Taxonomy Maximisation

Context

Sustainability has become an important driver for value-creation, at every level of a corporation, from strategy to execution.
The EU Sustainable Finance Taxonomy establishes an EU-wide classification to provide investors and financial market participants with a list of environmentally (and in time socially) sustainable economic activities, aimed at combatting greenwashing and increasing transparency
Taxonomy “alignment” can be increasingly relevant to Private Equity business strategy and value creation for two reasons.
EU institutional investors (also subject to taxonomy disclosures) and investors pursuing environmental (and in future, social) objectives will seek maximum taxonomy alignment, and the investor universe for non-aligned assets is likely to shrink.
Challenging screening criteria and data limitations will create scarcity and “green premia” for taxonomy aligned assets – the European Commission estimates that the overall taxonomy alignment even within ESG-themed investment portfolios is between 1% and 5% with many portfolios standing at zero.

Our Strategy& team has helped a number of Private Equity houses to:

Agree on the role of taxonomy alignment in the context of the overall fund positioning (e.g. Article 6, 8 or under SFDR);
Assess the taxonomy alignment potential of their existing portfolio companies, as well as potential new portfolio additions (through the due diligence process);
Define a taxonomy alignment “roadmap” for existing and new portfolio companies that anticipates future assurance standards, including portfolio company product and process adaptations; supply change changes; better data gathering and the development of corporate policies; and
Implement the roadmap with support from PwC environmental and social experts.