The EU Sustainability Taxonomy: a Financial Impact Assessment

Abstract

The European Commission set up a Technical Expert Group on Sustainable Finance (TEG) to support the implementation of the Commission’s Action Plan on Financing Sustainable Growth. Among other tasks, the TEG was mandated to develop recommendations for technical screening criteria regarding economic activities that make a substantive contribution to climate change mitigation or adaptation, i.e. the so-called Taxonomy. This report carries out a financial impact assessment of the Taxonomy. To do so, we first provide an overview of available estimates of additional investment, which is needed to achieve the targets associated with the low-carbon transition under various scenarios, at the macroeconomic level. Then, we focus on the financial dimension. In particular, we use security-by-security data covering the whole European bond and equity markets to provide a picture of where European financial markets stand with respect to the low-carbon transition. In this respect, we also provide estimates of financial investments currently supporting Taxonomy-compliant activities. Finally, we estimate the additional financial investment needed to allow the EU to reach its targeted reduction in carbon emissions. We conclude that the increased financial investments towards relevant sectors appear to be within reach.