Revenue Alignment with the EU Taxonomy Regulation

Abstract

This article provides first evidence on the capital market effects of the EU Taxonomy Regulation (TR). The TR introduced a new classification scheme to identify companies with environmentally sustainable economic activities. The results offer support for a significant TR alignment premium, suggesting that investors already apply the TR and allocate capital to TR-aligned companies. This premium increased synchronously with an increase in investor attention to the TR after the initial publication of technical screening criteria, which specify quantitative thresholds for TR-alignment of companies’ economy activities. We also find significant cross-sectional variation in abnormal stock returns surrounding the publication date of the TR conditional on the degree of TR-alignment. Traditional ESG ratings cannot explain the TR-premium.

Keywords: Corporate Social Responsibility, EU Taxonomy Regulation, Green Assets, Stock Returns

JEL Classification: G12, L25, Q55