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- Only 24% of companies obtained limited assurance for their EU Taxonomy disclosures, highlighting a significant gap in verification practices.
- 36% of companies failed to report eligibility or alignment for new activities, signaling challenges in adapting to expanded taxonomy requirements.
- A substantial 64% of companies did not explain their non-alignment with taxonomy criteria, underscoring an ongoing transparency issue in sustainability disclosures.
KPMG’s latest report, Navigating EU Taxonomy: Progress and Pathways to Compliance, provides a comprehensive analysis of the EU Taxonomy disclosures of 291 European companies, offering critical insights for U.S. firms looking to align with global sustainability standards. As the U.S. market prepares for potential new mandates, KPMG’s findings underscore essential trends and gaps in sustainability reporting, particularly relevant for U.S. companies with European operations or global expansion plans.
Key Findings with U.S. Implications
1. Limited Assurance on Disclosures
- Only 24% of the companies reviewed had obtained limited assurance for their EU Taxonomy disclosures, with the majority (60%) opting for no assurance at all. This low rate of verified disclosures indicates a substantial gap in independent validation, which may impact the credibility of reported sustainability efforts.
“As U.S. companies expand globally, understanding EU sustainability reporting requirements becomes crucial,” stated Maura Hodge, KPMG U.S. Sustainability Leader. “This report provides a roadmap for American businesses to prepare for mandatory EU Taxonomy reporting in 2025.”
2. Sector Performance Disparities
- The report highlights significant variation across industries in achieving taxonomy alignment. While the Utilities sector leads with the highest average taxonomy-aligned turnover, other sectors, such as Consumer Goods, show considerably lower alignment, indicating sector-specific challenges in meeting EU criteria.
- The Real Estate and Utilities sectors reported the highest levels of eligible and aligned CapEx, reflecting robust investment in sustainable activities, whereas sectors like Consumer Goods lagged behind, highlighting discrepancies that U.S. companies may need to address.
3. Climate Change Focus and Multi-Objective Alignment
- 91% of companies reported at least one eligible activity for climate change mitigation, showing a strong focus on climate-related objectives. However, only 33% reported activities eligible under multiple taxonomy objectives, suggesting that companies struggle with aligning operations across the broader environmental goals set by the EU.
- Hodge remarked, “The EU Taxonomy’s impact extends beyond Europe. U.S. companies with European operations or aspirations must comply with these standards. Understanding EU company results allows U.S. companies to determine where they want to be in the pack.”
4. Gaps in Qualitative Disclosures and Transparency
- Despite an increase in quantitative disclosures, 64% of companies failed to explain why certain activities were non-aligned with taxonomy criteria. This lack of transparency around non-alignment reasoning points to an area where U.S. firms may have opportunities to strengthen reporting practices.
- Qualitative disclosures, such as explaining how companies assess technical screening criteria and climate risk, still vary significantly in depth and quality, with many companies failing to meet best-practice standards. Improved transparency in these areas could enhance understanding of sustainability efforts across sectors.
5. Expansion of Taxonomy Scope and Impact
- With the EU Taxonomy now requiring disclosures across six environmental objectives, companies face a broader scope of reporting. The inclusion of new environmental objectives, such as pollution prevention and biodiversity restoration, requires companies to assess eligibility across a wider range of activities.
- This year’s study found that 36% of companies did not report eligibility or alignment for any newly added activities, suggesting that adapting to expanded requirements poses challenges for many firms, potentially impacting U.S. companies with similar business activities.
Implications for U.S. Companies
As American regulators consider similar transparency measures, the report’s findings offer valuable insights for U.S. companies to enhance their sustainability practices. By understanding and preparing for these evolving global standards, American companies can proactively build compliance capabilities, thereby positioning themselves competitively in both the U.S. and EU markets.