Applying the EU Taxonomy to Measure Economic Activities and Finance In Transition

Climate protection and financial market stability are closely linked. In 2018, the European Commission presented its comprehensive “Action Plan: Financing Sustainable Growth”. One of the most important proposals of this action plan was the development of an “EU Taxonomy” that identifies sustainable economic activities. The EU Taxonomy serves as a transparent, standardized basis for sustainable financing and investment decisions. Many companies and financial institutions across the EU are required to prove the sustainability of their products or services against the Taxonomy.

The German government supports sustainable finance at the global, European and national levels. On behalf of the German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU), adelphi implemented an EU-wide project to measure the sustainability of selected companies and financial institutions according to the Taxonomy. More specifically, the project aimed to achieve four objectives:

• Quantify what percentage of economic activities conducted by selected companies/financed by selected banks comply with the new EU taxonomy,
• Identify challenges and solutions for measuring taxonomy compliance, 
• Develop recommendations on imporving the use of the taxonomy, addressed to EU policy makers and the private sector, and
• Raise awareness among companies and financial institutions on the EU taxonomy.

Over the course of three years, adelphi conducted surveys and in-depth interviews with companies, banks, institutional investors and asset managers to assess challenges and opportunities for assessing taxonomy compliance. This participatory process was accompanied by an analysis of comprehensive ESG rating data by ISS ESG. Results fed into the discussions at EU level and helped to maximize the relevance of the Taxonomy for its users.