Plans for EU asset manager green disclosures meet lawmaker backlash over oil and gas exclusion

27 Apr 2020 4:22 pm by Jack Schickler

EU asset managers should have to reveal holdings in all kinds of fossil-fuel companies, not just in coal producers, under planned sustainability disclosure rules, two leading lawmakers have told MLex.

Proposals from the EU financial supervisory agencies were “out of touch” and inconsistent with EU law because they redefine fossil fuels to exclude natural gas and crude oil, the two members of the European Parliament responsible for drafting the original law said.

A consultation published last week by the EU authorities responsible for banking, insurance and securities markets would require pension funds and financial advisors to disclose their exposure to solid fossil fuels such as coal and lignite, and to publish the overall carbon emissions of their portfolio.

The EU hopes to use the heft of financial markets to redirect billions of euros in private finance away from polluting industries and towards greener alternatives like renewable energy — but the agencies’ proposal is missing the point, according to the authors of the law.

“Investors will expect that disclosures on investments in the fossil fuel sector include all fossil fuels — from gas to oil to coal,” lawmaker Paul Tang, a Dutch socialist, told MLex in an emailed statement.

“It is worrying that in this first draft, this seems not to be the case,” added Tang, who wrote the parliament's version of the disclosure regulation under which the proposals are made. The “European Parliament will carefully monitor that our basic principles are properly implemented.”

A consultation by the European Banking Authority, the European Securities and Markets Authority, and the European Insurance and Occupational Pensions Authority, open until Sept. 1, asks respondents whether disclosure obligations should be extended to sectors such as nuclear.

A spokesperson for the European Supervisory Authorities, as they are collectively known, last week told MLex that the approach was in line with another EU law categorizing the environmental performance of different economic sectors.

That law, known as the green-finance taxonomy, specifically excludes solid fossil fuels from being included in any green fund, on the grounds that they could never be sustainable.

Legislators argued that gas, though polluting, could still aid the transition to a low-carbon economy, leading ESA officials to conclude that only the likes of coal and lignite should be picked out for special treatment under financial disclosure laws.

Yet the lawmaker who negotiated the taxonomy law on behalf of the parliament believes they have got the wrong message.

“I think there they [the ESAs] missed a bit the point of what we were trying to achieve with the sustainable finance deal,” Bas Eickhout told MLex by phone, saying that the proposal was “really not in line” with the legislation agreed late last year.

“This proposal is almost going back in time, as though there’s only a problem with solid fossil fuels … it really seems to be a bit out of touch,” added Eickhout, a Dutch lawmaker from the green-left party who is also a vice-chair of the parliament’s environment committee.

“I really don’t understand their reasoning, apart from probably giving in to a lobby from some of the gas companies on their backs: that’s the only conclusion I can draw,” he said. “I think that they have been put under pressure.”

While the taxonomy law explicitly bans any “green” investment from holding coal assets, that does not give other fossil fuels the all-clear, Eickhout said: Environmentally-minded investors still need more fine-grained information about their exposures to oil giants such as Shell or BP.

The proposals from the EU authorities would “certainly get a pushback” from lawmakers, who would “do everything to prevent’ the current policy from standing, Eickhout said.

But the spokesperson for the European Supervisory Authorities told MLex in an emailed statement today that “oil and gas sectors are not “excluded” from the proposals.”*

“A financial market participant’s exposure to oil and gas sector companies would be captured by these criteria by virtue of the carbon emissions (including supply chain emissions)” of those companies, the spokesperson said.

Other indicators were limited to coal and lignite “to show that any exposure to solid fossil fuels is always considered a principal adverse impact according to the methodology in the draft [regulatory technical standard], in line with the taxonomy regulation … which states that technical screening criteria shall ensure that solid fossil fuels do not qualify as environmentally sustainable activities,” the spokesperson added.

The supervisory authorities “have not been lobbied by the oil and gas sector on this issue,” the spokesperson added, noting that the details of meetings between officials and external stakeholders were published regularly.

“This is a consultation paper, not a final report, we welcome all input from stakeholders. In question 19 we ask whether other sectors should be captured by this, such as nuclear. This could also include oil and gas,” the spokesperson said.

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