(Bloomberg) -- Europe’s decision to treat gas and nuclear power as green assets has set off a barrage of criticism from fund managers, climate activists and their lawyers, who say the bloc just missed an historic opportunity to shape sustainable investing.

The EU Parliament fell short on Wednesday of the 353 votes needed to block the move, which means Europe’s so-called green taxonomy -- a rulebook for sustainable investing -- is set to include gas and nuclear power starting next year. 

The EU has maintained that its goal is to offer coal-reliant member states an easier transition path to renewable energy by making lower-carbon options more affordable. But critics counter that the approach creates a dangerous precedent in bringing political agendas to what was supposed to be a science-based framework. And since Vladimir Putin’s invasion of Ukraine, tensions have risen around passing a law that might make it harder for the EU to wean itself off Russian gas exports.

“Labeling gas as a green investment could mean huge quantities of private money being channeled into fossil gas projects, prolonging our dependence on this climate-wrecking fuel and delaying an urgently-needed phase-out,” Murray Worthy, gas campaign leader at nonprofit Global Witness, wrote in an email. “It’s a sick joke at humanity’s expense.”

Politically, the EU’s decision plays “straight into the hands of Putin,” he said.

Members of the finance industry also were quick to signal their disapproval. “This doesn’t make the fight against greenwashing any easier,” said Stephan Kippe, head of environmental, social and governance research at Commerzbank AG in Frankfurt. 

“The decision again puts a spotlight on the fundamental conflict of goals that the taxonomy suffers from,” he said by email. “It’s impossible to both provide a strict framework for ESG investing -- and a safety net against greenwashing -- while at the same providing the structural basis for EU-wide energy strategy.”

The EU Commission said the vote was an “important recognition of our pragmatic and realistic approach in helping many member states on their transition path towards climate neutrality.”

Climate neutrality is “our objective and legal obligation,” it said in a statement. “We’re committed to using all available tools to move away from high carbon-emitting energy sources.”

Stephanie Pfeifer, chief executive of the Institutional Investors Group on Climate Change, whose members include BlackRock Inc., State Street Corp. and Vanguard Group Inc. and oversee more than $50 trillion in combined assets, described the EU Parliament’s vote as “disappointing.”

“For institutional investors, the inclusion of natural gas sends mixed messages, plus the signal to channel capital towards investments that restrict the increase in global temperature to 1.5 degrees is weakened,” she said.

Wednesday’s vote comes as the ESG industry faces questions about how much good it’s doing for the planet. Fund managers that are overly exposed to fossil fuels while claiming to offer ESG strategies are increasingly being called out by activists -- a development that risks alienating retail investors. 

It also follows entreaties from scientists to do more to fight rising temperatures as the world runs out of time to beat climate change. In April, the United Nation’s Intergovernmental Panel on Climate Change estimated that the planet might be on track for temperature increases that may be twice the limit set out in the Paris climate accord.

The EU already faces legal challenges to its decision to include gas and nuclear power in its taxonomy. Austria and Luxembourg have signaled they plan to challenge the move in the courts, though it’s a process that might take years. 

Nonprofit groups also are planning legal action. “Branding fossil gas as transitional and green in the taxonomy is unlawful as it clashes with the EU’s key climate legislation, including the European Climate Law and the Taxonomy Regulation itself,” said Marta Toporek, a lawyer with ClientEarth.

Toporek said ClientEarth is joining with other nonprofits and “looking at options to challenge” the EU’s decision. 

“Greenwashing cannot win,” she said.

©2022 Bloomberg L.P.