Traders, politicians and campaigners have hit out at EU regulators’ “ludicrous” exclusion of oil and fuel from a definition of fossil fuels, arguing it should lead asset managers to understate their environmental dangers.
Underneath draft proposals for the EU’s sustainable disclosure regime, the European authorities liable for banking, insurance coverage and securities markets outline fossil fuels as solely making use of to “stable” vitality sources resembling coal and lignite.
This implies asset managers and different monetary teams must comply with harder disclosure necessities for holdings in coal producers than for oil and fuel firm publicity.
The large rise in recognition of ESG investing over the previous decade has prompted regulators to take measures to confront the danger of greenwashing.
The newest EU proposals symbolize a big watering down of its formidable sustainable disclosure guidelines, which goal to present finish buyers clear data on the environmental, social and governance dangers of their funds.
However critics additionally argue they danger undermining the EU’s dedication to turning into a world leader in sustainable finance, a key precedence for the bloc because it seeks to tie the coronavirus restoration to creating a greener economy.
Sébastien Thevoux-Chabuel, ESG analyst at $37bn fund group Comgest, mentioned making a distinction between liquid and stable fossil fuels was “fairly ludicrous” and would “not replicate nicely” on the fund trade.
Paul Tang, one of many MEPs liable for drafting the unique legislation, mentioned the proposals went in opposition to the principles’ goal to supply easy-to-understand data to buyers. He added: “Excluding oil from the definition of fossil fuels is every little thing however easy. It’s set to confuse the market and open the door to greenwashing.”
The European Securities and Markets Authority, one of many three branches of the EU’s monetary supervisory our bodies, mentioned that asset managers weren’t utterly exempt from revealing their holdings in oil and fuel firms, noting that their publicity can be captured beneath the requirement to reveal “excessive emission fossil gas firms”.
Nonetheless, managers will likely be topic to higher disclosure obligations for his or her coal holdings “to point out that any publicity to stable fossil fuels is at all times thought of a principal hostile influence”. That is in step with the EU’s new classification system for environmentally sustainable investments, which states that stable fossil fuels can by no means be deemed as “inexperienced”.
Critics warned that the singling out of coal risked portray a false image of asset managers’ publicity to soiled gas.
Rick Stathers, senior ESG analyst at Aviva Traders, mentioned: “Whereas some fossil fuels have a job to play within the transition to a web zero carbon economic system, all emit greenhouse gases or combustion.”
Throughout the transition to scrub vitality, buyers “will need to know their publicity to all fossil fuels, in order that they’ll perceive the carbon danger of their portfolios and the way it contributes to local weather change”, mentioned Mr Stathers.
Wolfgang Kuhn, director of monetary sector methods at accountable funding group ShareAction, mentioned that the EU regulators’ proposal was “like disclosing the quantity of fats in a chocolate bar, however conveniently failing to say the sugar content material”.
Based on Mr Kuhn, the exclusion of oil and fuel “might, at greatest, lead to an underestimation of the true funding danger, and at worst, contribute to additional help for vitality sources incompatible with Paris targets”.
Inexperienced MEP Sven Giegold described the proposal as “extremely deceptive”, saying that the latest drop in oil costs had laid naked the monetary dangers of being uncovered to stranded belongings.