Does the EU Taxonomy Regulation Nudge Investors? Evidence from STOXX Europe 600 Firms

The EU Taxonomy Regulation (TR) requires the disclosure of standardized key performance indicators (KPIs)—the share of eligible and aligned turnover, capital expenditures, and operating expenditures—with the goal of channeling capital toward sustainable activities. We conceptualize these KPIs as nudges , i.e., disclosure devices that are intended to influence investor behavior without altering incentives. By reference to STOXX Europe 600 firms during the first two reporting years (2021–2022), we examine whether taxonomy disclosures affect mutual fund ownership, in which context we distinguish between sustainable and conventional investors.Our evidence indicates that green KPIs are important for investment but that their effects diverge from the policy ambitions of democratizing access to sustainable finance. Disclosure and higher KPI levels are systematically associated with ownership, but responses vary across KPI types and investor groups. High-level eligible revenues are correlated with low-level conventional fund ownership, whereas high-level alignment ratios attract greater ownership by funds that are committed to sustainability. Moreover, sustainable funds penalize firms that combine high-level eligible revenues with poor carbon performance, which is consistent with screening behavior. Among the three indicators considered in this context, turnover alignment is identified as the most interpretable and effective signal.We contribute to three streams of literature. First, we extend the research on mandatory sustainability reporting by documenting the capital market effects of a novel disclosure regime. Second, we enrich the literature on investors’ use of environmental, social, and governance (ESG) information by distinguishing between eligibility and alignment KPIs and by revealing how investor types interpret these signals differently. Third, we connect sustainability accounting with behavioral economics by assessing whether TR disclosures function as nudges.Overall, although taxonomy KPIs can enhance transparency and guide sophisticated sustainable investors, they reinforce segmentation within the asset management industry rather than broadening participation in sustainable finance.