No. 234: Green Performance through the Lens of the EU Taxonomy: Early Evidence

After the partial introduction of the EU Taxonomy Regulation in 2021, this paper provides one of the first analysis of firm-reported taxonomy data. We descriptively examine how firms in France, Germany and Italy apply the EU Taxonomy during 2022-2023 and assess the relationship between taxonomy-based metrics and ESG ratings. Using hand-collect data from non-financial firms, we find that 36% do not yet report taxonomy eligibility or alignment and that 31% of reporting firms make disclosures errors. On average, 9% of revenue and 18% of capital expenditure are reported as taxonomy aligned. We use green KPIs based on Alessi et al. (2024) and aggregate them into a composite Green Score. While the average Speed of Transition is negative, indicating reluctance to embrace environmental transition, positive average Green Profit and Green Long-Termism are encouraging. The average Green Score is very close to zero. Finally, correlations between taxonomy-based metrics and ESG ratings are weak. Overall, our results indicate that forward-looking and standardised taxonomy-based metrics offer a promising avenue for more transparent and comparable assessment of environmental sustainability but their potential is constrained by significant administrative burdens. Recent regulatory proposals to streamline and simplify reporting could help overcome these barriers.