- Paul Tang is among the members of the European Parliament trying to prevent the inclusion of gas and nuclear in the EU green taxonomy.
- He also wants to see the Sustainable Finance Disclosure Regulation revised and corporate transition plans independently reviewed, and is helping develop the green bond market.
- Tang has strong views on what needs to be done to strengthen regulation of sustainable finance and is not afraid to air them.
Natural gas has shot up the news agenda in Europe this year, driven above all by the war in Ukraine and debate over the EU’s green taxonomy.
Russia’s invasion of its neighbour on 24 February has prompted urgent conversations about Europe’s reliance on fossil fuel from Russia and driven efforts to cut imports as spiking gas prices contribute to fast-rising inflation and a growing cost-of-living crisis.
Earlier that month came the revelation that the European Commission had bowed to pressure from certain member states to include gas and nuclear power in its EU taxonomy, much to the ire of environmental groups and some Members of the European Parliament (MEPs).
One was Dutch politician Paul Tang, who has represented the Labour Party, part of the Socialists & Democrats alliance, in the European Parliament since 2014 and is well known and respected for his work on tax and, more recently, sustainable finance.
Opposing gas and nuclear taxonomy inclusion
Hence a 14 June resolution voted for by 76 MEPs (with 62 against and four abstentions) of the Committee on Economic and Monetary Affairs – including Tang – to object to the controversial inclusion of both fuels in the list of environmentally sustainable economic activities.
“The vote is a strong message to the [European] Commission: this parliament will not accept institutionalised greenwashing,” Tang said in a statement on the same day, as shadow rapporteur on behalf of the Socialists & Democrats group on the EU taxonomy.
“This vote allows us to reduce our dependency on Russian gas and counter our citizens’ skyrocketing energy bills by investing in renewables instead of gas. Most of all, it creates a definition of sustainability that makes sense, both to people and to financial markets, which have broadly spoken out against a green label for gas and nuclear.”
Opposition to the fuels’ inclusion is not unanimous in the financial sector, however. Some asset managers, for instance, would be glad to be able to include more economic activities in their sustainable funds.
The resolution is scheduled for a parliamentary vote in early July; the European Parliament and Council have until 11 July to decide whether to veto the European Commission’s proposal to include gas and nuclear in the EU taxonomy. If an absolute majority of 353 objects, the European Commission must either withdraw or amend it.
Speaking to Capital Monitor in the weeks ahead of the vote, Tang said it was important for MEPs to “show courage” by voting against the proposal.
“Including gas and nuclear in the taxonomy would be a serious setback – not just for sustainable finance, but for European institutions,” he added during an interview late last month. “It’s very clear the platform [of sustainable finance experts] does not think these fuels are sustainable, so firstly it’s not science-based any more, and secondly, it’s undemocratic.”
In any case, many market participants plan to take their own view on whether they view gas or nuclear as sustainable regardless of what the taxonomy states. The European Commission’s proposal would thus contribute to market fragmentation, Tang says.
From a broader policy perspective, Tang is keen to see more robust regulation of sustainable finance and investment, but he is aware that markets need time to adapt.
Having entered the European Parliament in 2014, Tang has served on the Committee on Economic and Monetary Affairs and a special committee on tax rulings until 2016. He has also been involved in various initiatives including several focused on sustainable finance. Since September 2020 he has been chair of the Subcommittee on Tax Matters, where he champions fairness and works on projects such as cracking down on tax havens and developing a digital services tax.
SFDR: not fit for purpose?
Tang is also among the many market participants calling on the European Commission to revise the Sustainable Finance Disclosure Regulation (SFDR). While initially intended purely as a transparency framework, within weeks of implementation it became a de facto labelling process to help market products as ‘green’.
The rules must be tightened to reflect this, says Tang, with requirements introduced for what can be included in both Article 8 (‘light green’) and Article 9 (‘dark green’) funds, a fast-growing market (see chart below). These categories dictate the required level of reporting on a product’s ESG impact.
“It’s great that so many are using the SFDR and that it has led to changes in the market [with funds reclassifying as Articles 8 and 9], but it has become a standard – even though it’s not equipped to be a standard,” he adds. “The Commission should consider minimum standards or there is a risk of greenwashing, and that’s not what we want. It could be detrimental to the development of the ESG market.”
Tang was responsible for drafting the proposal text for the Green Bond Standard, a voluntary framework that he hopes will become the ‘gold standard’ in international green bond markets.
In a November 2021 opinion, the European Central Bank said “an immediate shift to a strictly mandatory standard might lead to divestment from non-taxonomy-aligned green bonds and a sudden drop in [EU]-based green bond issuance”, but added that it should become mandatory for new issuances “within a reasonable time period”.
Tang supports this view. “It’s the same problem as with the SFDR – green financial products should be transparent, and if you say you are green you should [have to] prove it,” he says.
Seeking credibility for transition plans
It is important that such plans are assured, he argues. “An independent review is important because we need some form of credibility. I expect the sustainability reporting audit market to boom, and that we will see general purpose accountancy firms working with specialists.”
Since the EU published its landmark sustainable finance action plan in 2018 it has positioned itself as a leader in this area. Tang is keen to see that a decade after its publication more progress has been made.
“By 2028 I hope we have fully functioning financial markets that are geared towards the transition and aren’t just focused on short-term profits,” he says. “We will make mistakes along the way, of course, but we have to shift the emphasis.”
Yet there is only so much time left to do that, as Tang is well aware. He made that clear when asked what he thought of Stuart Kirk of HSBC’s now-infamous comments last month that climate change was not a risk that investors should be concerned about (and which led to Kirk being suspended).
"We don't yet know the consequences of climate change and exactly how to adapt, so what [Kirk] said is hopelessly optimistic,” Tang says. “I don’t understand why he assumes climate change has predictable consequences.
“This is why there are pleas for transition plans – we need to look ahead,” he adds. I don’t understand why [Kirk] thinks we can have such a short-term view and deal with the consequences of climate change. We need to start now.”
The world will need more politicians with Tang's focus if policymakers are to take quicker and more decisive action to halt climate change.