Case study | Capability story

September 2020

Green Revenues
2.0 Data Model
Meeting EU Taxonomy reporting requirements

ChallengeCriteria

Solution

EU Taxonomy reporting requirements
came into force January 2022. Providersof financial products, offered in the EU,
that pursue sustainable investment or
promote environmental characteristics
must demonstrate how they have used
the Taxonomy and the proportion ofunderlying investments that areTaxonomy-aligned.

While the EU Taxonomy will set out acatalogue of green criteria, it leaves it
to markets to assess individualcompanies against these criteria. Yetin their current form, corporate
disclosures are typically insufficient.

The EU Taxonomy and the GRCS
are highly aligned on core activities,
providing investors with an effective
and transparent tool to assess theexposure of equity portfolios torevenues from EU Taxonomy
aligned activities, in a granularand accurate manner.

Identifying opportunities andincreasing the flow of investments
towards the green economy
The greening of the global economy in response to the threat of climate change
and other environmental challenges presents myriad opportunities to investors.
This is one of the main drivers for creating a data product that focuses on theseopportunities rather than climate risks. FTSE Russell has extensive experience andexpertise in tracking leading companies in the green economy since the launch ofEnvironmental Markets Index Series in 2008, resulting in the creation of the Green
Revenues Classification System (GRCS) in 2013. The objective of FTSE Russell’sGRCS, like the EU Taxonomy, is to align investments towards sustainable pathways
by identifying and measuring the green economy. The associated Green Revenues
data model has multiple use cases including, but not limited to, understanding
portfolio exposure, identification of companies with green activities and reportingin line with international recommendations such as the TCFD (Task Force on
Climate-Related Financial Disclosures) and the EU Taxonomy for
Sustainable Activities.

Launched in 2016, and with historical
data from 2008, the Green Revenues
data model was enhanced in 2020 toprovide enhanced coverage, a morecomprehensive Green Classification,
improved granularity of revenue
exposure, and the inclusion of agreen “tiering system” to identify
the environmental impact ofcompany activities.Case study | Capability story

Challenge
Reporting in line with the EU Taxonomy
Just before the end of 2019, the European Parliament and the Council agreed
that financial products on sale in the EU will have to reference the EU Taxonomy.
Requirements relating to climate-related objectives came into effect in January2022, while criteria for other aspects of the green economy, such as water, waste,biodiversity protection and the circular economy, will apply at the end of 2023.
When marketing environmental or sustainable funds, European investment
managers will have to disclose:–How, and to what extent, they have used the Taxonomy to assess thesustainability of underlying investments;–

What environmental objectives the investments are contributing to; and–The proportion of underlying investments that are included in the Taxonomy.

To meet these requirements, investors
face a potentially onerous task ofgathering necessary data due to lackcompany disclosures andtransparency. The EU’s corporate
disclosure requirements will eventually
help to address part of this challenge
but will only apply to EU companies.

For funds that are not marketed as environmental or sustainable, European
investment managers can state that they do not take the Taxonomy into account.

Solution
A comprehensive starting point to assess compliance with theEU Taxonomy
The Green Revenues 2.0 data model provides an industry-leading tool to begin toassess portfolio exposure to the EU taxonomy. The Green Revenues data modeladdresses existing data gap challenges by providing company-level green revenues
and a complete breakdown of green activities, indicating where disclosed vs.
estimated data has been used. The Green Revenues 2.0 data model can be used to:
Identify

Calculate

ReportIdentify companies thatgenerate revenues fromgreen economic activities
using the most granularclassification system
available covering green
products and services in
10 sectors, 64 subsectors
and 133 micro sectors.
An additional innovative
feature includes “greentiers” that identify thelevel of environmental
impact of company
activities.

Calculate overall portfolio
exposure to the Green
Economy based on theGreen Revenues
Classification System orfocus on activities that arealigned to climate-related
objectives as defined in
the EU Taxonomy byusing the EU Taxonomyalignment flag.

Report on these metrics toassess compliance withEU Taxonomy alignedactivities at the issuer andportfolio levels.

FTSE Russell

2Case study | Capability story

Regulation continues to drive globalgreen change
The greening of the global economy in response to the threat of climate change andother environmental challenges presents myriad opportunities to investors. However,investors and policymakers face a common challenge to mobilise investment at
scale: How can green business activities be systematically identified, categorised,and measured across diverse sectors and supply chains?
Both the EU Taxonomy and FTSE Russell’s GRCS have the objective to address
this challenge, and FTSE Russell’s Green Revenues data delivers a comprehensive
tool for the investment community to begin to understand and comply with these
new standards.
–Define – Know what is green and stay up to date

–Analyse – Develop a regular tracking and reporting process

FTSE Russell

Additional information
Learn more about EU Taxonomy andhow FTSE Russell’s Green Revenues
data model has been developed tohelp clients through this expansive
regulatory requirement.
Learn more about Green Revenues 2.0
The Green Revenues data modelis part of a suite of Sustainable
Investment capabilities.
To learn more pleaselseg.com/ftse-russell.

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