Listed European companies ‘offer limited investment options’ aligned with EU taxonomy

Germany-funded initiative to feed into bloc’s economic recovery planning

Research funded by the German Government has found low levels of overall alignment between major European companies and the EU’s ‘green taxonomy’.

The initiative, billed as among “most comprehensive empirical assessments” of its kind, compared the operations of 84 participating companies against the Taxonomy – a proposed list of green and sustainable economic activities, created to help investors and policymakers identify credible opportunities to support the transition to Net Zero by 2050.

It concluded that “from an investor perspective, European capital markets offer limited investment options that comply with the EU Taxonomy”.

The analysis found that less than a third of revenues covered by the EURO STOXX 50, France’s CAC 40 and Germany’s DAX had been derived from economic activities identified as sustainable by the taxonomy. But, when the Do No Significant Harm criteria are also added into the assessment – meaning activities cannot undermine other environmental objectives – as well as limited disclosure and social safeguarding screens, that figure sinks to around 2% for each benchmark.

More than a third of surveyed companies said that operational data was not yet available based on EU-taxonomy definitions. Companies said they were waiting for the “final version” of the framework before commencing data gathering.

However, the analysis found positive engagement with the taxonomy among banks. A number are currently in “the process of reviewing and/or adjusting their internal (green) loan classification and tagging systems” in line with taxonomy classifications. In addition, Santander and Deutsche Bank were named for referring to the taxonomy for their use of green bond proceeds.

Researchers said that while “project finance is perceived as particularly suited for taxonomy-aligned lending”, the taxonomy appeared less relevant to “common lending activities which constitute a large proportion of banks’ loan portfolios”, such as general purpose loans and revolving credit facilities, due to their open-ended nature.   

The research project was launched earlier this year by the German Federal Environment Ministry (BMU) in anticipation of Germany taking over the EU Council presidency in July, and is expected to feed into the development of “sustainable, climate-friendly” economic recovery plans within the EU post-COVID19.

The report was jointly produced by ISS ESG, the sustainability-focused arm of proxy firm ISS, which assessed the alignment of major European indices, and Berlin-based policy think tank Adelphi, which directly engaged the targeted companies. A total of 84 companies participated in the survey – 13 were financial firms and the remainder non-financial.

The report is due to be presented today at the European Sustainable Finance Summit organised by the Green and Sustainable Finance Cluster Germany, a public-private coalition designated as a “central contact point” for national green and sustainable finance initiatives.