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  • 1.  EU Taxonomy HELP!!

    Posted 18-01-2024 16:21

    Hi all,

    I was wondering if there was anyone on this platform that has done a lot of work on the EU Taxonomy?

    As we have Periodic Reporting to conduct again this quarter, I am trying to get my head around the latest Taxonomy data.

    Where are you getting data from (if you are using it)? Are you leaving this at 0% for now? What data can you trust? What coverage are you getting for your portfolios?

    What approaches are you taking...?

    Thank you :)

    Francesca Wheble
    Responsible Investment Analyst

  • 2.  RE: EU Taxonomy HELP!!

    Posted 19-01-2024 12:27

    Thanks Francesca. Great question. I'm sure there's someone out there in the community who will be able to help. This is very much the sort of thing that the community has been designed to do. A problem shared by one person is likely to be a problem that many have and that some of the community will be able to help with. And I'm sure that community members will be able to return that favour in future. Lots of good karma opportunities here. Will

    William Goodhart
    Chief Executive

  • 3.  RE: EU Taxonomy HELP!!

    Posted 19-01-2024 15:06

    Hi Francesca! Very urgent question.

    The Taxonomy alignment data for (large) European companies who are subject to NFRD must be publicly available. Therefore, if you have a relatively small portfolio and do not have ability/access to data of large vendors (Bloomberg/Thompson Reuters), then it probably makes sense to collect data manually from websites or sustainability reports of investee companies. If such disclosures are not available, you need to request them directly from your investee companies as it is a legal obligation of the EU NFRD companies to provide Taxonomy disclosures. 

    You could browse through the recent December 2023 guidance on Taxonomy disclosures for financial institutions (see Question 5 particularly). The guidance mentions two things:

    1. Use the most recent disclosures of investee companies
    2. If data is not available yet, report zero alignment.

    (EU Commission Notice:

    In general, you may face three cases:

    1. Investee company is a EU and subject to NFRD/CSRD => use publicly available Taxonomy disclosures
    2. Investee company is a EU but not subject to NFRD and will be subject to CSRD in a few years (small/private companies) => report zero eligibility and alignment with the Taxonomy because no data is disclosed by such companies as of now.
    3. The company is non-EU:

    3.a if it is subject to CSRD and already discloses Taxonomy alignment publicly, use those disclosures

    3.b if it is not subject to CSRD (or will be subject later), then report zero Taxonomy alignment of your holdings in this company as no data is available as of now.

    I hope, it helps at least somehow.

    I would also suggest to read Question 26 that explains how to treat derivatives or short positions in denominator of KPIs.

    Anastasia Kuznetsova
    Associate Business Analyst

  • 4.  RE: EU Taxonomy HELP!!

    Posted 20-01-2024 13:35

    Great reply Anastasia. Do you know whether the numbers provided by the majority of companies required to do so still is based on internal estimates? I do remember a lot of estimates being thrown out in company reports, earnings calls and sell side reports (or other third party providers) during the initial phase of Taxonomy reporting, similar to what this article describes:

    Detailed data, usually MSCI, Sustainalytics, BBG (BESG <GO>) or direct from company (for example, High level, sell side or BNEF.

    Tarjei Lode
    MBA Candidate at London Business School

  • 5.  RE: EU Taxonomy HELP!!

    Posted 21-01-2024 12:59

    Hi Tarjei!

    Based on my experience the majority of data provided by companies are still estimates. It creates a problem for financial undertakings as they can only use reported data in their Taxonomy disclosures.

    We utilize the following approach when preparing Taxonomy related disclosures for banks/asset managers/investment firms.

    We take all the Taxonomy data from a data vendor. Then, we segregate the reported data (that was directly collected from companies) from estimated data (Taxonomy data that the vendor derived/estimated themselves) and then we issue two Taxonomy reports for the financial services firms. First report is a mandatory one and it contains disclosures based on the reported information only. The second report is a voluntary one and it contains disclosures based on estimates data (including internal estimates of companies, or estimates of vendors based on the reported data of companies). This voluntary report acts as an enhancement of mandatory report. 

    I am hoping that in a few years the situation with reported data and therefore disclosure quality will improve. I cannot even recommend any data source tbh. In my opinion, data from the sustainability reports/websites of companies are the most reliable. 

    Here is an example of disclosures from Volkswagen (the disclosures are old a bit but at least they tried to meet the requirement and provided disclosures in the official excel template):

    Anastasia Kuznetsova
    Associate Business Analyst

  • 6.  RE: EU Taxonomy HELP!!

    Posted 22-01-2024 10:51
    Edited by Aya Pariy 22-01-2024 10:51

    what an amazing thread, thank you everyone.

    I found ArcelorMittal reporting which discloses a lot of things including emissions, waste and water management etc. And here's an article on this from the data company they worked with. May be as examples?

    Look forward to hearing from other members on Francesca's question.

    Aya Pariy

  • 7.  RE: EU Taxonomy HELP!!

    Posted 23-01-2024 08:41

    Good points Anastasia, therein lies the rub - actual reported data availability of vs estimates and requirements for financial institutions to disclose on best efforts basis.  To put in context, i've seen when looking at large portfolio at entity level of holdings where using a third party data source the EU taxonomy alignment %  is less than 2.5% of AUM.  Trying to specify a minimum EU Taxonomy alignment when you have fund of funds is even more difficult.   There's a sequencing problem with disclosures from world companies vs the obligations of financial institutions to report - if its not reliable and widely available then that makes it hard to commit for a fund to a minimum taxonomy aligned % in pre-contractual disclosures.  Not sure how many Art 8 & Art 9 funds have taxonomy aligned minimum commitments- I'm sure Morningstar and others have done some analysis.  No doubt will improve over time but i would expect this may take years.  From memory, the UK Green Taxonomy is expected to be developed / published sometime this year,

    James Doyle
    Director, Green Finance, Investment Management

  • 8.  RE: EU Taxonomy HELP!!

    Posted 29-01-2024 09:48

    Thanks all for this great discussion. This has been super useful, and re-assuring that I am not just missing this information somewhere!

    There is the question, when should we actually start disclosing Taxonomy alignment with out portfolios when only 10-15% of holdings are reporting figures? One to figure out...

    Francesca Wheble
    Responsible Investment Analyst