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After almost a full year in effect, compliance with the EU Taxonomy for sustainable activities continues to find its feet. As of January, corporate disclosures of eligible sustainable economic activities have been mandatory.


However, one persistent shortcoming remains with the lack of consistent and accurate corporate reporting (detailed in an earlier GreenBiz article). Although reporting volumes have increased, company disclosure data for EU Taxonomy eligibility and alignment criteria remain elusive, according to a Bloomberg analysis, as shown in the chart.

Another key regulation under the EU Action Plan for Financing Sustainable Growth, which is heavily associated with the EU Taxonomy, is the Sustainable Finance Disclosure Regulation (SFDR). While the EU Taxonomy looks at how investments help the environment, SFDR demands transparency into how investments could harm the environment.

The two regulations specifically come together for fund level reporting, which came into force in January. With this mandate, if a fund identifies as Article 8, which means it has environmental characteristics, or as Article 9, meaning that it has a sustainable investment objective as defined by SFDR, then it must report a whole host of metrics, including EU Taxonomy alignment of corporate investments aggregated at fund level.

The glaring question that then arises is: How can funds accurately convey their sustainable nature leveraging the EU Taxonomy without the necessary backbone of corporate disclosure? The short answer is that they are not.

The chart below reveals that the overwhelming majority of Article 8 and 9 funds state no intention to align with the EU Taxonomy in pre-contractual disclosures via the industry-adopted European ESG Template (EET). This is a jarring contradiction: Having green funds without taxonomy alignment is concerning since it could diminish investor trust in the true “greenness” of an Article 8 or 9 fund.

The French public authority, the Autorité des Marchés Financiers (AMF), also recognized this concern in a recent position paper. It proposes various minimum standards for Article 8 and 9 funds to offer a more meaningful reflection of their commitment to sustainability. These proposed standards lean heavily on the EU Taxonomy and invite minimum taxonomy alignment for Article 9 funds. Nonetheless, only with improved corporate disclosures will funds be able to confidently claim taxonomy alignment and bolster investor confidence.

Based on Bloomberg’s assessment of approximately 4,000 Article 8 and 9 fund disclosures through the European ESG Template (EET).

Confidently step up your EU Taxonomy reporting with ‘equivalent information’

A potential solution to these reporting woes is using estimates to fill the gaps. However, there has been a lack of formal guidance from European regulators on what constitutes an acceptable estimate to determine the proportion of EU Taxonomy-aligned investments. Understandably, as a consequence, firms have been nervous about missing the regulatory mark and putting their reputations at risk by relying on the “wrong” sort of estimates.

This all changed toward the end of 2022 when the European Supervisory Authorities (ESAs) published a Q&A clarifying the nebulous reference to the permitted use of “equivalent information,” such as estimates for EU Taxonomy alignment.

The ESAs defined the three core principles of equivalent information in regard to specific EU Taxonomy testing criteria as follows:

  1. Equivalent information should only apply to economic activities listed in the EU Taxonomy Delegated Acts.
  2. The assessment of the substantial contribution should rely on actual information.
  3. Do No Significant Harm (DNSH) controversy-based approaches should be discouraged and considered insufficient.

In simpler terms, this means you can leverage estimated EU Taxonomy data when the estimates only use company-reported data inputs and are modeled to the regulation, rather than estimates based on other estimates.

This has been the philosophy behind Bloomberg’s EU Taxonomy estimated data model from the start. Only using estimates that are based on company-reported data points encourages corporate ESG disclosure, which helps to mitigate greenwashing. In the absence of this data, however, financial firms risk using inadequate estimates that may not accurately reflect company behavior, further exacerbating the greenwashing problem.

While consistent corporate disclosures find their stride, financial firms can still meet their January EU Taxonomy reporting requirements with the right sort of estimates.



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