Taxonomy reporting: Many investors want to invest responsibly. Investment funds which want to attract such investors should report their share of responsible investments.
Slow regulatory details
In the EU, so far only two (climate change mitigation and adaption) of the predefined six environmental categories and zero social categories have been officially defined. Thus, reported responsible investments are limited to those two climate categories.
The good news: Regulation is finally advancing and last week the EU finally published a call for feedback on the 4 remaining green categories: Sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control and protection and restoration of biodiversity and ecosystems (see Sustainable investment – EU environmental taxonomy (europa.eu)).
Taxonomy reporting is scarce and of little meaning
I want to invest 100% responsibly and I think that my fund portfolio is close to that goal (see e.g. my FutureVest fund in www.cleanvest.org and Artikel 9 Fonds: Kleine Änderungen mit großen Wirkungen? – (prof-soehnholz.com)). My fund mainly focuses on social topics but social investment cannot officially be reported as responsible.
The auditors of my fund – one of the top 4 firms – only allows to count revenues as responsible for my fund if they have been officially declared by my investment companies as EU taxonomy aligned. Specifically, the auditors do not accept responsible investment estimates, even if they are provided by well recognized third parties such as MSCI. My fund only has a low share of EU-based investments. The few EU companies who focus on the first two defined green categories of the EU Taxonomy tend to report taxonomy aligned revenues. Others, especially non-EU based companies, do not.
Therefore, I agreed to officially define only 5% as the “responsible” minimum investment of my fund (see www.futurevest.fund for the offical documents). Other suppliers of investment funds follow a similar approach. Therefore, (EU-)investors who look for responsible investments can often only find funds with low minimum targets for such investments.
For all listed companies, taxonomy reporting can pay off fast
Companies are typically free to report EU taxonomy-aligned investments. In doing so, they can attract additional investments by the many funds who want to sell to European investors. That could increase their share prices for very low additional reporting costs.
In any case, investment providers should be allowed to estimate green and especially social investments to give investors a better view of overall responsible investments. Even without detailed regulation, such estimates are nor riskless for data- and investment providers. Many organizations and individuals have started to observe and report potential green and social washing.
Only once all green and social goals have been clearly defined and EU-based companies have to report these revenues, estimates for such revenues regarding EU-based companies could be forbidden.