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Plans for EU taxonomy: How much nuclear power is in green funds

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Plans for EU taxonomy: How much nuclear power is in green funds

Status: 01/14/2022 11:12 a.m

The German financial sector is concerned about the EU’s plans to approve nuclear energy as “green” energy. Confidence in sustainability funds could fall. In most of the funds, nothing should change in dealing with nuclear power.

By Notker Blechner, tagesschau.de Many in the German fund industry are angry about the push from Brussels on the EU taxonomy. The political compromise has caused great damage to sustainability funds in terms of credibility in public, says Roland Kölsch, Managing Director of the Forum Nachhaltige Geldanlagen (FNG). The treatment of nuclear energy as “green” energy “destroys any trust of environmentally conscious investors in the seal of approval for sustainable investments,” complains Thomas Jorberg, head of GLS Bank, Germany’s oldest social-ecological bank.

Boom for sustainable investments

The product suppliers fear that the European guidelines could slow down the sustainability boom. In recent months, the demand for sustainable investments has increased more than ever. According to the FNG, the volume of sustainable investments in Germany rose by 25 percent to around 335 billion euros in 2020. Last year there were further double-digit growth rates. The supply has increased significantly. New sustainability funds are launched almost every day. The number of these funds has already doubled to 2721 in the first half of 2021. At the end of 2020 there were still 1417 sustainability funds.

“Nuclear energy remains taboo for most!”

However, many providers assert that the new Brussels rules will not change their investment strategy. “Nuclear energy remains taboo for most funds sold in Germany,” says Kolsch. He doesn’t expect fund managers to increase the proportion of nuclear energy in their ESG portfolios. “The preliminary EU decision has no impact on our financial products,” explains Ingo Speich, Head of Sustainability at Deka, the savings bank fund company, to tagesschau.de. “Our filters for sustainable financial products remain as they are. We are not extending them to companies from the nuclear sector.”

Some funds exclude nuclear power altogether

Several societies have long since banned nuclear energy. The Fürther green benefit, for example, has completely ruled out nuclear energy since the launch of its eco-fund in 2015 – alongside armaments, alcohol, gambling and child labor. Managing director Klaus Thurn told tagesschau.de that nothing would change with a political compromise in the EU taxonomy.

Most funds limit the share to five to ten percent

However, most “green” funds cannot do entirely without nuclear energy. The majority of ESG providers remain open to investing in companies that make some, albeit a very small part, of their money from nuclear power plants. They limited nuclear energy. Fund companies such as DWS and Deka only allow shares in companies that do not generate more than five percent of their turnover from nuclear energy. At DWS, they want to examine the decision from Brussels on the taxonomy “and make the necessary adjustments to the funds,” said Dennis Hänsel, head of sustainable investment solutions, to tagesschau.de. He cannot say anything about the specific design at this point in time. However, it is to be feared that investors from less nuclear-critical countries, with reference to the EU taxonomy, will increasingly want ESG funds from providers that include shares in nuclear power operators.

How are Anglo-Saxon funds reacting?

Above all, this could become a weighing problem for globally active Anglo-Saxon fund companies such as Blackrock or Fidelity with a global product range. So Fidelity International, which is strongly represented on the German market, wants to wait and see. A spokesman emphasizes that it is too early to say what the EU requirements mean in concrete terms, especially at the product level. All ESG Fidelity funds licensed in Germany are set up in Luxembourg. More than half of all mutual funds sold in Germany are already set up in the Grand Duchy. It remains to be seen whether the Luxembourg authorities will impose conditions for nuclear energy in sustainability funds.

BaFin is considering a limit of ten percent

The question of what position the German financial regulator BaFin takes on the EU taxonomy will be exciting. It can determine the criteria for private customer sales in Germany via the financial market directive Mifid II. In its draft guidelines for sustainable investment funds, BaFin set a limit of ten percent. This means: ESG funds may include companies that generate up to ten percent of their sales with nuclear power. That sounds much softer than the restrictions of various fund companies. Of course: Shares from pure nuclear power plant operators like the French EDF are as good as excluded from German sustainability funds. On the other hand, stocks from companies that stand out for their high energy consumption or that rely on fossil fuels such as oil are represented in many “green” funds. The organization Finanzwende recently complained that large oil companies such as Shell, BP and Exxon Mobile are represented with investments in the millions in sustainable portfolios.

“Best-in-class” approach allows Shell and BP

The fund providers point out that these companies are ecological pioneers in their sector. Because most sustainability funds are based on the so-called “best-in-class” principle. Accordingly, the companies are selected that perform best compared to their competitors in terms of environmental, social and corporate governance (ESG). Only a few providers such as Ökoworld or green benefit focus exclusively on eco shares. This often gives the impression that not everything in “green” funds is “green”.

Different national seals

The EU taxonomy could lead to sustainability funds becoming even more opaque across Europe. There is already a patchwork of national seals. Germany has the FNG seal. There is no globally recognized and binding seal of quality for sustainability. “Unfortunately, this means that some providers are still greenwashing,” regrets Werner Hedrich, Germany head of sustainable asset manager Globalance, which offers ESG funds and an analysis tool that measures the footprint of each individual investor’s portfolio. In addition, there are different categories for ESG funds in Germany. There are funds with low sustainability requirements (according to Article 6 of the EU Disclosure Regulation) as well as “light green” funds that integrate ecological and social criteria (Article 8) and “dark green” funds according to Article 9. That it is difficult for private investors to see things through fund experts and bank advisors also concede.

Will the breakthrough come in August?

The fund industry hopes that there will be more clarity and uniform criteria for “green” funds by the summer. Because from the beginning of August, bank advisors are obliged to ask their customers about their sustainability preferences when dealing with securities. That could trigger a new boost for eco-funds. According to surveys, almost a third of the population is still undecided as to whether they want to invest their money sustainably. Only around 31 percent categorically reject sustainable investment products.



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