Think ESG: A view of the EU Taxonomy

This special Think ESG episode of the Better Finance podcast features Brian Tomlinson from Ernst & Young LLP, and Nathan Fabian, Chief Responsible Investment Officer at the Principles for Responsible Investment.

The discussion sheds light on the EU taxonomy: a system for reporting on sustainable activities. The taxonomy is expected to be a lasting reform, with significant implications for companies with operations in the EU.

The EU has placed sustainable finance and the transition to a sustainable net-zero economy at the core of its growth strategy. Efforts were directed toward development of a taxonomy with standardized environmental performance criteria aligned with the Corporate Sustainability Reporting Directive, and the Sustainable Finance Disclosure Regulation. Communication and disclosure of progress toward alignment of companies’ economic activities with the taxonomy’s sustainability performance criteria was a priority.

The EU taxonomy creates the concept of “green by law” and provides an objective set of largely science-based criteria by which activities are measured in order to be labeled and marketed as “sustainable.” The taxonomy structure indicates when an activity makes a substantial contribution to one of six environmental objectives (climate change mitigation, climate change adaptation, water, circular economy, pollution and biodiversity) with no significant harm done to the other five.

A recent EY study examines the first-year results of the application of the taxonomy and the disclosure practices adopted by EU companies in the first wave of reporting.

Key takeaways:

  • “Green” implies making a contribution to a sustainable environment by measuring activities against a set of objective benchmarks developed by the EU.
  • The taxonomy may operate as a “forcing function”— as companies will do significant work to map activities agains the taxonomy criteria.
  • Companies initially should not expect high alignment with the taxonomy. The first round of reporting by EU companies showed low alignment numbers but high strategy commitment. Numbers are expected to increase over the next few years.
  • Many investors will look at data (such as alignment of capex to taxonomy) to understand the seriousness of companies’ transition plans.

Production note: After this recording, Nathan Fabian completed his tenure as chair of the Platform on Sustainable Finance.

For your convenience, full text transcript of this podcast is also available. Read the transcript.

Presenters

Myles Corson
EY Global and Americas Strategy and Markets Leader, Financial Accounting Advisory Services
Brian Tomlinson
Managing Director, Environmental, Social and Governance, Ernst & Young LLP

Podcast

Season 5, Episode 4

Duration 32m 45s

In this series

Series overview
(Event List - Manual)

Think ESG: Finding the path to ESG-linked financial value

This special Think ESG episode of the Better Finance podcast features Brian Tomlinson, Ernst & Young LLP, and Tensie Whelan, Director, Center for Sustainable Business at NYU’s Stern School of Business.
Podcast

Season 5, Episode 3

Duration
32m 28s

Presenters

Myles Corson

EY Global and Americas Strategy and Markets Leader, Financial Accounting Advisory Services

Brian Tomlinson

Managing Director, Environmental, Social and Governance, Ernst & Young LLP

How the evolving ESG regulatory landscape is impacting finance

In this episode, Myles Corson welcomes Marc Siegel, EY Americas Corporate and ESG Reporting Leader, and Brian Tomlinson, ESG Managing Director at Ernst & Young LLP.
Podcast

Season 5, Episode 2

Duration
24m 39s

Presenters

Myles Corson

EY Global and Americas Strategy and Markets Leader, Financial Accounting Advisory Services

Brian Tomlinson

Managing Director, Environmental, Social and Governance, Ernst & Young LLP