The taxonomy is part of the European Commission's plan for financing sustainable growth and boosting green investments while also tackling greenwashing.
The European Union set a goal of being climate neutral by 2050, and by 2030 reducing greenhouse gas emissions by at least 55% from 1990 levels.
On Feb. 2, the EC added nuclear and natural gas to its taxonomy for transitioning to lower-carbon energy sources. The taxonomy is a classification system to determine which economic activities can be considered sustainable, in an effort to channel private capital into the green energy transition.
At the time, European Commissioner Mairead McGuinness acknowledged the controversy over adding nuclear energy and gas but said it was needed to provide clarity to the financial sector on sustainable investments, and that the transition to lower-carbon sources "may mean accepting imperfect solutions."
Ms. McGuinness oversees financial services and financial stability for the EC said investors can choose not to buy nuclear or gas energy investments.
The conditions for adding them include encouraging advances in safety standards and waste management for nuclear, and for gas, limiting emissions and requiring high-emitting facilities to be replaced or made compatible with low-carbon fuels.
Groups including the Federation of the Dutch Pension Funds appealed to the European Commission to base the taxonomy on scientific recommendations over concerns that political interference from some EU countries where nuclear energy or natural gas are prevalent would undermine the reliability of the taxonomy.
Anders Schelde, CIO of the 134 billion kroner ($19 billion) pension fund AkademikerPension, Gentofte, Denmark, said in an emailed statement: “In our view, fossil gas and nuclear should not have access to the same cheap financing as renewables as this inevitably will crowd out financing for the green transition, thus making its progress slower.”
Eric Christian Pedersen, head of responsible investments for Nordea Asset Management in Denmark, said that especially including gas will not help establish the taxonomy as a global framework and could potentially misdirect government and bank lending. For institutional investors remaining committed to Paris-aligned portfolios, “tinkering with the taxonomy is likely to not have much effect on allocation there,” Mr. Pedersen said.
In February, officials in Austria, Denmark, Germany, the Netherlands, Sweden also expressed their disapproval.
Several European countries and environmental groups pledged to file legal challenges, but unless the European Council objects by July 11, the new taxonomy will go into effect.
