Does EU Taxonomy Alignment Reduce Corporate Emissions? Evidence From Nordic Firms

ABSTRACT

This paper investigates whether EU Taxonomy alignment is associated with lower corporate emissions, using 982 firm‐years from 358 Nordic firms (2022–2025). Extending targeted transparency theory, the study develops a signal‐quality framework under which a mandated classification is informative only if it satisfies signal relevance, signal separation, and signal coupling. In the taxonomy's first years, each largely fails. Alignment is associated with modestly lower emissions intensity only in manufacturing, where the screening criteria impose emission thresholds; in information technology, where they reward efficiency without constraining emissions, alignment accompanies rising intensity. Emissions histories from 2012 show that firms with weaker pre‐taxonomy records report alignment more often, consistent with legitimacy‐seeking disclosure rather than performance signalling. Emissions do not change when alignment reporting begins: the label certifies pre‐existing activity rather than transformation. Signal production, rather than user attention, is the binding constraint; recalibrating the screening criteria will decide whether alignment comes to mark transformation.