If so, please specify the aligned share of turnover?

  • Radia Guira

Companies will need to calculate and report Taxonomy alignment by
reference to three financial indicators:
– Turnover
– Capital expenditure (capex)
– Operating expenditure (opex)
These indicators will produce different Taxonomy alignment scores where the fund has invested in one or more companies which perform a mixture of Taxonomy-aligned and other economic activities.
For example, an investee company performs two economic activities, where activity A is Taxonomy-aligned and activity B is not. Activity A represents a high proportion of turnover and opex but a low proportion of capex. As a result, the company produces a high Taxonomy-alignment percentage under the turnover and opex measures but a low percentage under the capex measure.
Please specify the calculation methodology used and the scope of the activity covered in the comments section.

This question essentially asks companies to indicate the segment of their total turnover (or revenue) that is in line with their sustainable practices or objectives, or more generally, which follows a certain ESG alignment. It aims to measure the degree of monetary success that a company derived from its commitment to Environmental, Social, and Governance (ESG) criteria, thereby giving a snapshot of its level of sustainability.

The phrase « aligned share of turnover » refers to the percentage of your company’s total revenue that corresponds to products, services, or operations that adhere to ESG principles or sustainable initiatives. This could involve environmentally friendly products, ethical sourcing practices, responsible governance, and the like. This question attempts to gauge the extent of the financial impact of your sustainable practices.

As for an example response: if a company’s line of eco-friendly products generates forty percent of the company’s annual turnover, the aligned share would be 40%. (Example: 40%).

Note: The percentage figure demanded in response to this question depends on the firm’s internal analysis and calculations, so it is necessary for each firm to have clear criteria about what it considers ‘sustainable’ or ‘ESG aligned’.

Understanding the EU Taxonomy Alignment

Before delving into how to calculate the aligned share of turnover, it’s important to understand the framework within which we’re operating. The EU Taxonomy for sustainable finance is a classification system established to clarify which economic activities can be considered environmentally sustainable. To align with it, businesses must assess and report the extent to which their activities contribute to environmental objectives.

The benefits of aligning with the EU Taxonomy are multifaceted. They range from increasing investor confidence to facilitating the transition to a low-carbon economy. For a detailed breakdown of these benefits, consider reading this resource.

Step-by-Step Guide to Calculating the Aligned Share of Turnover

Calculating the aligned share of turnover is a critical component of aligning with the EU Taxonomy. This figure represents the proportion of your turnover that is generated from products or services that align with the Taxonomy. Here’s how to calculate it:

  1. Identify Taxonomy-eligible activities: Review your company’s activities and identify which ones meet the EU Taxonomy’s environmental objectives.
  2. Analyze the contribution: For each eligible activity, determine the degree to which it contributes to the specified objectives. This analysis should be based on technical screening criteria set forth by the Taxonomy.
  3. Calculate the turnover: Measure the turnover generated from each eligible activity. This should include revenue from products or services sold within the reporting year.
  4. Determine the alignment: For each activity, calculate the percentage of turnover that aligns with the Taxonomy. This is done by comparing the actual turnover against the criteria.
  5. Aggregate the percentages: Combine the percentages of aligned turnover for all eligible activities to get the total aligned share of turnover for your company.

For more detailed guidance, the EU Taxonomy Wizard can be an invaluable tool. It provides step-by-step assistance in determining which of your company’s activities can be considered sustainable.

Frequently Asked Questions on EU Taxonomy Alignment

Adopting a new framework such as the EU Taxonomy can come with a plethora of questions. Here are some of the most common FAQs:

  • What are the environmental objectives of the EU Taxonomy? They include climate change mitigation, climate change adaptation, 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.
  • How often should I calculate the aligned share of turnover? The aligned share of turnover should be calculated annually to ensure the most accurate and up-to-date reporting.
  • What if a significant portion of my turnover is not aligned? If this is the case, it’s an opportunity to evaluate potential areas for improvement or innovation within your business to increase your alignment over time.

For a comprehensive list of FAQs, you can refer to the EU Taxonomy FAQs document.

In conclusion, calculating the aligned share of turnover is a critical process for companies committed to sustainability and seeking to comply with the EU Taxonomy. It requires a deep understanding of your company’s activities and a methodical approach to analysis and reporting. By following the steps outlined above and leveraging the provided resources, companies can accurately report their sustainable activities and make informed decisions for the future. Remember, sustainability is not just about compliance; it’s about future-proofing your business and contributing to a healthier planet.