Going behind the green scenes: Empirical evidence on the determinants of EU taxonomy-eligibility reporting

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Volume Title

School of Business | Master's thesis

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Date

2023

Department

Laskentatoimen laitos

Major/Subject

Mcode

Degree programme

Accounting

Language

en

Pages

110

Series

Abstract

ESG and sustainability reporting have become mainstream in the past decades with companies disclosing, both voluntarily and due to regulatory requirements, a myriad of non-financial information. Europe has been a frontrunner of regulatory requirements, with the EU mandating large public interest entities to include non-financial information in their annual reports in accordance with the Non-Financial Reporting Directive and the upcoming Corporate Sustainability Reporting Directive. A recent development in sustainability reporting has been the creation of the EU Taxonomy classification system which establishes a list of environmentally sustainable activities and requires companies to report on key performance indicators related to the Taxonomy. Large public interest entities needed to report Taxonomy-eligibility on revenue, capital expenditures and operating expenditures for the financial year 2021 and Taxonomy-alignment shall be reported for financial years beginning on January 1, 2022. Taxonomy-eligibility refers to the exposure to activities that could be Taxonomy-aligned, whereas alignment refers to contributing to one of EU’s 6 environmental objectives and doing no significant harm to the others. My thesis examines the reporting of Taxonomy-eligibility in the financial year 2021 with OLS multiple linear regression. I collected data on listed companies in the EU and analyzed the determinants of Taxonomy-eligibility reporting following prior research on the determinants of ESG performance, with Refinitiv’s ESG ratings as a proxy. I study both the association of EU Taxonomy-eligibility with ESG environmental performance as well as with various other firm characteristics. Based on empirical evidence, albeit from a limited sample size, I find that environmental performance and EU Taxonomy-eligibility have a positive, statistically significant relationship. I also find evidence on environmental management team quality score by Refinitiv being positively associated with the EU Taxonomy-eligibility. The results show statistical significance, but the economic significance and goodness-of-fit of the model is low even after controlling for industry and country. This may imply that the firm-specific variation of applying eligibility reporting is high. My thesis provides initial evidence on EU Taxonomy application in practice. There are several interesting avenues for further research as EU Taxonomy reporting becomes more established and firms start reporting the EU Taxonomy-alignment.

Description

Thesis advisor

Myllymäki, Emma-Riikka

Keywords

ESG, ESG performance, ESG ratings, EU taxonomy, taxonomy-eligibility

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Citation

Permanent link to this item

https://urn.fi/URN:NBN:fi:aalto-202302192096

Collections

[gradu] Kauppakorkeakoulu / BIZ