The bosses of three leading investor groups have published an open letter to the UK government expressing strong opposition to the possible inclusion of natural gas projects in the UK’s proposed ‘Green Taxonomy’.
The planned ‘Green Taxonomy’ aims to mirror a similar EU move to establish a common framework for defining which investments and assets can be defined as environmentally sustainable, overseen by the Green Technical Advisory Group (GTAG) on behalf of the government.
But both the UK and EU plans have become mired in controversy over the prospect of natural gas and nuclear projects being officially classified as ‘green’.
The new letter – published by the CEOs of the Institutional Investors Group on Climate Change (IIGCC), Principles for Responsible Investment (PRI) and UK Sustainable Investment and Finance Association (UKSIF), which together represent some of the UK’s biggest financial firms – comes In response to recent media reports that the UK government is actively considering including natural gas in the taxonomy so as to encourage investment in new gas projects that Ministers maintain would help bolster energy security at a time of rising prices.
Business Secretary Kwasi Kwarteng is said to be “keen” on ensuring gas projects qualify for the taxonomy, according to Responsible Investor magazine.
The move also comes as the long-running row over whether or not gas projects should be included in the EU’s planned taxonomy took another twist when a coalition of MEPs recently voted to reject the proposals, setting up a major showdown with the European Commission.
In their open letter the CEOs of IIGGC, PRI, and UKSIF argue they believe classifying gas assets as ‘green’ would damage the credibility of the UK’s taxonomy for many investors, while seriously damaging the UK’s leadership position on sustainable finance for years to come. Short-term considerations around how best to bolster energy security should not be conflated with the taxonomy, they added, arguing that including gas risked sending “misleading signals to investors” at a time when they need greater clarity.
“The fundamental objection to natural gas being included in the taxonomy is that it is not green,” said Stephanie Pfeifer, CEO, IIGCC. “The taxonomy is meant to be a science-based tool to define ‘green activities’ and thereby provide clarity to investors over which of their investments – both current and prospective – can be considered green. There may be a legitimate role for natural gas as a ‘bridge’ during the energy transition, but this should not be interpreted as gas equating to green.”
David Atkin, CEO at the Principles for Responsible Investment, agreed that UK’s taxonomy could and should aim to demonstrate maximum alignment with a science-based transition even if some use of natural gas in the UK would be necessary as part of the shift towards a net zero emission economy.
“Ambition is necessary to global efforts to tackle the most damaging effects of climate change,” he said. “The UK government has an opportunity here to demonstrate world-leading ambition on climate by ensuring that its taxonomy does not encompass natural gas activities. Our global approach to climate change must be rooted in realism and as such we should recognise that natural gas may have a role to play in facilitating the transition in the long term.”