Companies with emissions reduction targets are more aligned with the EU Taxonomy, new study shows

• Joint research by CDP and Clarity AI finds that European companies with validated science-based emissions reduction targets tend to have higher EU Taxonomy capital expenditure (CapEx) alignment.
• 2023 was the first year companies fully reported on EU Taxonomy, introducing to the market unprecedented sustainability data – coinciding with financial pledges seizing the spotlight at COP28.
• With the introduction of CapEx alignment data, the market can now evaluate if companies are shifting investments to achieve their targets. 
• The report is the first to compare EU Taxonomy metrics to other indicators linked to corporate transition, exploring how Taxonomy eligibility and alignment relate to companies’ greenhouse gas (GHG) emissions and emission reduction targets.

5 December 2023 (Berlin and New York City): As climate finance takes center stage at COP28 this week, a joint analysis released today by CDP and Clarity AI reveals how the EU Taxonomy can be used by companies as a tool for transition planning and by financial institutions to inform investment decisions and reporting.

The study by CDP, the non-profit that runs the global environmental disclosure system for companies, and Clarity AI, the global sustainability technology platform, is the first to explore the link between EU Taxonomy metrics and indicators of corporate transition, such as GHG emissions and science-based targets (SBTs).

EU Taxonomy data reveals a company’s current and potential future alignment with the net-zero transition at the economic activity level. With data on CapEx alignment being available for the first time, the market now has a shared language to evaluate if companies are transitioning towards green activities. 

The research focuses on 1,700 companies under the Non-Financial Reporting Directive (NFRD) scope that published first-year EU Taxonomy reports. This resulted in an unprecedented amount of data, now accessible in the public domain.

The study reveals that companies with higher Taxonomy alignment tend to have validated science-based targets and align revenues and spending with their climate transition. Out of the 1,700 companies analysed, 300 have SBTs and more than 600 align revenues and spending with their climate transition plan.

The report underscores the effectiveness of the EU Taxonomy when combined with transition plans, both to set and keep track of decarbonization actions and support financial planning within a company’s overall transition strategy. 

Maxfield Weiss, Managing Director for CDP Europe, said: “With financial pledges top of the agenda at this year’s COP28, the EU Taxonomy presents an opportunity for the analysis of sustainability data like never before. As the first year that companies are required to report under the EU Taxonomy, 2023 has seen a goldmine of granular sustainability data released into the market.

However, it’s one thing to have access to this data, it’s quite another to understand how to interpret and use it. This report shows in detail how foundational data is for transformative change and unlocks this data in the context of transition plans – made possible by CDP’s unique questions on sustainable finance taxonomies.”

Patricia Pina, Head of Research at Clarity AI, added: “EU Taxonomy reporting is still in its early stages but is already illuminating the path towards a more sustainable economy. The data produced is crucial to transparently compare where companies stand today in their journey towards a green economy.

However, the EU Taxonomy is not a silver bullet. To effectively leverage this powerful tool and have a holistic view of environmental progress, the financial market should use the EU Taxonomy in conjunction with transition plans to truly assess the credibility of corporates’ commitments when it comes to environmental progress.”

Notes to the editor:

The EU Taxonomy requires non-financial companies to disclose the proportion of their activities that are taxonomy-eligible and taxonomy-aligned in terms of their revenue, capital expenditures (CapEx) and operating expenditures (OpEx).

Taxonomy data reveals a company’s current and potential future alignment with the net-zero transition – revenue-alignment informs on where companies currently stand on their transition journey while CapEx-alignment gives a view of where they are going.

The EU Taxonomy, often referred to as a ‘green dictionary,’ established a common language for companies, investors, and policymakers, facilitating the identification of environmentally sustainable economic activities. This year, approximately 2,000 European companies reported on EU Taxonomy metrics, providing an annual overview of how they are progressing on their transition plans.

For more information or interviews, please contact: 

CDP: Rita Pinto Coelho, rita.coelho@cdp.net

Clarity AI: Edelman, clarityAI@edelmansmithfield.com 

About CDP

CDP is a global non-profit that runs the world’s environmental disclosure system for companies, cities, states and regions. Founded in 2000 and working with more than 740 financial institutions with over $130 trillion in assets, CDP pioneered using capital markets and corporate procurement to motivate companies to disclose their environmental impacts, and to reduce greenhouse gas emissions, safeguard water resources and protect forests. Over 25,000 organizations around the world disclosed data through CDP in 2023, including more than 23,000 companies – including listed companies worth two thirds global market capitalization – and over 1,100 cities, states and regions. Fully TCFD aligned, CDP holds the largest environmental database in the world, and CDP scores are widely used to drive investment and procurement decisions towards a zero carbon, sustainable and resilient economy. CDP is a founding member of the Science Based Targets initiative, We Mean Business Coalition, The Investor Agenda and the Net Zero Asset Managers initiative. Visit cdp.net or follow us @CDP to find out more.

Under the EU-funded FinACTION project, CDP leverages EU LIFE funding to drive market uptake and scale EU ambition and best practice globally through the CDP system while engaging and enabling companies to disclose and act on their environmental impacts in line with ambitious European regulatory requirements and a science- based transition to a net-zero and nature-positive economy.

About Clarity AI

Clarity AI is a sustainability technology platform that uses machine learning and big data to deliver environmental and social insights to investors, organizations, consumers, and governments. Clarity AI’s capabilities are an essential tool for end-to-end sustainability analysis related to investing, corporate research, benchmarking, consumer ecommerce, and regulatory reporting. As of October 2023, Clarity AI’s platform analyzes up to 70,000 companies, 430,000 funds, and 400 national and subnational governments, which represents more breadth than any other player in the market. One way Clarity AI delivers on its mission to bring societal impact to markets is by ensuring its capabilities are delivered directly into clients’ workflows through integrations with partners like BlackRock – Aladdin, Refinitiv an LSEG business, BNP Manaos, CACEIS, and Simcorp. Additionally, Clarity AI’s sustainability insights reach more than 150 million consumers across more than 400,000 merchants on the Klarna platform. Clarity AI has offices in North America, Europe, and the Middle East, and its client network manages tens of trillions in assets and includes companies like Invesco, Nordea, BlackRock, Santander, Wellington, and BNP Paribas.