The Impact of EU Taxonomy for Sustainable Activities on European Utilities' Performance

Abstract

This study investigates the relationship between European utility companies' compliance with the EU Taxonomy for Sustainable Activities and their overall performance. The EU Taxonomy is a new regulation proposed by the European Commission to promote sustainable finance by 2050. The literature shows that nonfinancial disclosures have a favorable impact on financial performance. However, no research has been conducted to assess the implementation of the EU Taxonomy and its effect on firm performance. Using a sample of European utilities from 2012 to 2022, a difference-in-differences (DiD) model was applied to analyze the causal relationship between compliance and performance. Based on institutional and signaling theories, the results show that companies reporting alignment with the Taxonomy exhibit higher market value, profitability, and efficiency than those that do not. This study contributes to firms' transparency and enriches academic discussions by offering insights for policymakers and by improving industry practices.