What are the key elements for calculating ESG taxonomy results?

The ESG taxonomy is crucial for ESG reporting as it focuses on technical criteria that must be met for an entity’s activity to be considered environmentally sustainable. Taxonomic disclosures are based on three key performance indicators (KPIs), i.e., CapEx, OpEx, and turnover. The results for each indicator must be presented separately, showing the percentage share of activities that meet the technical criteria among all activities subject to the taxonomy.

ESG taxonomy – key to sustainable development

Calculations related to ESG Taxonomy can vary in difficulty depending on factors such as the number of activities. These factors include:

• the number of types of activities conducted by the entity, including taxonomic (taxonomy eligible) and meeting technical criteria (taxonomy aligned);
• the structure of the capital group and forms of the entity reporting taxonomic results;
• the structure of accounting books kept by the reporting entity/special purpose entities.

Taxonomy combines technical and financial aspects, with accounting books being the primary source of data. The structure of analytical accounts and accounting policy can significantly impact the calculation of results. Any mistake or simplification in this area will affect the quality of the information (especially for turnover and OpEx) and may ultimately be questioned.

When it comes to CapEx, the investment budget and technical specifications, and therefore the target structure of capital assets, can be highly significant. These can be presented as fixed assets, and the method of determining initial values (cost segregation procedure) is crucial, or as long-term investments.

Understanding the importance of KPIs in ESG Taxonomy

It is crucial to understand the characteristics of a given industry and specific entities when implementing ESG Taxonomy in an organization. This understanding can determine the adoption of an appropriate chart of accounts and accounting policy. During taxonomy calculations, it is important to remember that the significance of individual KPIs can vary. For example, CapEx and turnover may have high significance, while OpEx may be marginal. Differences may also arise based on the stage of economic activity, which is particularly relevant in the real estate sector.

Calculations related to taxonomy require extensive knowledge of the organisation and how it operates, high quality accounting and investment data, and appropriate preparation in the area of technical criteria. Assessing whether the technical criteria are met may require collaboration with individuals from various departments.

ESG professional support

Some of the taxonomy disclosure requirements are already in place, particularly for the largest companies, although practice in this area is still evolving. The lack of clear answers to many questions creates additional challenges. At MDDP, we offer our clients full support in the area of ESG, including taxonomy, comprehensive calculations, advice on meeting technical criteria and training.

We work with the renowned law firm Osborne Clarke, the accounting firm MDDP Outsourcing and technical consultants. We consider taxonomy advice to be a key pillar of our services to companies.

Our MDDP Green Taxation team focuses on innovative solutions and promoting best practice in areas where it is not yet common. I encourage you to contact us to learn more about our services and to take advantage of our experience in the field of professional investment settlements and advice related to green transformation.

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