This report addresses the challenges companies face in complying with the requirements of the new EU Taxonomy Regulation. It seeks to answer three questions:
- What lessons can be learned from the experience of companies in the first year reporting on Taxonomy-eligibility?
- What challenges are becoming apparent for companies in striving for Taxonomy-alignment, and how can they be overcome?
- How does Taxonomy-style reporting fit into the evolving global landscape of ESG and sustainability reporting?
To answer these questions, this two-part paper provides an analysis of the EU Taxonomy along with ERM’s research into the initial years’ use of the Taxonomy by a range of companies, including our lessons learned so far and predictions for the Taxonomy’s near-term evolution.
This current deep dive into the use of the Taxonomy follows ERM’s prior work this year into the evolution of sustainability disclosure in the United States and Europe, analyzing the impacts of new regulatory frameworks affecting corporate sustainability disclosure worldwide.
Part One examines research based on publicly reported information from listed companies in France, Germany, Italy, Spain, and the Netherlands. The companies included in this research were selected on the basis of being part of the leading stock index in each country: CAC 40 (France), DAX 40 (Germany), IT 40 (Italy), IBEX 35 (Spain), and AEX/AMX (Netherlands). As financial and non-financial undertakings have different Taxonomy performance indicators to report and face different challenges in gathering underlying data, ERM decided to present financial and non-financial undertakings separately.
Part Two presents recommendations based on ERM’s experience of working directly with companies, investors, and portfolio companies on Taxonomy-related concerns. This work includes assessments of performance against the criteria for Substantial Contribution, Do No Significant Harm
(DNSH), and Minimum Social Safeguards (MSS).2 ERM has also worked with investors on assessing whether their investments classify as Sustainable Investments3 for activities that do not fall under scope of the EU Taxonomy. Due to the principal similarity in approach between the EU Taxonomy
and the Sustainable Finance Disclosure Regulation (SFDR) in this regard, insights from ERM’s SFDR project work were also incorporated into these recommendations.
The Conclusion discusses implications of the EU Taxonomy for the evolving global ESG and sustainability disclosure landscape.