projects then the yes/no tick box would enable the fund manager to channel the funds according to the individual's wishes.”
The European Commission will now have three months to scrutinise the draft RTS.
At one point, gas was talked about as a transition fuel, but those days are gone. It's absolutely clear that we need to build more renewables.
How long a transition?
The new standards have raised questions over whether fossil gas and nuclear energy should be considered transition fuels at all, however.
The Clean Growth Fund’s Gower-Jones said the recent invasion of Ukraine by Russia and the subsequent threats to energy security show the importance of reducing dependence on gas.
She said: “At one point, it was talked about as a transition fuel, but those days are gone. It's absolutely clear that we need to build more renewables and the war in Ukraine has accelerated this. It’s clean energy, not fossil fuels, that hold the key to energy security.
“All three elements of the energy trilemma, security, affordability and sustainability, are pushing in the same direction, and we can double down on building proven, scalable clean solutions.”
Meanwhile, Ingrid Kukuljan, head of impact and sustainable investing at global asset manager Federated Hermes, said nuclear “should form a meaningful part of the regional and global decarbonisation strategy”.
She said: “As well as providing clean energy, nuclear offers some advantages over renewables.
“Nuclear provides a reliable and baseload power source which can continuously meet the minimum level of energy demand. Renewables, however, are intermittent and dependent on daylight and unpredictable weather.”
Kukuljan said the perception of nuclear energy has been improving more recently leading to its classification as a “sustainable activity” by the EU taxonomy earlier this year.
