The adoption of the EU Taxonomy Regulation’s delegated acts in April 2021 represented a turning point in how financial institutions are expected to engage with sustainability within their portfolios. While the taxonomy itself had been in force since mid-2020, these delegated acts added the critical operational detail necessary for firms to begin aligning their lending and investment decisions with the EU’s ambitious environmental objectives. For banks, asset managers, and pension funds, this meant that supply-chain activities—often overlooked in sustainability assessments—had to be scrutinized with greater rigor. The delegated acts made it clear that taxonomy alignment was not just about direct investments. It extended deep into the value chains supporting key sectors such as wind energy, green hydrogen, and low-carbon manufacturing.
For many institutions, the immediate challenge was practical. How does one reliably identify which suppliers and subcontractors are contributing to taxonomy-aligned economic activities? The EU’s open Taxonomy JSON API offers a starting point. It provides structured data that allows institutions to search, filter, and extract taxonomy criteria by sector, activity, and environmental objective. While navigating this API can feel technical, especially for teams more accustomed to traditional financial data feeds, the effort pays off. By integrating taxonomy data into existing risk and investment systems, firms can begin to map not only the direct beneficiaries of their financing but also the suppliers and service providers that underpin those operations.
One approach that has gained traction is to overlay sector-specific taxonomy data with existing supplier databases. For instance, if an institution holds a portfolio of loans to wind energy developers, it becomes crucial to identify whether turbine manufacturers, component suppliers, and installation contractors meet taxonomy criteria. This requires combining EU taxonomy data with corporate disclosures, industry registries, and sometimes direct supplier surveys. The result is rarely perfect. Data gaps persist, especially in sectors where smaller suppliers may lack the resources to publish detailed sustainability reports. But by leveraging the taxonomy API, institutions can at least frame the right questions and begin building a picture that satisfies internal and external stakeholders.
Developing a systematic reporting process around these efforts has become an expectation rather than a choice. The delegated acts call for transparency in how financial institutions align their portfolios with the taxonomy. A growing number of firms have responded by establishing quarterly taxonomy-aligned investment reports. These documents typically outline the share of financing directed toward economic activities classified as contributing substantially to one or more of the taxonomy’s environmental objectives. But the more sophisticated reports go further. They break down alignment by sector, value chain segment, and even geography, offering a nuanced view of where gaps remain and what progress is being made.
Publishing such reports involves several steps. First, institutions must design a data architecture capable of ingesting and processing taxonomy data alongside portfolio information. This often means adapting existing ESG (environmental, social, and governance) reporting tools or developing custom analytics layers on top of core banking or asset management systems. The taxonomy API’s JSON format is flexible, but it does require some technical capability to translate into usable reporting outputs. Collaboration between sustainability officers, data scientists, and investment managers is key here. Without that cross-functional dialogue, reports risk becoming either too generic to be meaningful or so complex that they are inaccessible to most stakeholders.
Once data integration is in place, attention shifts to defining reporting boundaries and methodologies. Will the report cover only direct financing, or will it attempt to capture indirect alignment through supply chains and subcontracted activities? How will partial alignment be treated, particularly in cases where an economic activity meets some but not all taxonomy criteria? There is no single right answer, and indeed, many firms are still experimenting with different approaches. What matters is that the methodology is disclosed clearly, allowing regulators, investors, and civil society to understand the basis of the reported figures.
In practice, many institutions find that taxonomy alignment is easier to achieve on paper than in reality. Supply chains are complex, multi-jurisdictional, and often opaque. Even where taxonomy-aligned suppliers exist, shifting procurement practices to prioritize them can take time. Firms must balance the desire for rapid alignment with operational realities and the need to maintain competitive procurement strategies. This is especially true in sectors like green hydrogen, where supply chains are still emerging and market participants are in flux.
There is also the question of how to handle legacy investments and existing supplier relationships that may not meet taxonomy criteria. Some institutions have opted for a phased approach, setting targets for incremental alignment over time. Others have adopted exclusion policies, ceasing new financing for activities that fall outside the taxonomy’s scope. Again, the delegated acts provide a framework but leave room for interpretation and discretion in how alignment is pursued and communicated.
What emerges from all this is a picture of financial institutions grappling with the practicalities of supply chain transparency in a regulatory environment that increasingly demands it. The EU Taxonomy Regulation’s delegated acts have set the direction, but the journey toward full alignment will take time, innovation, and a willingness to engage deeply with data that, in many cases, is still evolving. The open Taxonomy JSON API is a valuable tool, but like any tool, it is only as effective as the hands that wield it.