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This methodology sets out how Integrum ESG assesses each holding in a portfolio against the EU Taxonomy. Every holding is tested for a substantial contribution to at least one of the six environmental objectives, no significant harm to any of them and minimum social and governance safeguards. The results combine into a Taxonomy alignment call for each holding and a headline figure for the portfolio.
Background
What the EU Taxonomy is
The EU Taxonomy is the European Union’s classification system for environmentally sustainable economic activities. It defines an environmentally sustainable activity as one that makes a substantial contribution to at least one of six environmental objectives, does no significant harm to any of the others and is carried out in compliance with minimum safeguards.
Funds report on the Taxonomy alongside their SFDR disclosures, and investors increasingly ask how much of a portfolio is Taxonomy aligned. The Taxonomy covers environmental objectives only. The broader SFDR definition of a sustainable investment, which also covers social objectives, is explained in our EU Sustainable Investment Audit Methodology.
Method
The three tests for every holding
We assess three things for every holding in a portfolio. If the answer to all three is yes, the holding is assessed as Taxonomy aligned.
- Substantial contribution Does the investee company make a substantial contribution to at least one of the six environmental objectives?
- No significant harm Does the company avoid causing significant harm to any of the six environmental objectives?
- Minimum safeguards Does the company have minimum social and governance safeguards in place?
We consider whether a company’s core economic activities contribute to or could significantly harm each objective, using the published list of Taxonomy-eligible activities in the final report of the EU Technical Expert Group on Sustainable Finance. The assessment is made at company level, based on the company’s business activities.
Drilling into each holding
Every result can be traced to its reason. Clicking “view detail” on any objective for any holding shows the basis for the assessment, so users can confirm why a company has been assessed as contributing to, or harming, each objective.
Objectives
The six environmental objectives
For each holding and each of the six objectives in the Taxonomy Regulation (Regulation (EU) 2020/852), we ask two questions: do the company’s main economic activities contribute to the objective, and might they significantly harm it? Minimum safeguards are then assessed once for the company.
| Objective | Taxonomy Regulation |
|---|---|
| Climate change mitigation | Article 10 |
| Climate change adaptation | Article 11 |
| Sustainable use and protection of water and marine resources | Article 12 |
| Transition to a circular economy | Article 13 |
| Pollution prevention and control | Article 14 |
| Protection and restoration of biodiversity and ecosystems | Article 15 |
| Minimum safeguards (assessed once for the company) | Article 18 |
A holding is assessed as aligned when it contributes to at least one objective, is not flagged as potentially harming any objective and has minimum safeguards in place.
Portfolio level
Portfolio results
As soon as a portfolio is uploaded, the SFDR & TAXO tab shows the EU Taxonomy alignment call for every holding, alongside its overall ESG grade, its weight in the portfolio and its SFDR Article applicability. The tab also shows a headline figure for the share of the portfolio’s holdings assessed as aligned.
Worked example
A portfolio holds 30 companies, each with a weight of 3.33%. Of these, 23 contribute to at least one objective, are not flagged for significant harm to any objective and have minimum safeguards in place. The tab shows the portfolio as 77% EU Taxonomy aligned, and each of the seven remaining holdings is marked N, with the reason available in its drill-down.
The Taxonomy results sit next to the portfolio’s SFDR classification and its principal adverse impact (PAI) indicators, set out in our SFDR Classification and PAI Methodology.
Definition
What the indicator measures
The portfolio figure is a holdings-based indicator: the share of portfolio holdings assessed as aligned, built from company-level assessments of each holding’s business activities. It is distinct from the Taxonomy-aligned turnover, CapEx and OpEx key performance indicators that companies report, and should be used alongside the reporting rules and requirements that apply to each financial product.
Revenue segmentation by product line is a separate dataset within Business Involvement Intelligence, described in our Controversial Activities Methodology.
FAQs
Frequently asked questions
What does Taxonomy aligned mean?
An activity is aligned with the EU Taxonomy when it makes a substantial contribution to at least one of six environmental objectives, does no significant harm to any of the others and meets minimum safeguards.
What are the six EU Taxonomy 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 and the protection and restoration of biodiversity and ecosystems.
How does Integrum ESG assess Taxonomy alignment?
We ask three questions of every holding: whether its main economic activities make a substantial contribution to at least one of the six objectives, whether they might significantly harm any of them and whether the company has minimum social and governance safeguards in place. A holding that passes all three is assessed as aligned.
Where can I see the results?
On the SFDR & TAXO tab of any uploaded portfolio, which shows the alignment call for each holding, the portfolio’s headline figure and a drill-down explaining each result.
Is the portfolio figure the same as Taxonomy-aligned turnover?
No. It is a holdings-based indicator showing the share of holdings assessed as aligned. Taxonomy-aligned turnover, CapEx and OpEx are separate key performance indicators reported by companies.
How does the EU Taxonomy differ from the SFDR definition of a sustainable investment?
The Taxonomy covers environmental objectives only. The SFDR definition also covers social objectives and requires good governance practices. Our EU Sustainable Investment Audit Methodology explains it in full.
See Taxonomy alignment across your portfolio
Speak to our team to see the EU Taxonomy assessment for every holding, alongside your SFDR classification and PAIs.