EU taxonomy
This page provides information on how Upright produces data for metrics related to EU taxonomy of sustainable activities (EU regulation 2020/852)
This page describes how Upright produces EU taxonomy metrics. For information on what EU taxonomy metrics Upright provides, visit this page.
Upright seeks to produce all its impact data based on the best available information. Upright's EU taxonomy metrics are either:
Based directly on a company's reporting of taxonomy metrics or
Estimated by Upright based on other available information
Used definitions
The EU taxonomy metrics reflect the proportion of companies' turnover, CapEx or OpEx that relates to each sustainability objective defined by the EU. The EU has defined 6 environmental objectives:
Climate change mitigation
Climate change adaptation
The sustainable use and protection of water and marine resources
The transition to a circular economy
Pollution prevention and control
Protection and restoration of biodiversity and ecosystems.
Upright provides disclosed metrics for turnover-, CapEx- and OpEx-based figures when they are available. For turnover-based figures, Upright additionally provides estimated figures. Estimates are based on the following specifications:
For the last four objectives: Specification published on March 2022 (officially called the Platform on Sustainable Finance’s report with recommendations on technical screening criteria)
For the first two objectives: Specification published on June 2021 (as part of the Climate Delegated Act)
Update pending in Q1/2024
The most recent technical screening criteria is the EC's Environmental Delegated Act, published in June 2023. The Delegated Act outlines the final technical screening criteria for the last four objectives and revises it for the first two objectives. Upright will update all the alignment estimates to follow the most recent technical screening criteria in Q1/2024.
Estimation of EU taxonomy metrics
Data sources used for producing taxonomy metrics include companies' annual reports, companies' sustainability reports, companies' reporting to the U.S. Security and Exchange Commission (SEC), company websites, market statistics, market research, and environmental research. Additionally, some companies disclose supporting information directly to Upright.
Estimation of taxonomy eligibility
Production of estimated turnover-based EU taxonomy eligibility figures requires:
The classification of each company's activities in line with the economic activities covered by the EU taxonomy regulation
Determination of the revenue shares relating to each activity
Most companies report their revenue only with a coarse subdivision (or no subdivision at all) that is insufficiently granular to allow for direct determination of revenue shares related to each EU taxonomy activity. Upright produces estimated revenue breakdowns by activity by using the revenue subdivisions reported by the company as a starting point and refining it based on market statistics, other market research, and quantitative metrics produced from company publications (websites, annual reports, regulatory filings) that correlate with the revenue shares being estimated. More information is available in this article.
Estimation of taxonomy alignment
In the general case, companies that don't report taxonomy alignment also do not publish sufficient information for a definite assessment of compliance with:
The substantial contribution criteria
The activity-specific DNSH criteria
The minimum safeguards
Therefore, these criteria are considered in a probabilistic manner, assessing the likelihood at which each of a company's products linked to an EU taxonomy activity meets each criterion.
In situations where specific information pertaining to the satisfaction of DNSH or minimum safeguards criteria is available (such as information on human rights violations), such information takes priority over the probabilistic assessment.
The probabilities are calibrated to reflect most likely alignment (rather than, for example, minimum alignment).
As required by the EU taxonomy regulation, minimum safeguards are considered on activity-level, rather than company-level. For this reason, a company with norm violations may still have taxonomy-aligned activities, as long as those norm violations are not related to the aligned activities.
Limited accuracy
The accuracy of the taxonomy indicators is primarily limited by available information. Upright continuously seeks to improve the accuracy of its indicators by using the best available information and statistical methods for integrating information from different sources.
Official role of estimated EU taxonomy figures
According to the European Securities and Market Authority (ESMA), the use of estimates for EU taxonomy figures is allowed when public disclosures are not available. The topic was discussed in the Q&A published by ESMA in November 2022 as follows:
[When] complete, reliable and timely information could not be obtained, financial market participants are allowed to make complementary assessments and estimates on the basis of information from other sources
Given this official position, estimated EU taxonomy figures will remain relevant to investors as long as a significant share of their investee companies do not disclose EU taxonomy figures.
With the arrival of CSRD, the share of companies for which company-disclosed taxonomy figures are available is expected to grow in the coming years, which will somewhat reduce the necessity of using estimates. This will still leave many companies, such as those based outside of the EU and startups, out of scope.
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