European fund managers of sustainable portfolios who have, heretofore, shunned nuclear power and natural gas and LNG can now invest in those energy stocks with a clear conscience.
The EU Parliament this week voted to include both natural gas and nuclear power as sustainable energy sources in its taxonomy, which defines what is green and clean and what isn’t for pension fund managers and other asset managers that have sustainable portfolios – sometimes known as ethical investments, or ESG investments (environmental, social and governance).
The additions may have been driven by the energy crisis currently gripping Europe -- a crisis that was looming even before Russia invaded Ukraine and made it worse. Adding natural gas and nuclear power to the taxonomy allows investment portfolios that include them to be marketed as green and sustainable.
The change could have implications for the natural gas industry, said Mike Thiessen, director of sustainable Investments for Genus Capital Management.
“It really could open up a large sum of money, because there’s a large amount of money in Europe that is classed as green investments or green funds, and so now they’re open to investing in natural gas,” Thiessen told BIV News.
“I don’t think it’s going to be a huge wave of investment into natural gas, but it does really open it up and make these products more versatile.
“We will likely have something similar to this soon in Canada,” he added, “just so that there is clarity with investors around what they’re actually getting into and that there’s clarity with fund managers to know what they can call green and what they can’t call green.”
The EU’s taxonomy defines what is sustainable and what isn’t. The Intergovernmental Panel on Climate Change’s Working Group 3 has defined natural gas a “bridge technology” that can reduce greenhouse gas emissions by 50%, if it replaces coal in power generation.
But natural gas is a fossil fuel, and some environmental purists will likely continue to lump it in with coal and oil. Despite the EU’s new taxonomy, Thiessen said some fund managers will probably continue to abjure natural gas.
It’s worth noting that the EU taxonomy specifies that natural gas is only considered green if it is used to replace dirtier energy sources, like coal power.
Asked what he thinks the EU's taxonomy might mean for Canada’s natural gas industry, Thiessen said it could mean more investments in Canadian companies.
“It will open up more capital to possibly go into natural gas,” he said. “All this European capital that, before this change, wasn’t able to go into natural gas now could possibly be invested in projects.
“For Western Canada there could be additional capital. I still think a lot of sustainable funds in Europe will decide probably not to include natural gas, but I think many of them will, especially right now with energy independence being such a big deal.”
Thiessen said Canadian securities regulators have been working with asset managers to come up with a Canadian taxonomy similar to Europe's.
