responsAbility Investments AG Fallstudie

responsAbility - Applying the EU Taxonomy to Investments

About responsAbility Investments AG

ResponsAbility is a sustainable investment house that specialises in impact investing. As part of its impact disclosures, responsAbility was eager to calculate the EU Taxonomy (EUT) alignment of two of its funds with a focus on energy access, energy efficiency and renewable energy projects. South Pole's team carried out an EUT assessment to identify compliance gaps and provide responsAbility with recommendations on how to increase the level of alignment, for example through improved internal policies and frameworks.

The context

The EUT is a classification system for sustainable activities which plays a key role in climate change mitigation and adaptation. It involves technical screening criteria which outline performance thresholds for various economic activities. It is designed to incentivise investments that support the transition towards an economy consistent with the EU's environmental objectives.

The challenge

The EUT is a powerful tool that enables financial market participants (FMPs) to comprehensively evaluate their sustainability impact. Unfortunately, as of now, the EUT is only focused on financial products that are offered to European investors: thus, challenges arise when evaluating products that are offered in Europe but invested in emerging markets.

The process

Our team began with a desktop assessment of each fund against the criteria outlined in the EUT to verify the Substantial Contribution (SC) to one of the EU's environmental objectives and the principle of Do No Significant Harm (DNSH) under the other five. We also examined compliance with the Minimum Safeguards (MS). A review of each investment per category and investee was also conducted via a thorough analysis of the data and documentation provided by responsAbility.

The solution

Upon assessing each fund's adherence to the EUT, it was determined that not all investments were EUT-aligned due to:

• certain sectors not being eligible for the EUT, such as agriculture or energy efficiency in SMEs;
• the current scope of non-financial disclosures only applying to European companies, which makes it hard to obtain data for companies outside of the EU; and
• the EU's high decarbonisation standards, where EU-specific directives are a far cry from local regulations in emerging markets, which makes it harder to comply with those directives in a non-EU context.

In general, we found that renewable energy projects were most aligned and that we identified most alignment challenges during the DNSH assessment.

Although full disclosure is not required until 2024, responsAbility has given itself a head start by understanding its limitations, challenges and gaps. By being proactive and identifying compliance gaps, FMPs with foreign market exposure can engage with the Platform on Sustainable Finance to influence the number of eligible activities and propose non-EU thresholds and equivalents through public consultations.