21-05-2024 13:52

Nordic companies’ EU Taxonomy alignment on the rise

Nordic companies have reported their EU Taxonomy numbers for 2023, and Nordea's ESG Research team has analysed the results. While average revenue alignment for companies increased from 7.5% to 8.0%, we still see upside potential for several sectors.
European union flag against parliament in Brussels

For the second year in a row, EU companies have reported their alignment with the Taxonomy, the classification system for sustainable activities. While Nordic companies’ Taxonomy alignment remains low, it is growing. 

For the universe of companies covered by Nordea’s equity research team, the average Taxonomy alignment of their revenues rose from 7.5% in 2022 to 8.0% in 2023 (with companies weighted equally). That still falls short of Nordea’s estimate of 12% for 2021, made before Taxonomy reporting came into effect, but alignment is moving in the right direction, according to Marco Kisic, Head of ESG Research. 

“We expect that number to gravitate higher in the coming years, as companies become more comfortable with the methodology and as green activity grows,” he says.

Taxonomy basics

The EU Taxonomy is the classification framework to determine whether an economic activity is considered environmentally sustainable in the context of the European Green Deal. It covers environmental objectives related to six themes:

  1. Climate mitigation
  2. Climate adaptation
  3. Water
  4. Waste and circularity
  5. Pollution
  6. Biodiversity


Companies should disclose what share of their revenues, capex and opex are eligible and aligned with these six objectives. Eligibility refers to whether an activity is within the scope of the Taxonomy. 

Alignment indicates that, in addition to being within scope, the activity also meets the technical thresholds defined by the Taxonomy, does no significant harm (DNSH) to the other environmental objectives and does not infringe on human rights (Minimum Safeguards).

This year, 40% of the companies in Nordea’s coverage universe reported some degree of alignment in 2023 compared to 39% in 2022. Companies’ reported eligibility under the Taxonomy increased significantly from 25% in 2022 to 34% in 2023 as they reported for the first time on four new objectives: water, pollution, biodiversity and circularity.

Turnover alignment of our Nordic universe (market cap- and equal-weighted), Reported (2022-2023) and our estimate (2021)

Source: Company data and Nordea estimates

Turnover eligibility of our Nordic universe (market cap- and equal-weighted), Reported (2022-2023)

Source: Company data and Nordea

Kisic notes that the increase in reported alignment is likely due more to methodological reasons rather than underlying growth in green volumes. He continues to see upside potential for several sectors.

Sector and country highlights

As of 2023, the sector with the highest average degree of alignment is energy (31%), driven by renewables. It is followed by real estate (19%) and materials (17%). On the other hand, sectors falling below expectations include consultancies, installers and construction companies. They should enjoy future upside in terms of turnover alignment, according to Kisic.

Average alignment by sector (sectors with some alignment), 2022-2023

Source: Company data and Nordea

Average eligibility by sector, 2022-2023

Source: Company data and Nordea

At a country level, Sweden is the Nordic country with the lowest Taxonomy alignment, both on an equally-weighted and market-cap basis. That’s the result of a sector skew towards low-Taxonomy sectors and the absence of large cleantech companies. Denmark and Norway have the highest alignment when equal-weighting the basket of companies, while Finland is on top when weighting companies by market cap. 

Average turnover alignment by country (equal-weighted), 2022-2023

Source: Company data and Nordea

Average turnover alignment by country (market cap-weighted), 2022-2023

Source: Company data and Nordea

Activity analysis

As part of its Taxonomy disclosure, each company must indicate under which Taxonomy criteria its alignment falls. Nordea’s ESG Research team collected and analysed the alignment activities for all companies in its coverage universe for 2023. There are the activities with the highest share of alignment:

  1. Acquisition and ownership of buildings: For both capex and turnover, this activity drove the highest alignment, with the majority of real estate companies reporting some alignment.
  2. Manufacture of other low-carbon technologies: This activity drove the second-highest share of alignment. It is a generic criterion for manufacturers of clean technologies that gives some flexibility in interpretation.
  3. Manufacture of energy efficiency equipment in buildings: This activity contributed the third-highest average alignment.

Kisic says the growth in companies’ green activities and the expansion of the taxonomy to new objectives will create a wider investable universe. That, combined with a revision of the Sustainable Finance Disclosure Regulation, should give fresh impetus to the Taxonomy in the years ahead.

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