Do you have any good examples?
In manufacturing, for example, if the description only refers to manufacturing of final products, intermediary activities in the value chain are not automatically eligible. Take low-carbon vehicles. A lot of companies in the value chain that provide key components enabling such vehicles to be low carbon are not included, while the end producers are. So companies are still finding their way. It’s also important to remember that the Taxonomy should be seen as a living document and work in progress. We’ll see more activities added, both under climate change mitigation and adaptation as well as the four remaining environmental objectives. Next year, non-financial companies will start reporting on their Taxonomy alignment, where they will have also have to interpret the criteria and how they relate to their business. So we’re likely to see another round of these discussions.
Early studies of companies’ Taxonomy reporting have found low reported eligibility. For example, our recent analysis found average eligibility among companies to be just under 30%. What do you make of these low eligibility numbers?
That’s one of the hot topics in the market right now. There’s a lot of discussion around what it actually means for a company to have low eligibility under the Taxonomy. How will this affect investors’ view of the company and its access to capital? So far, there’s an understanding that the scope of activities in the Climate Delegated Act is in some sectors still quite narrow, which explains the low eligibility numbers. I don’t think there’s too much reason for concern on that. This is a work in progress, and more activities will be added. For companies, there’s a need for transparency, to clearly communicate why your eligibility number is low. For example, where they contribute to environmental objectives but are not yet in the Taxonomy. It will take a couple of years before eligibility really matters. And by then, the most important ratio to look at will probably be the company’s alignment compared to its eligibility. That will have a bigger effect on whether the company is considered sustainable.
The EU Platform on Sustainable Finance recently released its long-awaited report on the remaining four environmental objectives – water protection, circular economy, pollution prevention and biodiversity. What are the next steps?
The delegated act for the other environmental objectives is not expected before the beginning of 2023. The Platform has now published the report with their final recommendations to the EU Commission on those four objectives regarding the activities and criteria. There will be a draft delegated act for public consultation, and I encourage everyone to have a look at it and give feedback. After the Commission takes comments and adopts the delegated act, it will go to co-legislators for evaluation. More activities will be added under these objectives, so the current Taxonomy is today quite narrow compared to what it will be. Everyone is eager to see the activities under these four objectives.