Natural Gas, Nuclear Could Be "Transitional" Green Energy Sources

The transition to clean energy sources from fossil fuels will be long and slightly painful, but some are highlighting the potential for natural gas and nuclear energy to act as a stopgap to help make the change more bearable.

The European Union plans to include nuclear and natural gas in its ranking of sustainable investments, CNBC reports.

The European Commission is outlining a green classification system, or taxonomy, aimed at making sustainable investing more transparent to help financial markets more clearly define socially responsible, green investments.

While the nuclear and natural gas categorization has been sharply censured, the commission argued that both sources are means to “facilitate the transition towards a predominantly renewable-based future.”

Some investors are not keen on the idea, warning that the changes could make things more confusing or lead to greenwashing.

“It will create some confusion for allocators,” Francesco Filia, CEO of Fasanara Capital, told CNBC.

Filia warned that the EU’s attempts to label nuclear and gas as “transitional” sustainable investments are hard to understand, since they also appear to be a tacit acknowledgment that these energy sources are not actually sustainable for the long term.

Isobel Edwards, green bonds analyst at asset manager NN Investment partners, noted that investors want more aid from regulators and lawmakers with disclosure rules on sustainable investment factors. The lack of standardized reporting so far has made it more difficult for money managers to compare investment opportunities, especially among various fund offerings that track varying definitions or sustainability rankings.

The greater clarification on definitions comes at a time when sustainable investing gains are increasing in prominence around the world. The MSCI World ESG Leaders’ index gained about 20% in 2021, its best annual gain ever, according to Reuters.

Fabio Ranghino, head of strategy and sustainability at asset management firm Ambienta, argued that the EU’s new taxonomy is not confusing.

“For us, nuclear is not a bad word, it is about managing waste,” Ranghino told CNBC, adding that the nuclear projects built today are much more modernized than ones built in the 1950s.

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