Taxonomy
Another important instrument in the ESG context is the EU Taxonomy and taxonomy disclosures, which are gaining significance each year. They require increasing engagement from both non-financial and financial enterprises. Their main goal is to enable a precise assessment of the impact of corporate activities on the natural environment. This allows companies and institutions to report their actions more effectively, while investors and stakeholders gain transparent information about the sustainable nature of the activities.
Taxonomy is a term that refers to the systematic classification and description of various elements. It is most commonly encountered in a biological context, where it allows for the categorization of organisms—into species, families, or subfamilies. In the ESG context, the term refers to the identification of specific categories of activities that affect sustainable development goals. Colloquially, the “EU Taxonomy” refers to the Regulation of the European Parliament and of the Council (EU) 2020/852 of 18 June 2020, which establishes a framework to facilitate sustainable investments. This document not only defines the standard for classifying environmentally sustainable activities but also imposes the obligation to disclose what percentage of a company’s turnover comes from sustainable activities and what percentage of investments and operating expenses relate to assets or processes associated with sustainable development.
Taxonomy disclosures
Taxonomy disclosures cover various aspects of a company’s operations. They may relate to sustainable services, products, or investments. For financial enterprises, they also include financial products. Disclosures can additionally indicate the actions of financial institutions in combating climate change, protecting biodiversity, or promoting energy efficiency. Such information is an essential element of ESG reporting and helps to transparently present a company’s environmental impact.
Fot. Weronika Dyląg
Scope of Disclosures
Until now, the scope of taxonomy disclosures has been limited. The year 2024 promises to be the year of full disclosures in compliance with the EU Taxonomy. This will pose a particular challenge for banks. To demonstrate the extent to which their portfolio is “green,” banks must obtain appropriate KPIs from non-financial companies. These indicators assess the alignment of a company’s activities with the Taxonomy. Based on this information, banks will calculate the portion of their exposure to clients that is linked to sustainable activities. The volume of data to be collected from an even greater number of companies will increase. This will be a technological challenge, requiring the implementation of well-designed tools.
Summary
The introduction of taxonomy disclosures requires greater involvement from both companies and financial institutions, but it brings many benefits. It enhances transparency and comparability of information on sustainable activities. These data enable investors and consumers to accurately understand how companies and financial institutions contribute to sustainable development goals. Disclosures allow for informed investment decisions, monitoring of corporate environmental impact, and building stakeholder trust. They also enable companies to stand out in the sustainable development market, minimize the risk of greenwashing, and gain a strategic advantage.
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