Cooling towers at the Tricastin Evolutionary Power Reactor nuclear power plant in France.
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A controversial EU plan to include nuclear and natural gas in its ranking of sustainable investments is confusing and could lead to further greenwashing, investors told CNBC.

The European Commission, the executive arm of the EU, wants to make it easier for financial markets to decide what is a sustainable investment. As such, it is putting forward a green classification system, or taxonomy, aimed at making sustainable investing more transparent.

The categorization has been sharply criticized for including natural gas and nuclear energy. The commission sees both sources as a means to “facilitate the transition towards a predominantly renewable-based future.”

However critics, such as Austrian officials and environmental activists have argued that these should not receive a green label, even temporarily. 

The plan has not yet become law, but investors — who are meant to benefit from clearer guidance — have raised some concerns.

“It will create some confusion for allocators,” Francesco Filia, CEO of Fasanara Capital — which as of October managed $3 billion in assets — said about the EU’s taxonomy.

Filia said the EU’s bid to recognize nuclear and gas as “transitional” is hard to understand because it also appears to be a tacit acknowledgment that these energy sources are not sustainable. He added that his team will continue its sustainable investing by following a criteria the fund has previously set up.

His opinion is shared by others.

Isobel Edwards, green bonds analyst at asset manager NN Investment partners, said that before the EU’s new categorization, if an investor wanted to allocate funds to nuclear energy or natural gas projects they had to fully explain how doing so could be deemed sustainable. Now, she said, investors will simply be able to say that “it’s just in the taxonomy” — making it easier to justify such decisions.

According to Edwards, investors would like more help from regulators and lawmakers with disclosure, which has been one of the key difficulties in sustainable investing. The lack of standardized reporting makes it hard for money managers to compare investment opportunities, including their degree of sustainability.

It comes as sustainable investing gains increasing prominence. The MSCI World ESG Leaders’ index was up around 20% in 2021 — its highest annual gain ever, Reuters reported.

Fabio Ranghino, head of strategy and sustainability at asset management firm Ambienta, told CNBC that the EU’s taxonomy is not confusing, however, and is just one tool of many.

“For us, nuclear is not a bad word, it is about managing waste,” he said, adding that the nuclear projects being built today are different from the ones built in the 1950s.

However, he did say that as economies adapt to a new energy mix, “we will go through a couple of years of confusion” as companies, both private and public, will have to be able to report their sustainability metrics.