Nordic companies’ EU Taxonomy alignment on the rise

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.

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.

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.

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. 

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.