Companies with emissions reduction targets are more aligned with the EU Taxonomy, new study shows

As climate finance takes center stage at COP28 this week, a joint analysis released by CDP and Clarity AI reveals how the EU Taxonomy can be used by companies as a tool for transition planning and by financial institutions to inform investment decisions and reporting. The study by CDP, the non-profit that runs the global environmental disclosure system for companies, and Clarity AI, the global sustainability technology platform, is the first to explore the link between EU Taxonomy metrics and indicators of corporate transition, such as GHG emissions and science-based targets (SBTs).

EU Taxonomy data reveals a company’s current and potential future alignment with the net-zero transition at the economic activity level. With data on CapEx alignment being available for the first time, the market now has a shared language to evaluate if companies are transitioning towards green activities.

The research focuses on 1,700 companies under the Non-Financial Reporting Directive (NFRD) scope that published first-year EU Taxonomy reports. This resulted in an unprecedented amount of data, now accessible in the public domain.

The study reveals that companies with higher Taxonomy alignment tend to have validated science-based targets and align revenues and spending with their climate transition. Out of the 1,700 companies analysed, 300 have SBTs and more than 600 align revenues and spending with their climate transition plan.

The report underscores the effectiveness of the EU Taxonomy when combined with transition plans, both to set and keep track of decarbonization actions and support financial planning within a company’s overall transition strategy.

Maxfield Weiss, Managing Director for CDP Europe, said: “With financial pledges top of the agenda at this year’s COP28, the EU Taxonomy presents an opportunity for the analysis of sustainability data like never before. As the first year that companies are required to report under the EU Taxonomy, 2023 has seen a goldmine of granular sustainability data released into the market.

However, it’s one thing to have access to this data, it’s quite another to understand how to interpret and use it. This report shows in detail how foundational data is for transformative change and unlocks this data in the context of transition plans – made possible by CDP’s unique questions on sustainable finance taxonomies.”

Patricia Pina, Head of Research at Clarity AI, added: “EU Taxonomy reporting is still in its early stages but is already illuminating the path towards a more sustainable economy. The data produced is crucial to transparently compare where companies stand today in their journey towards a green economy.

However, the EU Taxonomy is not a silver bullet. To effectively leverage this powerful tool and have a holistic view of environmental progress, the financial market should use the EU Taxonomy in conjunction with transition plans to truly assess the credibility of corporates’ commitments when it comes to environmental progress.”