Can the Taxonomy-alignment of assets owned by a fund, such as green bonds, be
included in the calculation of the Taxonomy-alignment of the product where these
assets are exchanged through derivatives,

Question

Can the Taxonomy-alignment of assets owned by a fund, such as green bonds, be
included in the calculation of the Taxonomy-alignment of the product where these
assets are exchanged through derivatives, for instance by using total return swaps?

ESA Joint Committee (EBA, ESMA, EIOPA) · Accepted Answer

'
The Delegated Regulation states that derivatives should not be included in the numerator to
calculate the Taxonomy-alignment of a financial product (Recital 33).
In the case of total return swaps (TRS), it appears that:
- The actual performance of Taxonomy-aligned assets is swapped through the use of a
derivative. Consequently, the investors of the product do not benefit from it. It is true for
both financial and extra-financial performance.
- These assets are offset by the counterpart of the TRS (short position for hedging). In
this regard, it is unclear whether there is an actual investment in these assets.

Therefore, in order to include investments (that are not derivatives) in the numerator of the
Taxonomy-alignment of a product, the financial product should meet the two following conditions:
(i) the financial product should own the investment, (ii) the financial product should not swap the
performance of this investment.

Can the Taxonomy-alignment of assets owned by a fund, such as green bonds, be included in the calculation of the Taxonomy-alignment of the product where these assets are exchanged through derivatives,

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