Setting the baseline towards transparency

The EU Taxonomy is a work-in-progress and so are companies’ disclosures, writes Conor Holland, ESG Director at KPMG Ireland.

In this first year of the EU Taxonomy reporting, disclosures were required by companies falling under the Non-Financial Reporting Directive (NFRD). The report brings insights from 275 European large public-interest entities’ EU Taxonomy disclosures that could further refine and strengthen your EU Taxonomy reporting for the coming year. The EU Taxonomy remains a work-in-progress and so are companies’ disclosures.

61 percent of the companies identified EU Taxonomy-eligible Turnover, covering a range of economic activities, but that does not mean that their revenue-generating activities are environmentally sustainable (EU Taxonomy-aligned). This will be indicated in next year’s disclosure on the alignment of economic activities.

79 percent of the companies reported EU Taxonomy-eligible Capital Expenditure (‘CapEx’) and 60 percent of the companies reported EU Taxonomy-eligible Operating Expenditure (‘OpEx’) of more than 0 percent. Out of the remaining 40 percent of the companies that haven't disclosed EU Taxonomy-eligible OpEx, 14 percent have chosen not to disclose this Key Performance Indicator (KPI) and applied the materiality exemption.

Due to limited guidance and no existing best practice, disclosures relating to 2021 varied from a concise paragraph in the back of the annual report to extensive sections with over 10,000 words. We expect that disclosures will become more comparable over time as more guidance is presented, more examples are available, reporting timelines allow for better preparation and governance structures and (specific) processes are implemented or improved.

Most of the companies made no explicit link between the EU Taxonomy disclosures and the company’s broader sustainability and reporting strategy. This is expected to be more aligned and interconnected over time. 

The main observations from reviewing data of companies in specific sectors are summarized in the report. Overall, the highest EU Taxonomy-eligible Turnover was reported by the Real Estate, and Automobiles and Parts sectors, in comparison with Healthcare, Retail, and Travel and Leisure sectors, which reported almost no EU Taxonomy-eligible revenue-generating economic activities.

If you have any queries about EU Taxonomy reporting requirements, please contact Conor Holland, ESG Director. We'd be delighted to hear from you.