by N. Peter Kramer
In a draft proposal, the EU regulator ESMA (European Securities and Markets Authority) defines fossil fuels as only applying to ‘solid’ energy sources such as coal and lignite. This means that asset managers and other financial groups would have to follow tougher disclosure requirements for holdings in coal producers than for oil and gas company exposure. Politicians and investors have hit out at ESMA’s ‘ludicrous’ exclusion of oil and gas from a definition of fossil fuels, saying it will lead to understate their environmental risks. Analysts say making a distinction between liquid and solid fossil fuels was ‘quite ludicrous’ and would not ‘reflect well’ on the fund industry.
The rise in popularity of environmental investing over the last years has prompted regulators to take measure to confront the risk of ‘greenwashing’. But the draft proposal means a watering down of EU’s ambitious sustainable disclosure rules. Paul Tang, one of the MEPs who drafted the original law, told the Financial Times it goes against the rules’ aim. ‘Excluding oil and gas from the definition of fossil fuels is everything but straightforward, it set to confuse the market and opens the door to greenwashing’, he said. A financial sector strategist said that the EU regulator’s proposal was ‘like disclosing the amount of fat in a chocolate bar but failing to mention the sugar content’.
The warning by critics makes clear that singling out coal, risks painting a false picture of asset manager’s exposure to dirty fuel. Some fossil fuels have indeed a role to play in the transition to a net zero carbon economy, but all emit greenhouse gases or combustion.
