Companies report on four new EU Taxonomy objectives: water, pollution, biodiversity and circularity
At a Glance
As EU companies begin reporting their alignment with four new Taxonomy objectives—water, pollution, biodiversity, and circularity—the desk anticipates a significant uptick in overall Taxonomy alignment numbers, driven by the inclusion of these new criteria. Per the full note from Nordea, Marco Kisic indicates that companies' eligibility under these objectives should expand the sustainable investments universe and could enhance average alignment next year. This may have implications for market segments related to sustainability-focused investments as institutional traders factor in this evolving framework into their strategies.
Key Takeaways
- 01EU companies report new Taxonomy eligibility, indicating possible growth in sustainable investments.
- 02Expect higher average alignment numbers next year as more entities comply with expanded objectives.
- 03Sustainability themes may drive increased investor interest and shift in market dynamics.
- 04The EUR/USD pair reflects broader sustainability trends influencing investment strategies.
Full Analysis
What the desk is arguing
The desk posits that the recent reporting on the EU's Taxonomy objectives indicates a pivotal shift in the sustainability landscape. This development marks the first time companies have assessed their eligibility regarding new environmental criteria, a factor that could significantly shape investment strategies going forward. Per the full note from Nordea, there is an expectation for an increase in average alignment numbers next year as more companies embrace these additional objectives.
The Nordea ESG Research team suggests that this initial eligibility reporting provides encouraging signs for future compliance and alignment, which may lead to greater investor interest in sustainably classified assets. For instance, Marco Kisic notes a likely step-up in average alignment, which would enhance the universe of investments deemed sustainable. This is particularly relevant given the growing focus on ESG criteria across investment mandates.
Where it sits in our coverage
The current consensus target for the EUR/USD pair is set at 1.075, with a range between 1.04 and 1.12. Notable firms include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
Our outlook aligns with the broader market sentiment reflecting positive shifts towards sustainable investments, placing us near the higher end of the range outlined by our peers.
How other firms see it
Firms such as jpmorgan and credit-suisse align with expectations of increased sustainable investment flows, whereas bofa takes a contrarian view, suggesting caution about current pricing structures. There is a clear link between the EUR/USD trajectory and emerging sustainability legislation in the EU, with market participants likely to monitor shifts in compliance as reflected in currency movements.
What the calendar says
With no high-impact events scheduled in the immediate term, traders should remain attentive to ancillary reports that could emerge within the next month regarding the implementation of these new Taxonomy objectives, particularly as they relate to upcoming earnings reports from major EU corporations, which may signal further developments in the sustainability narrative.
Market Implications
Monitor the EUR/USD pair for movements influenced by sustainability-related news, especially as compliance reports and earnings from key EU companies could signal commitment shifts to these new objectives. Watch for levels around 1.075 to evaluate trading signals.
From the original
Sustainability Companies report on four new EU Taxonomy objectives: water, pollution, biodiversity and circularity 21-05-2024 EU companies recently reported their alignment with the EU Taxonomy for the second year in a row. For the first time, they also reported their eligibility
Related speeches
4 itemsNordic companies’ EU Taxonomy alignment on the rise
The desk interprets that Nordic companies are gradually improving their alignment with the EU Taxonomy, signaling a broader embrace of sustainable finance. Per the full note from Nordea, the average revenue alignment among these companies rose from 7.5% in 2022 to 8.0% in 2023, although this remains below the 12% forecasted prior to the introduction of the Taxonomy reporting. This growing trend hints at the potential for further upward movement as firms become more accustomed to the framework and the green economy expands, indicating a possible shift in corporate investment strategies toward sustainability.
A check-in on Nordic companies’ EU Taxonomy reporting
The desk sees the current EU Taxonomy reporting phase for Nordic companies as indicative of broader trends in sustainable finance, with surprisingly low alignment figures suggesting challenges for ESG expectations. Per the full note from Nordea Insights, only 40% of 210 listed Nordic companies have reported any degree of EU Taxonomy alignment, with a mere average turnover alignment of 6%. This data may have implications for investor sentiment in the Nordic region, particularly as capital expenditure alignment surpasses turnover alignment, hinting at potential future improvements in sustainability metrics. The lack of calendar events gives room for the market to absorb these insights without immediate catalysts.
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