["Business Strategy and the Environment, Volume 35, Issue 5, Page 6941-6959, July 2026. ", "\nABSTRACT\nThis study assesses the degree of alignment with and eligibility to the EU Taxonomy of non‐financial firms and investigates its relationship with their Cost of Debt (CoD). The empirical analysis is based on a sample of 306 non‐financial firms listed on the Stoxx Europe 600 Index across 15 European countries. Taxonomy‐related data were manually collected from firms' 2023 annual reports to develop novel EU Taxonomy‐weighted indices capturing both alignment and eligibility across Turnover, capital expenditure (CapEx), and operational expenditure (OpEx). Results reveal that, on average, firms align only a limited portion of their economic activities with the EU Taxonomy's requirements. Initiatives implementing the EU Taxonomy have primarily concentrated on climate change mitigation, while progress on adaptation and other environmental objectives has remained considerably limited. The findings also show that firms with a higher proportion of the EU Taxonomy‐aligned Turnover benefit from lower borrowing costs, suggesting that financial markets perceive these firms as less risky and more transition‐ready.\n"]