* Any views expressed in this opinion piece are those of the author and not of Thomson Reuters Foundation.
As the EU sets out its green guidance for investors it is considering labelling fossil fuel gas a green energy source – a grave mistake
By Caio Koch-Weser
Caio Koch-Weser is chair of the European Climate Foundation’s advisory council. He is former vice chairman of Deutsche Bank Group and former Deputy Minister of Finance in Germany.
If money talks, the rise of green finance is the loudest signal yet that the world is facing up to the climate crisis. As climate-friendly investments become a better bet, shifting capital towards zero or low emissions assets is the new norm.
But in these times of transition, we’re at risk of taking two steps forward, one step back.
As the smart money goes green, gas companies and financial institutions with fossil assets in their portfolios are looking for shortcuts that ‘greenwash’ fossil fuels as sustainable.
Greenwashing means diverting money to the wrong assets and delaying critical climate action - so responding to it is a major challenge for policy-makers. The EU is approaching a decision that puts it at a crossroads: deal with greenwashing, or fall behind.
The EU Taxonomy for sustainable finance is an opportunity to shift trillions into accelerating decarbonisation.
It’s a classification scheme for investments intended to provide tangible guidance to financial actors and investors by distinguishing genuine climate-friendly investment from greenwashing.
But it’s not yet clear if the EU will seize this opportunity, or back down in the face of the lobbies who want to delay action.
It is deeply worrying that the EU is considering classifying gas - the polluting fossil fuel that scientific consensus agrees needs to stay in the ground - as a sustainable investment in its taxonomy.
In the next few days, their proposal will be published by the European Commission for final approval by the European Parliament and the EU Member States.
This must not happen. Real climate leadership from the EU must exclude gas from the green investments list. Labelling gas as green would ignore science, reduce the taxonomy’s credibility with investors, and tarnish the EU’s climate reputation.
There is consensus from experts, world leaders, and investors that gas is not green. The International Energy Agency says we cannot invest any more in new fossil fuel exploration, including gas.
Investors have already sent warning shots: a leaked document from the UN-convened Asset Owners Alliance, an international group of 60 institutional investors representing more than $10 trillion in assets under management, warned that including gas would be inconsistent with the high level of ambition of the EU Taxonomy.
If the EU’s rulebook is too weak, they’ll need to find a new one. The governments of Spain, Luxembourg, Austria, Ireland, Denmark and more recently the Netherlands have already taken a stand against fossil fuels in the EU Taxonomy.
Ruling gas as “green” is cheating. No investor chooses a ‘green’ portfolio expecting that their ‘sustainable’ pension plan is actually funding destructive gas exploration.
Instead, EU leaders should guide financial markets, world leaders, and millions of individual investors with a robust green taxonomy that excludes fossil fuels.
If the EU Taxonomy rules that gas is not green, this won’t ban investments in unavoidable gas projects, or prevent national governments from funding them. Some gas will be needed in the transition, especially in regions where it can substitute coal in local heating, improving air quality.
As EU policy-makers make this decision, they have a simple choice to make: lead, or be left behind.
The EU can either set the gold standard that global investors will use, or set mediocre thresholds that will quickly become irrelevant.
Financial institutions will only use credible criteria, and the smart money will ignore political decisions that are influenced by vested interests.