Insights from year one of EU Taxonomy reporting

With the EU’s sights firmly set on becoming climate-neutral by 2050, the EU Taxonomy is creating a clear framework for more sustainable enterprise and greener investing to help achieve this goal. The Commission’s recent call for feedback on a new set of EU taxonomy criteria for economic activities relating to the four remaining objectives emphasises the accelerating scope of the framework.

In his role as manager at Position Green, Tony Christensen helps financial companies to analyse and report on the taxonomy alignment of their portfolio holdings. He also helps non-financial companies with the full process of identifying and analysing their economic activities in relation to the EU Taxonomy. We sat down with Tony to get his expert insights on the first year of taxonomy disclosures and the challenges and opportunities moving forward.

In your opinion, how have organisations managed with their first annual EU Taxonomy reporting?

It has clearly presented a challenge for most companies. Such an extensive framework with so much room for interpretation is not easy for organisations to handle. However, it seems like most companies have managed to compile an adequate report.

Have you identified any challenges and pain points when supporting companies in this process?

One major challenge has really been the scope for interpretation. Often, it is not fully clear how the different criteria should be interpreted, which causes a lot of doubts and difficulties for many companies. Another big challenge is with analysing your company’s total taxonomy alignment where – depending on company structure – you need to understand all your underlying subsidiaries, projects, products, sites etc. from a taxonomy perspective. This may entail a massive workload if the company is, for example, a group company with hundreds of subsidiaries, a real estate company with hundreds of units or a construction company operating on a project basis with hundreds of active construction projects.

What lessons can be learned from the first year of alignment reporting?

Firstly, it has become evident that it is not easy to become taxonomy aligned. The detailed criteria are often difficult to align with for a high proportion of the many businesses whose activities are covered by the EU Taxonomy.

Many companies initially underestimated what it takes to align with the Do No Significant Harm (DNSH) criteria for climate adaptation as well as the process that needs to be in place to claim alignment with the minimum safeguards. In that sense, the first year of reporting became more like a gap analysis where many companies reported zero alignment but know how they need to improve if they want to claim alignment for future reporting.

With the first steps now taken, what advice can you give companies to better prepare for the evolving framework?

After the first year of reporting, companies now have their baseline established. The most important advice to all companies at this stage is to adopt a proactive approach to the EU Taxonomy. For example, when onboarding new subsidiaries, starting up new projects or acquiring new real estate, it is wise to screen and analyse for taxonomy eligibility and alignment already from the start. This helps you avoid having to do all the work retroactively when it comes to reporting season. 

It is also a good idea to consider some kind of data management system that can support the company in the ongoing analysis and provide a solid structure that simplifies the annual reporting of the taxonomy KPIs.

How can Position Green help?

Position Green’s Taxonomy Solution can help you throughout the full process – from identifying the company’s eligible activities and analysing them for alignment to calculating the financial KPIs for turnover, CapEx and OpEx and compiling the final taxonomy report.

Our custom ESG software tool can help your company structure all its taxonomy-eligible organisational units, simplify analysis and automatically compile the results into the mandatory reporting templates.

Position Green can help you set up the processes and analyses you need to have in place to become aligned. We can provide you with a climate risk analysis in line with the taxonomy requirements. In addition, we have extensive experience in designing due diligence processes that meet the requirements of OECD guidelines and UN guiding principles, and thereby also the EU taxonomy requirements.