14 minute read 13 Oct 2023
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Why organizations should stay the course with their EU taxonomy reporting

By Jan Niewold

EY EMEIA Climate Change and Sustainability Services Leader

Client-focused sustainability auditor and advisor who is open and reliable. Supports businesses with innovative services and advice in a complex and changing world. Loves nature and being outdoors.

14 minute read 13 Oct 2023

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The EY report reveals that 89% of companies in research scope have disclosed some Taxonomy eligibility for turnover, CapEx or OpEx.

In brief
  • The EU Commission created the EU Taxonomy, a list of economic activities that can be considered environmentally sustainable to help direct investments.
  • This report examines how disclosure practices are being adopted by EU companies after the second year and looks ahead to possible improvements.
  • The average eligibility of KPIs still remains under 40%, and gaps exist between eligibility and alignment.

Europe has the ambitious goal of becoming the world's first carbon-neutral continent. To achieve this vision and direct investments toward sustainable projects and activities, the European Commission proposed the Action Plan on Sustainable Finance in March 2018.

As part of the Action Plan, the EU Regulation 2020/852 (hereinafter “the Taxonomy Regulation” or “EU Taxonomy”) was published on 22 June 2020 and took effect on 12 July 2020.

The EU Regulation introduces a detailed classification system defining sustainable economic activities. It aims to provide certainty for investors, prevent greenwashing, promote climate-friendly practices, mitigate market fragmentation and facilitate sustainable investments to support the objectives of the European Green Deal.

It requires nonfinancial undertakings to disclose the proportion of their activities that are taxonomy-eligible and taxonomy-aligned in terms of their:

  •  Turnover
  •  Capital expenditures (CapEx)
  •  Operating expenditures (OpEx)

Also, these companies need to describe how they calculated the KPIs as well as provide an explanation of the numbers and any changes to those numbers.

With respect to financial undertakings, the Taxonomy Regulation requires disclosure of information on how and to what extent the undertaking’s activities are associated with economic activities that qualify as environmentally sustainable (aligned activities).

As the EU Taxonomy for sustainable activities evolves, it continues to present significant challenges for companies seeking to implement the regulation and the EY EU Taxonomy Barometer 2023 shows further guidance is needed to support a consistent approach across sectors.

  • About the research

    The EY EU Taxonomy Barometer provides an analysis and snapshot of reporting practices in European countries and sectors. Although four of the six taxonomy goals were not applicable yet for the reporting year 2022, the 2023 edition of the Barometer can provide a comprehensive picture of the progress made in the second reporting year of mandatory taxonomy disclosure.

    The full report (pdf) analyzes 320 European companies from 17 EU countries across 12 sectors, listed on the main stock exchanges of selected countries and generating about 92% of the EU’s gross domestic product. This year’s sample has been expanded from 11 to 16 stock indices.

    The results of this study are based on information collected through the analysis of taxonomy disclosures published by the sampled companies in either annual reports or nonfinancial reports from January to May 2023.

    EY teams analyzed both mandatory and voluntary (e.g., additional KPIs) quantitative and qualitative information reported. The results were examined at both the consolidated level and the industry level to highlight common practices and key differences.

  • Countries, indices and sectors in scope

    Austria Greece Poland
    Belgium Hungary Slovakia
    Denmark Ireland Spain
    Finland Italy Sweden
    France Luxembourg The Netherlands
    Germany Malta  

    Stock indices
    Amsterdam Exchange Index (AEX) Deutscher Aktien-Index (DAX) OMX Helsinki 25 Index (OMXH25)
    Athens Stock Exchange (ATHEX) Financial Times Stock Exchange Milano Italia Borsa Index (FTSE MIB) OMX Stockholm 30 Index (OMXS30)
    Austrian Traded Index (ATX) Iberia Index 35 (IBEX 35) Slovak Share Index (SAX)
    Belgian 20 Index (BEL20) Irish Stock Exchange Overall Index (ISEQ) Warsaw Stock Exchange Index 30 (WIG30)
    Budapest Stock Index (BUX) Malta Stock Exchange (MSE)  
    Cotation Assistée en Continu 40 (CAC 40) OMX Copenhagen 25 Index (OMXC25)  

    Construction, infrastructure and real estate Insurance undertakings Oil and gas
    Consumer products Manufacturing Power and utilities
    Credit Institutions Mining and quarrying Technology, media and telecommunications
    Health, biotechnology and chemicals Mobility — vehicle manufacturing and transport Other sectors

While there are challenges to overcome, adopting the EU Taxonomy can offer several potential benefits to companies beyond compliance:

