Usability Challenges in Reported EU Taxonomy Data from Financial Institutions

A case study on insurance

The European Taxonomy has been in force since January 2022, guiding investors towards more sustainable investments. In January 2024, the regulatory requirements expanded, introducing additional reporting obligations on European banks and insurance companies which in 2024 have begun reporting their alignment with the EU Taxonomy for the first time.

Companies report EU Taxonomy greenness by disclosing percentage of alignment of certain Key Performance Indicators. Non-financial entities will disclose Turnover, CapEX and OpEx alignment, whereas credit institutions, asset managers, investment firms, and insurance companies will report sector-specific KPIs.

Counterparty	Relevant KPIs
Credit Institution	Green asset ratio (GAR)
Insurance company	Investments KPIs combined with the underwriting KPIs of the non-life investee insurance and reinsurance undertakings
Asset Manager	Investments KPIs (GIR): revenue-based and CAPEX-based eligibility and alignment
Investment Firm	Investments KPIs: “dealing on own account” and “not dealing on own account” KPIs

Since financial institutions report different KPIs from those of non-financials, users of Taxonomy data with exposure to financial institutions (such as financial institutions themselves, or investors) need to make the choice of how to use and interpret the sector-specific KPIs.

The regulation specifies the KPIs to be used based on the type of financial undertaking and counterparty,¹ as recently clarified by the European Commission.² However, entities must report a large amount of information, and only some EU Taxonomy metrics are relevant to financial institutions’ disclosures. This makes identifying and applying the right metrics a complex and challenging process. For instance, if the counterparty or investee is an insurance company, the relevant metrics include:

• The underwriting KPI for non-life insurance and reinsurance undertakings.
• The proportion of the insurance or reinsurance undertaking’s investments that are directed at funding, or are associated with, Taxonomy-aligned activities in relation to total investments.

How do you decide which KPI to use?

Deciding which KPI (metric) to use involves a thorough understanding of the regulation. Financial companies exposed to an insurer must combine both KPIs, those associated with their insurance or reinsurance activity and those associated with investments. This involves calculating a weighted average based on the revenue proportion of each business line. Still, the regulation and official templates do not specify how insurers should provide this information, requiring a study of the company’s revenue to contextualize the metrics.

We seek the required data within the contextual information provided by the insurer in order to provide a combination of both KPIs. However, to date, we have observed only a limited number (<5%) of instances where companies provide the necessary information to contextualize the values accurately. When this data is unavailable, we collect both the underwriting KPI and the investments KPI. We then apply the most representative metric for the specific company, while retaining both metrics for comprehensive analysis.

How can Clarity AI help?

At Clarity AI, we focus on identifying the precise metrics and methodologies our clients require for EU Taxonomy reporting, helping financial institutions locate and interpret the necessary data. Additionally, we develop solutions to assist clients not only in sourcing the correct data but also in generating comprehensive reports, such as the Pillar 3 ESG Templates, the French Article 29 disclosures, or the entity-level EU Taxonomy report itself.