EU says corporate practices prove ‘taxonomy is working’

Report highlights companies using the green framework and outlines next steps for advisory body.

The EU’s finance commissioner has said that its climate taxonomy “is working”, despite criticism. 

Mairead McGuinness, Commissioner for Financial Services, Financial Stability and Capital Markets Union, made the comment on the back of a report published yesterday by the Commission’s advisory body on sustainable finance. 

The document includes the results of a survey of 31 European companies, which sought to help understand if the EU’s sustainable finance rules – including the taxonomy regulation – were influencing corporate strategy, conduct, transparency and finance. 

The companies are not explicitly identified, although the broader report acknowledges contributions from the likes of BASF, Enel, Iberdrola, Schneider Electric and Telefonica.  

The Platform on Sustainable Finance concluded that eight of the 31 had started to set taxonomy-based targets, which it said could “provide strategic guidance for transition planning at both business and activity level”. It did not name them, but provided anonymised case studies. 

The most common characteristics of the EU Taxonomy that companies have adopted into target-setting are its capital expenditure and turnover indicators, the report noted. 

One utility company is seeking to align 80% of its capital expenditure with criteria laid out in the taxonomy by 2025. Another plans to align half its revenues with the taxonomy’s climate mitigation criteria, as part of an updated sustainability-performance target. 

“The EU taxonomy is working – and so is the wider EU sustainable finance framework,” said McGuinness. “Companies are using the taxonomy to set targets and back up claims on sustainability, which is helping them access finance.”

There has been widespread criticism of the green taxonomy in recent years. Some market practitioners believe it is burdensome and overly prescriptive, while others argue it doesn’t consider the climate transition enough. Civil society has accused it of a lack of scientific credibility, and of being a disclosure tool rather than seeking to influence behaviour.

Speaking to Real Economy Progress, Helena Viñes Fiestas, chair of the Platform and Commissioner of the Spanish Financial Markets Authority, said the focus of the EU agenda so far had been on reporting, because that’s where the legal obligations are. 

“But reporting is supposed to enable the transition – that’s always been the ultimate goal. These emerging practices show that it’s possible to use the regulation to move more in the direction of that original intention.”

Challenges and future priorities

The report acknowledged “the usability of the EU Taxonomy and wider [sustainable finance] framework needs to be further improved to fully support financial and non-financial actors in transitioning their business models”.

To achieve that, the Platform said it would help the Commission revise the Do No Significant Harm rules, which require entities to ensure business activities don’t undermine any environmental objective before they can qualify under the taxonomy. Finding evidence to meet that criteria has been a big challenge for companies and investors. 

The Platform will also work to ensure the taxonomy covers a broad enough list of business activities to be usable, it said. 

It also hinted at ditching the framework’s operational expenditure criteria, saying the need for such information “remains unclear to companies across several sectors”. The UK is expected to omit operational expenditure from its green taxonomy for similar reasons. 

The use of the taxonomy for SMEs will also be a priority, according to the report. 

The Platform’s current mandate will end by March 2025 at the latest.