  • Improved transparency and reporting, which can improve stakeholder trust and accountability.
  • Access to green financing (including green bonds and sustainable investment funds), providing companies with additional financing options on potentially favorable terms.
  • Positive reputation and brand image, which can attract environmentally conscious consumers, partners and investors.
  • Long-term value creation, as sustainable practices can lead to improved operational efficiency, reduced resource consumption and increased innovation.
  • Employee retention, as many employees value working for companies that prioritize sustainability. 
  • Taxonomy eligibility and alignment explained

    Taxonomy-eligible activities are not necessarily environmentally sustainable but can potentially contribute to one of the six environmental objectives defined by Article 9 of the Taxonomy Regulation:

    1. Climate change mitigation
    2. Climate change adaptation
    3. Sustainable use and protection of water and marine resources
    4. Transition to a circular economy
    5. Pollution prevention and control
    6. Protection and restoration of biodiversity and ecosystems

    Taxonomy-aligned activities must also meet the following additional criteria:

    • Comply with the substantial contribution criteria established for each of the EU Taxonomy environmental objectives.
    • Not significantly harm any of the other EU Taxonomy environmental objectives.
    • Be carried out in compliance with the minimum safeguards, by ensuring alignment with the Organisation for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises and the United Nations (UN) Guiding Principles on Business and Human Rights. The activity should also be in compliance with the principles and rights set out in the eight fundamental conventions identified in the International Labour Organization (ILO) Declaration on Fundamental Principles and Rights at Work and the International Bill of Human Rights. 

The European Commission has adopted a phased approach to allow companies more time to comply with disclosure requirements. In the first year of application, nonfinancial undertakings only had to report the portion — in terms of turnover, CapEx and OpEx — of their eligible economic activities with regard to the Climate Delegated Act.

For the 2022 reporting year, the obligation was extended to alignment: nonfinancial undertakings are now required to report the share of turnover, CapEx and OpEx related to taxonomy-eligible and taxonomy-aligned activities with regard to the Climate Delegated Act. This disclosure must include three tables for CapEx, OpEx and turnover, indicating the share of taxonomy-aligned activities, taxonomy-eligible but not aligned activities and non-taxonomy-eligible activities.

Financial undertakings were granted a two-year phase-in period for reporting, with alignment KPIs becoming mandatory in fiscal year 2023 — as financial undertakings will have to rely on data disclosed by their nonfinancial and financial counterparties to develop the indicators mandated by the Delegated Act.

In addition, for the 2022 reporting year, credit institutions are required to disclose the proportion of their trading portfolio and on-demand interbank loans in their total assets. The insurers are to disclose the proportion of taxonomy-eligible and taxonomy-ineligible nonlife insurance and reinsurance economic activities.

a sustainable green office or housing complex
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Chapter 1

Key findings

A majority of the companies in scope disclosed eligibility for turnover, CapEx and OpEx.

There is room for improvement for enhancing and clarifying both data collection and the overall process.

Nonfinancial undertakings

Of the 277 nonfinancial entities analyzed, 265, or 96%, published a taxonomy disclosure within their annual report or separate nonfinancial report. Of these, 89% disclosed at least one of the three KPIs (turnover, CapEx, and OpEx). Furthermore, the companies included in the study disclosed average shares of eligible CapEx, eligible OpEx, and eligible turnover as 36%, 28%, and 25%, respectively. These figures closely align with the disclosures from the previous year.

Over one-third of the analyzed companies reported no eligible turnover, indicating that a substantial portion of companies listed on the main stock markets in Europe perform activities that do not have the potential to contribute significantly to climate change mitigation (CCM) or adaptation (CCA) goals.

Moreover, the percentages for alignment are notably lower. CapEx shows the largest divergence between eligibility and alignment, with a difference of about 21%. This is mainly because the Taxonomy Regulation allows companies to report as eligible also those CapEx that are output of taxonomy-eligible and aligned activities or individual measures aimed at reducing their GHG gas emissions, which may cause significant alignment challenges for this category. Meanwhile, eligibility and alignment differ in turnover and OpEx by 17 percentage points and 16 percentage points, respectively.

The average shares of eligibility and alignment exhibit significant variations across countries and sectors (for more detailed insights, please refer to the full report (pdf)).

Apart from Luxembourg (47%), which has the highest level of eligibility (but represents only four companies), the countries with a percentage of eligibility higher than 30% are: Austria (45%, 16 companies), Spain (37%, 30 companies), Belgium (36%, 9 companies) and Greece (31%, 20 companies). This is due to the strong presence of companies in these countries operating in the construction, infrastructure and real estate sector and in the power and utilities sector. In Austria and Spain, the high average turnover depends primarily on companies operating in the power and utilities, construction, infrastructure and real estate, and mobility sectors.

