The EU Taxonomy Regulation requires all firms covered by the EU Non-Financial Reporting Directive (NFRD), which is giving way to the more stringent Corporate Sustainability Reporting Directive (CSRD), to report Key Performance Indicators (KPIs) related to environmentally sustainable activities that are EU Taxonomy aligned (read here for more on Taxonomy eligibility and alignment).
The Taxonomy KPIs are different for financial and non-financial undertakings. The KPI for financial undertakings is Green Asset Ratio (GAR) and the three KPIs for non-financial undertakings are proportion of turnover, capital expenditure (CapEx) and operating expenditure (OpEx). The image below gives the classification of KPIs.
Taxonomy KPI for Financial undertakings
The Green Asset Ratio (GAR) is the KPI applicable for credit institutions (or lenders) and shows the proportion of exposures related to a credit institution’s taxonomy-aligned activities compared to its total assets (Source).
The GAR is calculated in different ways for investment firms who deal on their own account and for those that do not deal on their own account. While not explicitly stated in the Taxonomy regulation, the KPI for the investment firms that do not deal on their own account is Green Investment Ratio (GIR), which indicates the proportion of exposure related to investments in Taxonomy aligned activities compared to the total Assets Under Management (AUM)
Taxonomy KPIs for non-financial undertakings
The three KPIs for non-financial undertakings are
- Turnover, which indicates the proportion of the net turnover derived from products or services that are taxonomy-aligned.
KPI related to Turnover = Revenue or turnover derived from taxonomy aligned products or services/Total revenue or turnover
- Capital Expenditure (CapEx), which indicates the proportion of the capital expenditure of taxonomy-aligned activities.
KPI related to CapEx = Capex of Taxonomy aligned activities/Total CapEx
- Operating Expenditure (OpEx), which indicates the proportion of the operating expenditure associated with taxonomy-aligned activities.
KPI related to OpEx = OpEx of Taxonomy aligned activities/Total OpEx
The EU delegated regulation can be accessed here.
Examples
The two examples, one for financial and non-financial undertakings, provide a practical example of how the Taxonomy KPIs are reported.
1. Financial undertaking: The Swedish Bank, SEB, in its financial report for 2021, reports its Green Asset Ratio (GAR) as follows.
Exposure to taxonomy-eligible assets = 19%
The detailed report can be accessed here.
2. Non-financial undertaking: The German energy firm, E.On, reported its Taxonomy KPIs for 2021 as follows.
| % Taxonomy eligible (of total) | % Taxonomy aligned (of total) | |
| Investments (CapEx) | 73% | 71% |
| OpEx | 61% | 60% |
| Revenue | 18% | 18% |
The detailed report can be accessed here.
Conclusion
Reporting the Taxonomy KPIs marks the culmination of an entity’s year-long efforts that involves identifying taxonomy-eligible and -aligning economic activities, mapping the financial performance of these activities and calculating the KPIs. Reporting these KPIs serve not only to comply with the Taxonomy Regulation, but also serve as a means to assess the reporter’s sustainability performance and identify ways to improve them.
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