EU rules on Taxonomy alignment key for transparent ESG market

07 December 2020

Today Eurosif responded  to the consultation by the European Securities Markets Authority (ESMA) on rules for corporate issuers and asset managers in disclosing key KPIs to determine the alignment of their business with the EU Taxonomy. These rules are key to counter greenwashing in the ESG market.


On the 5th of November ESMA issued a consultation [Link] on technical advice it is preparing for the European Commission on rules determining how companies and asset managers should report on the alignment of their business with the EU Taxonomy, around core KPIs such as turnover, Capital Expenditure (CapEx) and Operational Expenditure (OpEx). ESMA has to deliver its advice to the European Commission by 28th February 2021. Companies reporting on their turnover, CapEx and OpEx can be vital information for investors to understand how a company is positioned to achieve the objectives of the EU Taxonomy on Climate Mitigation and Climate Adaption, and therefore the overall objective of achieving net-zero by 2050.


Asset managers, investors and regulators are facing challenges in getting ready to comply with the EU Sustainable Finance Disclosure Regulation (SFDR) that will apply from the 10th of March 2021.

A key problem is the classification of ESG and other responsible investment fund products under the various categories (Art 8 and 9). This classification will remain challenging in the future, making it challenging for investors to compare the level of sustainability ambition of each fund product. Having asset managers reporting on the alignment of their portfolio against the Taxonomy could prove to be a great tool in providing comparability to investors on the sustainability ambitions of various ESG fund products.


That necessary transparency will only be achieved if the results are credible and based on an appropriate methodology. And here Eurosif has strong reservations about some of the proposal considered by ESMA:

  • Calculating the alignment only on investments in eligible economic activities covered by the Taxonomy is likely to artificially inflate the level of alignment of asset managers. A more transparent method is to calculate the share of aligned economic activities over the total assets under management.
  • Since EU Green Bonds and sovereign bonds can be taxonomy aligned if the sovereign issuer is able to demonstrate proceeds being used for taxonomy aligned activities, we believe carving out entirely sovereign bonds from the calculation will provide less transparency and will again artificially inflate levels of alignment of portfolios.
  • Since alignment with the taxonomy is providing indications about sustainability impacts and the level of sustainability ambitions of an asset manager, only direct stakes through shares and bonds should count as eligible taxonomy aligned investments. Exposures to companies through derivatives give asset managers no direct ability to engage with investee companies and drive their CapEx and OpEx to be more taxonomy aligned. Therefore, these derivatives exposures should not count as being taxonomy aligned.

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