In contrast, the countries with the lowest percentage of eligible turnover are Slovakia (2%, one company), the Netherlands, and Poland (both 10%, respectively 31 and 26 companies). In the Netherlands, the low average eligibility is mainly due to companies in the consumer products and health, biotechnology and chemicals sectors, which are among the sectors with the lowest eligibility. In Poland, it is companies in the consumer products and mining and quarrying sectors. In Slovakia, it represents only one company in the tourism and hospitality sector (other sectors) that has low turnover eligibility.

Luxembourg (32%) exhibits the most significant deviation between average eligibility and alignment, followed by Austria (29%) and Germany (27%, 33 companies).

This data also shows that the majority of company activities on the main European stock markets are considered non-eligible, due to the restricted potential of each sector to contribute to climate change mitigation or adaptation goals.

For the 2022 reporting year, companies were also required to disclose information for alignment. Two sectors — mobility and construction — showed significant gaps between eligibility and alignment (between 45 and 50 percentage points). These gaps largely result from the diverse types of companies within these sectors, all of whom must meet the same criteria. On the other hand, sectors like health, biotechnology and chemicals, and consumer products reported 0% of average taxonomy-aligned turnover. This is mainly because these industries are only marginally covered by the Climate Delegated Act. As a result, many companies in these sectors could only report eligible turnover related to non-core activities, often without sufficient evidence to assess alignment.

The industries with the highest share of taxonomy-aligned turnover are power and utilities (30%) and mining and quarrying (21%).

  • Open image description#Close image description

    This is a chart showing the average turnover eligibility and alignment for each sector, with construction, infrastructure and real estate leading at 60% eligibility, followed by Mobility at 57% and Power and utilities at 43%.

The average CapEx eligibility is 36%, the highest among all three KPIs. This is likely due to the fact that, in addition to the CapEx associated with eligible turnover, companies may also report investments related to the purchase of output from taxonomy-eligible and taxonomy-aligned economic activities, as well as individual actions to reduce their greenhouse gas emissions. In addition, 31 of 265 companies (12%) reported 0% eligibility. The share of taxonomy-aligned CapEx drops to 15%, with 111 of 265 companies reporting 0% alignment.

Significant variations in average CapEx eligibility and alignment exist across different countries, dependent on the sectors in which the companies operate. Analyzing the difference between average CapEx eligibility and alignment, the country with the greatest deviation is Malta (consistent with the analysis performed on the indexes), with a gap of 39% between eligibility and alignment among the 10 companies in the sample. Germany and Austria follow with a gap of 34% each.

OpEx eligibility and alignment percentages are relatively similar to those of the turnover, with an eligibility rate of 28% and an alignment percentage of approximately 12%.

The average eligibility of OpEx falls below that of CapEx. This suggests that, for OpEx, the expenses linked to eligible turnover have a more significant impact. Of the 265 companies in scope, 86 reported a 0% of OpEx eligibility share (32%), nearly doubling the number from the 2022 edition (18%). The result might depend on the extension of the sample of companies analyzed and on the different purchasing practices among companies over the years.

The country-level data also confirms that the OpEx KPI shows a gap between eligibility and alignment similar to the turnover KPI, indicating that the OpEx is mainly associated with the revenue-generating activities of the companies.

The highest average eligibility is recorded in Austria, which is also second for eligible turnover, with the main sectors for eligibility being power and utilities (97%) and construction, infrastructure and real estate (73%). On the other hand, the lowest-ranking countries in terms of eligible OpEx are Hungary, the Netherlands and Slovakia.

Financial undertakings

For financial undertakings, the contribution of banks to the EU’s environmental objectives is measured through the Green Asset Ratio (GAR), i.e., taxonomy-aligned assets. However, for FY 2022, financial institutions reported only on eligible assets, reflecting the share of credit and investment portfolio’s potential contribution to the environmental goals. Taxonomy eligibility, based on counterparties’ turnover, ranged from 0% to 55%, averaging 26%. The exposure to eligible assets primarily includes retail mortgages and consumer loans for vehicles and building renovation.

The contribution of insurers to the EU’s environmental objectives is measured using two metrics:

  1. “Eligible premiums” reflect the insurers’ potential contribution of the underwriting portfolio to climate change adaptation and range from 2% to 92% with an average of 48%.
  2. “Eligible assets” indicate the insurers’ potential contribution of the investment portfolio to the environmental objectives and range from 1% to 39% with an average of 15% based on counterparties’ turnover.

