Taxonomy Disclosure in the EU: A Useful Framework, Despite Current Challenges

Abstract

The EU Taxonomy is a classification system for sustainable economic activities and a framework for various regulatory initiatives. Its primary objectives are to enhance transparency, to reduce greenwashing and ultimately to redirect capital toward more sustainable activities. However, since its introduction, market participants have raised concerns about whether the benefits justify the costs. This article examines current challenges, such as the initial implementation costs, data gaps, sector and counterparty coverage, while also highlighting opportunities like enhanced international competitiveness and improved ESG risk management. The focus of this article is on banks as both preparers and users of Taxonomy data, addressing issues related to Taxonomy eligibility, alignment, and the Green Asset Ratio (GAR). The article concludes with recommendations for policy makers and authorities to improve the effectiveness of the Taxonomy disclosure.