June 14, 2020
Testing the applicability of the sustainable finance taxonomy
In spring 2020, Climate & Company and its partners conducted a study for DG FISMA (i.e. European Commission; Directorate‑General for Financial Stability, Financial Services and Capital Markets Union) to test the applicability of the sustainable finance taxonomy (proposed by the EU’s Technical Expert Group) to the design of an EU Ecolabel for financial products. The three-months project has focused on equity funds only (i.e. no other financial product) and only took the climate change mitigation dimension of the EU Taxonomy into account (abstracting from a DNSH assessment).
The study was one of the front-runners regarding EU Taxonomy application at financial portfolio level and provided valuable insights how a EU Taxonomy evaluation can be done.
Among others, key findings are:
Based on our non-representative sample (i.e. a green niche), only ~30% of activities fall under the EU Taxonomy on climate change mitigation and are therefore exposed to the screening criteria;
This implies that ~70% have no chance to qualify as EU Taxonomy-aligned;
Depending on the scenario, 3-6 (out of 101) funds comply with EU Ecolabel criterion 1 (v2) – without considering DNSH and exclusion criteria.
The study was conducted with the support of experts from the Frankfurt School – UNEP Collaborating Centre for Climate & Sustainable Energy Finance (Karsten Loeffler, Sebastian Rink and others), as well as Prof. Dr. Christian Klein (Chair of Sustainable Finance, University of Kassel) and Maurice Dumrose.
The report has been published in July 2020. Following this link, you find the full report (~ 70 pages) and the executive summary (~ 6 pages) in English and French.
Update March 2021: The JRC has published the technical report v4, which contains parts of our analysis in which we applied the formula v3 and v4 to the same 101 green equity funds described above.