Banks’ eligible assets are relatively higher than insurers’ (26% versus 15% on average). With increasing requirements to report on Taxonomy alignment and the availability of information from counterparties, it is expected that the numbers from financial institutions will further develop.

aeria view of a newly built housing development with solar panels installed on the rooftops
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Chapter 2

Where does the industry reporting go from here?

As new requirements approach, guidance becomes vital: navigating the path ahead.

The second year of implementation has confirmed the findings from last year’s report: companies continue to face many challenges in implementing the regulation.

These challenges not only stem from the new requirement for nonfinancial undertakings to report the proportion of taxonomy-aligned activities in relation to their turnover, CapEx and OpEx — in addition to the taxonomy-eligible data — but, more important, from the difficulty of interpreting certain criteria and collecting the technical and specific data and information needed for the alignment assessments.

To address interpretive issues, the EU published two draft Commission Notices in December 2022 that provide answers to frequently asked questions related to the disclosure requirements under Article 8 (“Disclosures Delegated Act”) and the Climate Delegated Act, respectively.

Key examples of the challenges companies face include:

  • Complex KPI disclosure template: companies faced some challenges related to the amount of information required for each KPI and to the compilation of a complex table. This resulted in the need for more guidance and led to interpretational uncertainties and low readability, which could affect the comparability of data across the EU.
  • Continued room for interpretation: despite the Commission Notices, uncertainties persisted regarding the interpretation of certain aspects of the Taxonomy Regulation.
  • Compliance with technical screening criteria: the introduction of alignment reporting added complexity, and some undertakings were not adequately prepared to provide the required information because as it was often not available in the required level of detail.
  • Minimum safeguards: the requirement of Article 18 of the Regulation has led to several interpretative doubts about what should be considered a “minimum” in terms of safeguards.

The regulation is expected to further evolve over the next few years. The recently adopted Delegated Regulations will add new activities to the list of those that can make a significant contribution to one of the six environmental objectives, increasing the proportion of activities that are potentially taxonomy-eligible and taxonomy-aligned. These changes will allow for the inclusion of some additional sectors, such as the manufacture of plastic packaging goods or sale of second- hand goods, that are currently excluded from the EU Taxonomy. Meanwhile, these changes will also require companies to conduct periodic assessments to reflect regulatory changes.

In preparation for the additional requirements that should come into effect in the next few years, it is important to anticipate and prepare for what comes “next” and “beyond.”

These expansions reflect the evolving nature of the taxonomy framework, which is expected to progressively incorporate additional activities that could qualify as contributing substantially to one of the six environmental objectives.

Lastly,  according to the recently approved Environmental Delegated Act companies will only be required to report their taxonomy eligibility for the additional activities starting from 1 January 2024. Thus, starting from FY25, both taxonomy eligibility and alignment will be required to be reported for the companies within the scope of the regulation for all the six environmental objectives.

To this regard, the CSRD, approved by the EU Council and EU Parliament in November 2022, explicitly requires companies falling within the scope of the CSRD to include the Taxonomy disclosure within their sustainability statements.

Organizations can navigate the complex new regulatory framework by developing reporting criteria, systems and controls. Steps to map out will include:

  • Mapping the financial data required to calculate the three KPIs required by the EU Taxonomy Regulation (CapEx, OpEx, turnover) and design data collection processes and controls.
  • Mapping of the eligible activities according to the Climate and Environmental Delegated Acts.
  • Translating regulatory requirements into information that your organization can manage with your current systems.
  • Diagnosing the available data in different business units, sites, and functions to identify gaps and alternative solutions.
  • Establishing the methodology and considerations for reporting and calculating the appropriate KPIs.
  • Studying financial systems and financial data extraction, and test traceability with financial information through sampling of activities.
  • Performing the extraction of the data at the end of the fiscal year, process it to calculate the corresponding KPIs and obtain the necessary explanations for the qualitative information required by the regulation.
  • Conducting an assessment of the alignment of each eligible economic activity through a three-step test and gap analysis.
  • Defining an action plan to upgrade taxonomy-eligible activities to taxonomy-aligned in the future years
  • Implementing updated processes, consolidate the data and information collected, and draft the Taxonomy disclosure to be included in the nonfinancial report.


As the EU works to transform into a modern, resource-efficient and competitive economy with net-zero greenhouse gas emissions by 2050, the Taxonomy Regulation will become more critical to business KPIs.

Results from the second EY EU Taxonomy Barometer found there are plenty of opportunities to improve and clarify both information gathering and the process itself to identify organizations’ activities that contribute toward EU environmental objectives.

About this article

By Jan Niewold

EY EMEIA Climate Change and Sustainability Services Leader

Client-focused sustainability auditor and advisor who is open and reliable. Supports businesses with innovative services and advice in a complex and changing world. Loves nature and being outdoors.