Climate transition in the Nordic land transport sector: Navigating change

The land transport sector in the Nordics plays an important role in the economy, enabling the movement of people and goods across the region. This sector includes everything from vehicle manufacturing to passenger and freight transport on roads and rails. As environmental, social and governance (ESG) factors become increasingly critical, the land transport industry in the Nordics is under pressure to reduce emissions, improve operational efficiency and address social responsibilities. 

Regulatory pressures driving ESG action

The land transport sector in the Nordics is under increasing regulatory oversight, aimed at addressing climate and social impacts. In 2022 global CO2 emissions from the transport sector were nearly 8 Gt CO2, of which land transportation accounted for 79%. This means land transportation covers about 17% of the entire global CO2 emissions, making decarbonisation of the sector crucial. That’s why the European Union has adopted many regulations to speed up this climate transition.

The EU Zero- and Low-Emission Vehicle (ZLEV) crediting system, set to begin in 2025, will push vehicle manufacturers to adopt cleaner technologies. With targets of 25% ZLEV for new car sales and 17% for vans from 2025-2029, automakers are required to innovate while reducing their carbon footprints. Moreover, the EU Emissions Trading System II (ETS 2), starting in 2027, will further increase the cost of fuel emissions, encouraging a switch to low-carbon transport options. The Euro 7 regulation further complements the rules for the exhaust emissions of road vehicles, but it will also take into consideration tyre abrasion, brake particle emissions and battery durability. These regulatory pressures, among others, are some of the key drivers of ESG efforts in the Nordic land transport sector.

In addition, the Corporate Sustainability Reporting Directive (CSRD), which mandates sustainability reporting for large companies and listed SMEs, and the Corporate Sustainability Due Diligence Directive (CSDDD), which focuses on human rights and environmental impacts in value chains, are just two examples of the evolving reporting landscape. These regulations force companies to align with strict European Sustainability Reporting Standards (ESRS) and develop robust ESG strategies.

Technological innovation: The path to decarbonisation

Technological advancements are playing a crucial role in helping the Nordic land transport sector achieve its decarbonisation targets. Electrification, battery technology and hydrogen fuel innovations are rapidly transforming the industry. The region's strong focus on renewable energy provides a solid foundation for electric vehicle (EV) adoption, while biofuels and other alternative fuels are being explored to lower emissions as well.

The shift toward electric buses, trucks and passenger cars is accelerating across the Nordics, supported by substantial investments in charging infrastructure and partnerships between public and private sectors. By embracing new technologies, the Nordic land transport sector is on track to meet its ambitious goals, including Nordea’s sector target to reduce financed emissions by 40% by 2030 compared to 2022 levels. However, this technological transition will require significant investment in research and development, especially in decarbonising supply chains and building resilient transport networks.

Physical climate risks and operational challenges

The Nordic land transport sector is not only grappling with regulatory and technological changes but also facing the growing impacts of climate change. Extreme weather events, including floods, storms and temperature fluctuations, are increasingly disrupting operations and supply chains. As a result, companies must integrate physical climate risk assessments into their ESG strategies. 

Moreover, the sector's shift to sustainable practices comes with operational costs. Rising fuel prices, carbon taxes and tolls, combined with the need for new infrastructure investments, could strain companies' operational expenditures. However, these challenges also present opportunities, as companies that successfully navigate the transition will enhance their reputation and access new income streams from green transport solutions.

Customer expectations and ESG alignment

Land transport companies in the Nordics are increasingly expected to align their operations with their customers' ESG expectations. Customers, including large corporations and public entities, are pushing for regulatory compliance, climate policies and clear transition plans. This means transport companies must adopt zero/low-carbon vehicles, decarbonise their supply chains and invest in sustainable infrastructure.

Meeting these expectations is not only crucial for maintaining client relationships but also for securing subsidies and avoiding reputational risks. For customers, the shift to sustainable transport options can result in significant operational benefits, including improved fuel efficiency, reduced carbon footprints and enhanced brand value. However, companies that fail to adapt face the risk of stranded assets and reduced insurability of their fleet as the industry moves toward climate-neutral solutions.

Nordea as a bank supports climate transition in the land transportation sector by offering a range of different solutions and products to our large as well as small- and medium-sized corporate customers.