EU Sustainable Finance Trends 2024

EU sustainable finance trends 2024

Large companies have made significant efforts to implement the EU Taxonomy over the past couple of years. In 2024, for the very first time, it is possible to reflect on a full year’s worth of reporting and observe how investment strategies have evolved.

EU Taxonomy data shines a light on the companies and sectors that are moving the fastest on the energy transition, and on those investing to become tomorrow’s sustainability leaders.

To help financial firms identify these opportunities, we used Bloomberg’s best-in-class data to review the reporting for FY2023 to date and produce a study on the sustainability KPIs of companies reporting Taxonomy metrics in their non-financial disclosures, and analyzed year-on-year trends and sectoral differences. See our full report here.

Key Takeaways

1. Companies are becoming more sustainable.

The average revenue and capital expenditure (CapEx) alignment across all sectors is increasing year-on-year. Moreover, the relative stability of reported alignment enhances the value of the EU Taxonomy as an investment screening tool for portfolio managers.

2. Companies are making significant investments in sustainable activities.

The average alignment of CapEx is significant, suggesting that companies will be even greener once those investments bear fruit. This green shift is most evident in the Utilities sector, with an average CapEx aligned to the EU Taxonomy of over 60%.

The five sectors with the highest average alignment with the Taxonomy are: Utilities, Real Estate, Energy, Materials and Industrials, with an average alignment equal to or greater than 10%. This information can help identify sustainability leaders and create diversified portfolios.

3. Taxonomy disclosures help to create sustainable portfolios.

4. Companies contribute more to climate change mitigation than to climate change adaptation.

The average revenue alignment across all sectors was 15% for mitigation and 2% for adaptation for 2023.

5. Investors are starting to adopt the EU Taxonomy.

Nearly half of Article 8 and 9 funds report EU Taxonomy alignment of their portfolio, and some are starting to use the EU Taxonomy in their investment processes. Meanwhile, the pool of capital available to companies is substantial; ~60% of AUM managed in Europe have sustainability characteristics and/or objectives.

6. The EU Taxonomy is being adopted outside the EU’s borders.

Imitation being the highest form of flattery, over 100 companies across North and South America, Europe, Asia, and Africa are reporting on their EU Taxonomy alignment. At 16%, the average revenue alignment of non-EU firms was higher than the EU company average, suggesting that the EU Taxonomy attracts sustainability leaders from around the world.

The EU Taxonomy disclosures have provided new insights into the true sustainability of companies. Moreover, the quality of the Taxonomy disclosures year over year reinforces the reliability of this data for broader financial decision-making.

The adoption of the EU Taxonomy beyond the EU’s borders results in a larger investable universe with a common definition of sustainability. We’re only two years into EU Taxonomy reporting but the results look promising.

See our full report here.