The impact of EU taxonomy on corporate investments

The European Union Taxonomy on Sustainable Finance is the ¯rst comprehensive classi¯cationdesigned to identify the extent to which an economic activity is environmentally sustainable.This paper investigates how the EU Taxonomy a®ected corporate investments for Taxonomyeligiblecompanies compared to non-eligible ones. We applied a di®erence-in-di®erence modelusing a dataset of 130,918 ¯rms from 27 EU Member States, using 2019 as a threshold. Our¯ndings show that the introduction of the EU Taxonomy per se did not result in an increase incorporate investments among Taxonomy-eligible companies; rather, ¯rms' size and Taxonomyeligibilityuncertainty played a key role in explaining variation in corporate investments. Theimplications are twofold: the participatory and communication approach of the EuropeanCommission implemented with the EU Taxonomy is e®ective in nudging corporate investmentsaimed at sustainability. However, this only happens when the regulation provides an unambiguoussector speci¯cation. Thus, it is important that the regulatory interventions clearlyde¯ne what is sustainable.