EU taxonomy effectively motivates companies to operate more sustainably
Since the beginning of 2022, companies have had to report on the EU taxonomy, a new classification system for “green” turnover, capital expenditure and operating expenditures. And should the planned changes through the introduction of the Corporate Sustainability Reporting Directive (CSRD) take effect, these key figures will not only be reportable, but also auditable from 2024. In addition, companies will have to report on other topics in the future.
Last year, PwC already surveyed undertakings on non-financial reporting. The focus was on the extent to which undertakings have addressed the EU taxonomy and how good the current data situation and processing of non-financial data is with a view to fulfilling the requirements of the EU taxonomy. Now we would like to find out what has taken place at the undertakings in the meantime and how they got to grips with the implementation of the EU taxonomy. Therefore, 170 companies from Germany, Austria, Switzerland and the Netherlands were surveyed. PwC also spoke with nine major banks from eight European countries. For them, too, the EU taxonomy and thus non-financial reporting are gaining relevance because they are important for implementing the European Union’s “Green Deal”. Among other tasks, they must specify a “green asset ratio” – i.e. the proportion of “green” loans or investments within their portfolio.
One key finding at the outset: about half of the companies have already started compliance reporting on the EU taxonomy.
“The level of requirements of the EU taxonomy continues to rise. Under no circumstances should companies underestimate the effort involved in implementation and provide or procure the necessary resources in good time.”
The study at a glance
The EU taxonomy often acts as a catalyst for more sustainable business activities: It has increased the importance of sustainability for as many as 42% of undertakings surveyed – and 63% of respondents said that sustainability is a high priority in their organization.
Do not underestimate the implementation effort
48% of the undertakings have already started with alignment reporting according to the EU taxonomy – and of those that have not yet started, 80% have already dealt with the alignment criteria. Respondents most frequently deal with the criteria on substantial contributions (59%). This was to be expected, as it is in line with the logic of the EU taxonomy.
Undertakings should not underestimate the effort involved in reporting: Only 13% of the taxonomy-experienced respondents estimate this to be low, and 46% expect to need more staff because of the reporting obligations during the year. Already 61% of the respondents rely on external service providers for reporting significantly more than had expected this last year (49%). Evidently, undertakings have often underestimated the effort involved.
Most undertakings do not yet have standardized processes
The most remarkable result for us: 67% of the companies have not yet established any standardized processes to ensure the seamless provision of taxonomy-related data. Only 20% of respondents have established a standardized process for taxonomy-eligible information – although such a standardized process is essential to ensure that the reported data is reliable.
Accordingly, only 13% of respondents believe their company is well prepared to collect taxonomy-eligible data in the coming years – for almost half (49%), this will involve a lot of effort. Undertakings should define processes and responsibilities as quickly as possible, because the level of requirements will continue to rise.
Almost one-third of companies use a dedicated reporting tool
About one in three companies (31%) uses dedicated reporting tools for sustainability reporting – only 9% have a tool specifically for taxonomy reporting. However, 41% plan to use such a tool in the future. So far, 72% of the companies use Excel, 24% Word and 21% e-mail for reporting. This should be viewed critically, as these tools do not allow for audit-proof documentation.
Credit conditions dependent on taxonomy conformity in future
The implementation effort for the EU taxonomy is many times greater for banks than for undertakings because they have to carry out classifications both at the level of the undertakings concerned and at the level of individual transactions.
The intensive survey of nine major European banks revealed that the consistency of results frequently poses a challenge: In particular, different members of staff entrusted with the assessment of obligatory taxonomy alignment from 2023 onwards could often arrive at varying results if they do not have process-oriented tools.
It is also to be expected that the regulatory authorities will most likely call for increased equity backing for loans that are not aligned with the Taxonomy in future. As a result, it is very likely that banks will also differentiate between taxonomy-aligned and non-taxonomy-aligned loans in future – including when it comes to pricing.
Costs so far within limits, controls still mostly manual
- Costs mostly under 100,000 Euro
- Quality assurance rarely automated
- Major challenges for banks
Costs mostly under 100,000 Euro
A good half of the undertakings have had to spend less than 100,000 euros to implement the EU taxonomy. About every fourth company (26%) had costs between 100,000 and 500,000 euros, 16% of the companies spent more than 500,000 euros. The distribution thus roughly corresponds to the sizes of the undertakings surveyed. However, we expect that with increasing reporting efforts, implementation costs will also rise in the future.
Quality assurance rarely automated
Of the companies that already report, only 7% use automatic internal controls so far. A good third of the undertakings (36%) carry out manual controls, every fifth (21%) partly automatic, partly manual. Almost a quarter of the respondents have only introduced automatic or manual controls for some data, 12% of the undertakings do not control the collected data at all.
Major challenges for banks
Due to the EU taxonomy, banks have to request a lot of data from their clients that was previously not in focus. This means they have to convert or redevelop IT systems in a short time, for example, in order to be able to reconcile information with the core banking systems – a very challenging task. From our point of view, standardised, process-oriented input templates are crucial for this.
“Standardized processes are essential for functioning reporting. This is the only way to ensure that the data provided is reliable and allows companies to be managed reliably. Those who have not yet established standardized processes should do so as soon as possible.”
Methodology
For Part A, we surveyed a total of 170 companies from Germany, Austria, Switzerland and the Netherlands between April and June 2022.
Although Switzerland, as a non-EU member, is not necessarily affected by the EU taxonomy, Swiss companies often follow the reporting requirements of EU states. In addition, Swiss groups can be indirectly affected if they have sole proprietorships based in the EU. These are then also subject to the regulations of the EU taxonomy.
For Part B, a total of nine major banks from eight European countries were available to us for intensive discussions
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