Solving for EU ESG taxonomy data challenges
This article was written by Rokhsana Saddighzadeh, Global Product Manager for Sustainable Finance Regulation at Bloomberg, Brad Foster, Global Head of Enterprise Content at Bloomberg, and Greg Van Droogenbroeck, Head of Enterprise Sustainability and Research Data at Bloomberg.
From January 2022, reporting begins for Financial Market Participants (FMPs) under the EU Taxonomy — a framework to classify environmentally sustainable economic activities. With this imminent deadline, firms face multiple ongoing challenges centered around data and regulatory complexities.
Too much and too little ESG data
When looking to comply with the EU Taxonomy, a steep hurdle for FMPs to overcome is the sprawling amounts of data, with patches of scarcity. The EU Taxonomy requires in scope companies to disclose the percentage of turnover, capital expenditure (CapEx) or operational expenditure (OpEx) that is Taxonomy eligible, and eventually Taxonomy aligned. In order to comply, FMPs require companies to disclose this information. The amount of company-reported data can be overwhelming since companies can slice and dice the data in various ways, resulting in complexities and inconsistencies when FMPs and investors consume and apply it.
In addition, the data can be sparsely populated since only certain companies have to report under the EU Taxonomy. Currently, only EU companies in the scope of the Non-Financial Reporting Directive or those with more than 500 employees must report. So, if FMPs have investments beyond this group, for example in international or small-to-medium sized enterprises (SMEs), they must figure out how to plug this gap if they wish to provide a holistic view of their portfolio’s Taxonomy eligibility.
One way that FMPs can solve for this is by acquiring ESG-related data sets. However, a lack of standardization in the ESG data market, in terms of the underlying calculations, use of standard symbology, and the corporate hierarchies used by vendors, presents challenges when integrating and linking the data to existing ESG and fundamental data sets. When FMPs consider purchasing ESG data sets, transparency into the underlying data sources and ensuring that data can link with existing data sets is key for complying with the EU Taxonomy and preventing other data management challenges.
1,000 pages of regulation complexity
Yet another obstacle lies in interpreting the EU Taxonomy requirements. There are nearly 1,000 pages of regulatory demands specifying granular tests for companies across various sectors and environmental objectives to determine Taxonomy alignment. Compounding this, is the fact that some of the details are still being developed, and the deadlines for regulatory reporting are staggered leading to misalignment between when company-reported data is available and when FMP reporting requirements are due. To help navigate what and when firms need to report, we have recently published this blog overviewing the timeline.
As well as interpreting the EU Taxonomy intricacies, firms must also understand how the three main EU sustainable finance regulations interact: the EU Taxonomy, the Sustainable Finance Disclosure Regulation (SFDR), and the Corporate Sustainability Reporting Directive (CSRD). At a high-level, the Taxonomy is a “green share” disclosure regulation that applies to companies and FMPs in scope for SFDR and CSRD, which are focused on capturing and mitigating sustainability risks. For a more detailed analysis, we published this blog further delving into the topic.
Determine your alignment with the EU Taxonomy
Recognizing these challenges, Bloomberg simplifies FMP EU Taxonomy disclosure requirements through the collection and delivery of company-reported EU Taxonomy data.
Bloomberg further helps address any gaps in this data through a suite of derived, rule-based Taxonomy fields. For example, since only large EU corporates currently must report Taxonomy data, Bloomberg’s solution captures data for international firms so FMPS can fully assess the sustainability profile of their portfolio.
Bloomberg’s data solution supports the four-step due diligence process leading to Taxonomy alignment ‘including eligibility, substantial contribution, do no significant harm, and minimum safeguard content. When computing EU Taxonomy data, Bloomberg provides users with full visibility into how it analyzes the data through detailed methodology documents.
To learn more about Bloomberg EU Taxonomy data solution, please visit our website or request a demo.