The EU’s sustainable finance taxonomy makes a “moderate contribution” to the transition to carbon neutrality, according to an assessment by staff at German think tank DIW in Berlin.
The taxonomies in six other jurisdictions also obtained this designation in the staff’s analysis, although the EU taxonomy obtained the highest score across all countries, only 0.4 points away from being considered as making a “high contribution”.
In a discussion paper, the authors explain that they analysed 26 taxonomies in total, building a “transition score” based on their policy embeddedness, sectoral coverage, screening approach, usability, and reporting and disclosure.
They defined four scores for each criterion: no contribution to financing the transition (1), little contribution (2); moderate contribution (3), or significant contribution (4). The criteria were weighted.
The most common result was 2.8 points, with countries on average achieving a result of 2.78 points. The EU taxonomy scored 3.6 in total, with a 4 for policy embeddedness, sectoral coverage and usability, and a 3 for the screening approach and reporting and disclosure.
The DIW paper comes after the European Commission recently published data about uptake of the EU taxonomy, saying that in 2023, around 600 European companies reported capital investments into taxonomy-aligned activities of €191bn. In 2024, the figure so far stands at €249bn, “signalling significant growth”, the Commission said.
According to the DIW researchers, none of the taxonomies that were assessed could be considered as fully enabling the transition to carbon neutrality because of shortcomings with regard to the screening approach and reporting and disclosure.
On screening, it said the approaches often lacked a dynamic or transition approach and it was “frequently not clear whether the thresholds are science-based”.
Research gaps, needs
For the researchers, the analysis is intended to help build academic qualitative research on sustainable finance taxonomies, which they said is rare “despite its increasing relevance in practice”.
“There is a lack of a systematic comparative analysis of existing taxonomies worldwide addressing the question on how taxonomies support financing the transition and decarbonisation of economies,” they said.
They acknowledged their criteria-based assessment approach has limitations, for example that the available information and resources could impact the accuracy of the results and the criteria themselves could be subject to bias “or may not fully reflect the priorities and values of all stakeholders involved in the assessment process”.
“Therefore, it is important to ensure that the criteria-based assessment is used in conjunction with other evaluation methods and that the results are interpreted with a degree of caution and sensitivity to the specific context in which the assessment is being conducted,” they added.
“We also emphasise the importance of ex-post analysis in evaluating the effectiveness of criteria-based assessment frameworks. However, this can only be done once the different taxonomies are applied in practice.”
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