Sarah Katz, Torben Kulasingam
May 10, 2022
Here’s how the EU Taxonomy could influence US businesses
How ready are US-based companies to comply with the European Union’s Taxonomy for sustainable activities? New research from New York University's Center for Global Affairs and Ramboll aims to answer this question.
by Louie Reckford
The EU Taxonomy offers a blueprint for companies to clarify which investments are environmentally sustainable – and whether their activities can be classified as being sustainable. In turn, this helps investors ensure their investments are indeed sustainable and do not contribute to greenwashing.
A new research partnership between New York University's Center for Global Affairs and Ramboll recently evaluated the extent to which large US financial institutions and real estate firms are prepared to comply with these ambitious sustainable reporting requirements.
The main takeaway from our research is that these firms need more and better data to assess whether their assets meet the definition of sustainability, as outlined by the EU Taxonomy.
The results offer opportunities for these firms to boost sustainability plans so they can thrive in the rapidly evolving European market.
Beyond voluntary disclosure
The partnership evaluated three large financial institutions and two large real estate firms, all of which are based in the US.
Our research shows each of the five firms evaluated believes climate change poses a serious threat, and all express a desire to contribute to the energy transition. While some firms have gone to great lengths to report on their sustainability efforts, they are not necessarily prepared to comply or align with the EU Taxonomy regulations.
This divergence between statements and action presents an opportunity for other businesses to help these companies prepare for EU Taxonomy compliance. Particularly, there is a need for a standardised method in compiling and reporting data. As it stands, investors are forced to rely on small and medium enterprises (SMEs) to report on their sustainability metrics and calculate their own green asset ratio, a key performance indicator under the EU taxonomy.
As SMEs are not required by the EU Taxonomy to report, it is unclear whether large American asset managers will pressure SMEs to provide the information necessary, or simply choose not to attempt to meet the requirements to be considered an Article 8 or Article 9 fund (known as “light green” and “dark green” funds, respectively) under the EU Taxonomy.
Another relevant finding of the data is the difference between the companies’ US-based and European-based operations. The companies with greater exposure to the European market have done a greater amount of sustainability work, particularly in the real estate sector.
Real estate firms are more aware of how new regulations impact buildings and are increasingly responsive to tenant and occupier demands for green buildings. On the other hand, financial institutions appear less prepared to meet the demands of the shifting regulatory regimes and seem less pressed to meet the EU Taxonomy requirements.
Companies will find it worth watching whether financial markets create pressure for non-European financial institutions to align with the EU Taxonomy as it matures.
About the partnership
About the EU Taxonomy
The EU Taxonomy, which took effect 1 January 2022, sets rules and guidelines for how businesses must report on their climate and environmental impact. It is expected to have a far-reaching impact on how businesses invest and help unlock financing for businesses that can prove a clear sustainability impact. Louie Reckford is a M.S. candidate in Global Affairs at NYU specialising in Energy and Environmental Policy. He previously worked as a Policy Advisor at Foreign Policy for America and as a staffer for United States Senator Jeff Merkley.
To contact the editor of this article, email: Devapriyo Das, Group Content Manager, Ramboll
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