Taxonomies Are Outperforming ESG. Here’s the Evidence - and What It Means for Investors
Once again, there is rigorous, peer-reviewed evidence that taxonomy-aligned companies outperform their peers — and that investors are already starting to price it in.
A new study published in the Journal of Banking and Finance (“Revenue Alignment with the EU Taxonomy Regulation in Developed Markets” by Bassen et al., 2025) examines the real-world investment performance of companies classified as “taxonomy-aligned” — that is, generating a high proportion of revenues from environmentally sustainable activities as defined by the EU Taxonomy Regulation.
The key findings are hard to ignore:
Firms with higher taxonomy alignment consistently delivered higher monthly stock returns, even after adjusting for standard market factors.
This “taxonomy premium” was strongest when investor attention to the Taxonomy increased, as measured by Google Trends and media coverage.
The premium cannot be explained by traditional ESG ratings, which were found to be statistically irrelevant in predicting returns.
Portfolios constructed from highly aligned companies outperformed low-alignment portfolios by up to 1.44% per month — an extremely compelling result in capital markets.
In short: taxonomy alignment now signals investment alpha.
ESG Is Not Enough — And the Market Knows It
The paper is significant not just because of what it confirms, but because of what it challenges. Over the past decade, ESG ratings have become the default lens through which capital allocators assess corporate sustainability. Yet these ratings are deeply inconsistent — based on opaque methodologies, firm-level disclosure incentives, and often capturing intentions more than impact.
By contrast, the EU Taxonomy offers a science-based, activity-level framework, anchored in quantitative thresholds and legal definitions. It doesn’t care whether a company says it’s green. It cares what the company actually does — and how much of its revenue is generated by those activities.
The result is a classification system that is objective, comparable, and actionable. And as the paper shows, it’s beginning to influence capital flows in exactly the way European policymakers intended.
The Premium Is Real — and Rising
The paper’s most striking result is the clear evidence of abnormal returns among highly taxonomy-aligned companies, particularly around the time of the EU Taxonomy Regulation’s publication in 2020.
Even before disclosure requirements came into force, researchers used FTSE and MSCI data to estimate alignment levels across more than 1,400 companies in 23 developed markets. Their analysis shows that a one standard deviation increase in taxonomy-aligned revenues was associated with 30 basis points of excess return per month, controlling for other risk factors.
Crucially, the effect was amplified by investor attention. In months when Google searches and news coverage around the Taxonomy increased, so did the alignment premium. This suggests that even in the absence of mandatory disclosures, investors are already integrating taxonomy signals into their decision-making.
By contrast, ESG ratings — including those from Refinitiv and MSCI — had no predictive power. In some specifications, their coefficients were negative.
This isn’t an attack on ESG per se. But it is a clear indication that taxonomy-based approaches are more informative, more aligned with financial performance, and more useful for identifying genuinely sustainable companies.
From Regulation to Strategy: How SWISOX Is Turning This Into a Market Tool
At SWISOX, we’ve long believed that taxonomies represent the next generation of sustainable investing infrastructure. But this paper provides the quantitative confirmation of that belief — and strengthens the case for taxonomy-based portfolio construction.
That’s exactly what we’re building.
We’ve developed the Green Light List, a curated and independently verified list of companies with:
≥55% taxonomy-aligned revenues
0% new fossil fuel-related projects
Paris Aligned Benchmarks PLUS exclusions
From that list, we’ve created a public, real-time portfolio that anyone can explore through our [SWISOX Data Studio dashboard]. These companies can now be traded directly on [BX Swiss], giving investors immediate access to a transparent, regulation-aligned sustainable investment universe.
This is not a niche project. It’s a live test of taxonomy-based investing as a financial strategy, not just a disclosure framework.
And it’s working.
Why This Matters Now?
There are three reasons this paper — and the broader shift toward taxonomy-driven investing — matters so much right now:
1. Regulation is becoming operational
We are moving rapidly from intentions to standards. Over 11,000 companies in Europe will be subject to CSRD + all non-EU taxonomies, and Article 8 and 9 funds (under SFDR) already represent over €6 trillion AUM. This is not voluntary. It’s structural.
2. Data is improving
As more companies are required to report taxonomy alignment, and third-party data providers improve their estimation methodologies, the ability to build, benchmark, and optimise taxonomy-based portfolios will only grow.
3. Markets are adapting
The study confirms that capital markets are not waiting passively. Investors are already rewarding alignmentand penalising misalignment, whether or not companies disclose. This is a major shift in signal relevance.
What Comes Next
We believe taxonomies — not ESG scores — will define the future of sustainable finance.
That future will be built not just on classification, but on access. Our mission at SWISOX is to make that access simple, rigorous, OPEN and scalable — for retail and institutional investors alike.
And while the EU Taxonomy may be the most mature today, we are expanding. Our internal classification engine will integrates multiple science-based taxonomies, and we are developing additional lenses tailored to emerging markets, social impact, and biodiversity.
The goal is clear: a unified, verifiable system to direct capital where it matters most.
If you’re an investor, fund manager, or policymaker looking for the next logical step after ESG — you may want to take a closer look at taxonomy alignment. The market certainly is.
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