THE EU TAXONOMY FOR SUSTAINABLE ACTIVITIES AND U.S. DOMICILED PUBLIC COMPANIES: ASSESSMENT OF PREPAREDNESS

Abstract
The growing demand for sustainable business practices has led to the development of various environmental, social, and governance (ESG) reporting standards, frameworks, and taxonomies. Among these, the European Union's (EU) Taxonomy for Sustainable Activities stands out as a comprehensive classification system for identifying and financing sustainable economic activities. This research seeks to understand how and when the EU Taxonomy will impact U.S. companies as well as the preparedness of U.S. companies today. While U.S. companies are increasingly organizing to operate in a regulated ESG disclosure environment, alignment to EU Taxonomy objectives remain limited, which could negatively impact investor confidence, lead to reputational risks, regulatory non-compliance, and a competitive disadvantage in global market. Through a qualitative analysis of voluntary sustainability reports, this study finds that U.S. companies exhibit a significant lack of preparedness for EU Taxonomy-aligned reporting. The results indicated that despite widespread voluntary reporting with 100% of companies evaluated aligning with at least one voluntary sustainability standard or framework, only one company explicitly mentioned the EU Taxonomy. Further expanding the review, over half of the companies evaluated did disclose sustainable investments and up to 96% disclosed activities aligned with at least one of the objectives of the EU Taxonomy. The results suggest that U.S. companies may have eligible activities but are not sufficiently prepared for the application of the EU Taxonomy which requires aligning sustainable activities to financial statement line items: revenue, operating expenses, and capital expenditures. This assessment contributed a U.S. centric lens to existing research which has evaluated broader populations including an evaluation of challenges U.S. companies may face due to the complexity of the Taxonomy and eligible activities, data availability, and suggested next steps for enhancing readiness.
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