Stockholm (NordSIP) – The EU Platform on Sustainable Finance has published a report on Monitoring Capital Flows to Sustainable Investments. The Platform on Sustainable Finance is an advisory body to the European Commission made up of contributors from industry, finance and academia. In the past, it played an important role in the design of the EU Taxonomy and other regulations.
The final report introduces a new framework for monitoring capital flows to sustainable investments, primarily leveraging data from the EU Taxonomy. By consolidating regulatory and market data, the report provides new insights into the state – and reality – of large European corporates’ transition efforts. Taxonomy data, despite the on‑going simplification of disclosures, remains a highly relevant and effective tool for assessing the volume and allocation of sustainable investments. The analysis of 2180 large listed European companies reveals that in the first two years of disclosures, firms started to make a more systematic disclosure of taxonomy‑aligned capital expenditures (CapEx).
“The monitoring report provides a systemic view on EU capital flows to sustainable investments, both in the real economy and financial sector, providing relevant insights for evidence-based policy making in the EU” Karl-Oskar Olming, co-rapporteur and author of the report and Head of Sustainability Strategy, Policy and Governance at SEB, said in a newsletter from the Swedish bank. SEB is the sole private bank selected as a member of the Platform next to the European Banking Federation. Karl-Oskar Olming represents SEB with support from Alva Jonevret.
Taxonomy-Aligned CapEx on the Rise
The report’s first main finding is that sustainable investments appear to be gaining momentum. The report finds that taxonomy‑aligned capital expenditure (CapEx) from large, listed, European firms reached €250 billion in 2023, a 34% increase from the previous year. Half of this CapEx was directed toward “Enabling Activities”, equivalent to over 40% year‑on‑year growth. “Transitional activities” more than doubled, accounting for 11% of total taxonomy‑aligned CapEx.
Taxonomy-aligned investments are concentrated in a few key sectors. “In 2023, 44% of Taxonomy-aligned investments (EUR 109 billion) were made in the utilities sector. Three quarters of investments disclosed by 67 large utilities (electricity producers for the main part) are Taxonomy-aligned. Another quarter of Taxonomy-aligned investments (EUR 62 billion) is to be found among manufacturers,” the report discloses.
Heterogeneous Transition
Second, transition‑related capital flows are becoming more prominent. The report identified €206 billion in additional investments, which while not yet fully taxonomy‑aligned, potentially contribute to European companies’ transition.
“Most of this CapEx was directed toward taxonomy‑eligible activities, underscoring the importance of linking credible transition plans with investment tracking, as well of tracking alignment with some but not all taxonomy criteria,” the report argues.
Green Bonds Still Dominate Sustainable Flows
Debt financing dominates sustainable investment flows. Green bonds are still the main financing instrument, with annual EU issuance exceeding €200 billion since 2021. Outstanding green loans stood at €908 billion in 2023, while green bond volumes reached €781 billion, bringing total outstanding green debt finance to €1.69 trillion
“A growing amount of green debt securities are held by EU funds, despite investors scaling back their investments into sustainability-oriented funds in 2023. This is particularly the case for SFDR Art.9 funds, which have seen their green bond holdings rise from 10% to 17% of their portfolio investments in two years,” the report explains.
“Significant disparities remain amongst SFDR Art.8 funds, which capture a wide array of investment products with very different ESG strategies and different degrees of commitment to sustainable investments which is most apparent when looking at Taxonomy-aligned investments (Figure 28, left panel). More generally, significant reporting of zero Taxonomy alignment in Art.8 and 9 funds remains, while the concept of sustainable investment (SFDR Art.2(17)) is well established among Art.9 funds, with a large majority of these reporting more than 90% of sustainable investments (Figure 28, right panel),” the report continues.
To close the investment gap, significant private capital is needed. The European Commission estimates that at least 7-8% of GDP annually must be directed toward green investments to meet 2030 and 2040 climate targets. The largest gaps remain in industrial decarbonisation, energy supply, and building renovations.
