Brussels faces lawsuits, investor pushback over green label for gas and nuclear

EuroActiv Politico News

EU lawmakers on Wednesday voted to approve a European Commission proposal to include natural gas and nuclear energy in the bloc’s list of sustainable investments — a contentious plan that attracted fierce lobbying from industry, NGOs and governments.

But if MEPs’ approval is a legislative win for Brussels, it sets up new headaches: angry investors and a potential flurry of lawsuits.

The EU’s green investment rules are meant to help channel private cash toward projects that can achieve the European Green Deal goal of net-zero emissions by 2050, which will require some €260 billion each year on top of EU funding for the first decade, according to Commission estimates.

Brussels has repeatedly come under fire for the proposal to include gas and nuclear in its list of sustainable investments — from scientists, sustainable investor groups and the Commission’s own finance advisers, who argue the rules will instead divert money from truly green projects to prop up legacy industries and allow emissions to rise further.

A total of 328 MEPs supported the proposal, with 278 objections and 33 abstentions. Another 66 MEPs failed to show up. The proposal builds on the so-called Taxonomy Regulation defining sustainable economic activities, which passed in 2020. An initial list of green labels approved last year did not include gas or nuclear.

Not long after whoops and cheers from supporting MEPs filled the plenary chamber in Strasbourg, Greenpeace and legal nonprofit ClimateEarth announced they would take legal action, saying “the inclusion of fossil gas … clashes with the EU’s key climate legislation.”

Austria and Luxembourg also announced they plan to sue the Commission, with a group of EU lawmakers including Paul Tang, who leads negotiations on the EU Green Bond Standard, and Sirpa Pietikäinen, who led talks on the original Taxonomy Regulation, also mulling legal action.

Investors were also quick to react, warning that the EU’s inclusion of gas and nuclear invalidates its pitch as the gold standard for green investment.

Financial Services Commissioner Mairead McGuinness defended the legislation, saying it “reflects a pragmatic approach so private investments in gas and nuclear, where needed for our energy transition, meet strict criteria.”

Under the new rules, countries heavily reliant on coal and fuel oil for electricity will be able to replace those plants with new, less-polluting gas-fired power through 2030 and advertise the switch as sustainable to investors on financial markets, as long as the plants switch to a clean-burning fuel like hydrogen by 2035 and respect a 20-year cap on greenhouse gas emissions.

Existing nuclear plants, which produce CO2-free electricity, will also get to be called climate-friendly if operators draw up safety plans showing where the radioactive waste will be permanently stored by 2050 and switch to so-called accident-tolerant fuels by 2025.

Liberal lawmaker Pascal Canfin, who chairs the Parliament’s environment committee, said those standards were stringent enough to pass muster.

“These energy sources won’t be put in the same category as renewables, and strict conditions are included” to avoid rising emissions, Canfin said shortly after the Parliament vote.

Gold standard in doubt

The real measure of success for the voluntary EU standard lies with financial markets — and investors have already indicated they would shun the green designations as not credible if they included gas and nuclear.

“Thinking that the inclusion of gas and nuclear in the taxonomy will enable those activities to be more easily financed is a fantasy reflecting a lack of understanding of how financial markets function,” said Thierry Philipponnat, chief economist at financial regulation NGO Finance Watch.

“Calling gas sustainable, even as a ‘transition’ fuel, will not convince climate-change conscious investors, and it will make the taxonomy lose its usefulness as a tool to orient capital flows towards sustainable economic activities,” he added.

The United Nations’ Principles for Responsible Investment (UNPRI), which represents more than 5,000 investors managing €167 trillion in sustainable assets, warned in an emailed statement that blindly trusting the EU’s green labels “could prompt fragmentation across the market and lead to potential greenwashing.”

Investors would instead have to “carefully review company disclosures to ensure that taxonomy-aligned investments reflect criteria that are science-based,” UNPRI said. That essentially invalidates the EU’s goal to cut out the extra work and develop a trusted gold standard for green finance.

The new rules are also a blow to the EU’s credibility and its ability to set a global standard, experts argued Wednesday, echoing concerns raised before the vote.

Johannes Schroeten, sustainable finance policy adviser at the sustainable development think tank E3G, said that the EU now finds itself “outmaneuvered by China, Bangladesh, South Africa, Colombia and even Russia, which have fully or partially excluded gas from their own planned” sustainable investments list.

The green finance criteria send a “poor signal to the rest of the world that may undermine the EU’s leadership position on climate action,” said Anders Schelde, chief investment officer at Danish pension fund AkademikerPension, which has some €18.8 billion assets under management.

The new rules also risk hindering the green transition by channeling money away from more sustainable options, Schelde added: “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.”