Commentary

ICYMI, Nobody’s Perfect

Energy prices undermine ability of European and UK politicians to follow scientific advice.

On Wednesday, Mairead McGuinness, European Commissioner for Financial Services, admitted to imperfection. Not her own, you understand, but that of her ward, the EU’s Taxonomy Regulation. To investor groups, NGOs and many others, the proposed grafting of gas and nuclear energy onto the taxonomy was akin to turning this hitherto pure green body into a Frankenstein-like creation, a monstrous affront to nature.

McGuinness did not see it that way. “This is about classifying under what conditions we believe that nuclear and gas can be accommodated with conditions in the transition category of the taxonomy,” she said on Monday. “It is up to the investor community … to decide if they use those standards.”

When formally proposing the Complementary Climate Delegated Act, McGuinness acknowledged the sullied green giant was “imperfect”, but insisted objections had been taken on board. “All have been heard, have been listened to,” she said.

Commission Veep Valdis Dombrovskis said gas and nuclear “can act as bridge to a greener energy system as transition activities”. So they can, but that’s insufficient reason to label them sustainable, warned Nathan Fabian, Chair of the EU Platform on Sustainable Finance (PSF), the Commission’s official advisory body.

Fabian noted the Commission’s selective attention to feedback, resulting in weakened technical screening criteria, but improved disclosure requirements. His warning that leaving the science behind would damage the Commission’s credibility and confuse investors was echoed by the Institutional Investors Group on Climate Change. CEO Stephanie Pfeifer said investors would need to look beyond the taxonomy to align with net zero and noted “knock-on implications for disclosures made by investors under SFDR”.

The remaining four-month approval process could be rocky, with MEPs and some member states implacably opposed, and legal action a possibility. But an unholy alliance of pro-gas and pro-nuclear governments stacks the numbers in favour of approval. Where this leaves the PSF’s proposed ‘brown’ taxonomy extension is anyone’s guess.

Member states’ views were no doubt influenced by the energy price crisis which conflated with domestic political turmoil on the other side of the English Channel to further destabilise the UK government and its Net Zero Strategy. A 50% rise in energy bills is being blamed on emissions reduction targets rather than gas supply and demand factors, set out clearly by the International Energy Agency, among others.

Having been convinced by government scientists that a sustainable future could be his legacy, UK PM Boris Johnson could follow the mistakes of predecessors by ditching “the green crap” to save his skin, despite the strong economic and environmental evidence for long-term planning and against fossil fuel subsidies.

How much long-term planning was involved in Shell’s dividend hike and buyback scheme is open to debate. Such moves might keep investors sweet as the firm prepares for the renewables transition ahead, but capex and strategy remain at odds with the priorities of institutions such as LGPS Central and Scottish Widows, which both confirmed net zero targets recently.

It’s long been clear that 2022 would see hard decisions, for policymakers, corporates and investors. Nobody’s perfect of course. But, as some in the mining sector are beginning to appreciate, transparency on environmental and social impacts must be baked into all net zero plans and strategies if stakeholders are to buy into the just transition.

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