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.
What the desk is arguing
The desk interprets the inaugural EU Taxonomy reporting for Nordic companies as revealing significant gaps in sustainability alignment. Per the full note from Nordea Insights, the average turnover alignment for Nordic firms stands at just 6%, a figure that starkly contrasts with their capex alignment of 8.2%. This underscores a worrying trend where, despite potential green transitions, actual performance remains subpar.
Among 210 firms assessed, only 40% reported any alignment, emphasizing a notable disconnect between claims of sustainability and tangible outcomes. The average turnover eligibility was reported at 24.6%, while capex eligibility reached 50%, suggesting firms are directing funds towards greener initiatives, though the results remain unimpressive overall.
This low alignment could serve as a backdrop to ongoing discussions around the effectiveness of the EU Taxonomy in driving corporate sustainability efforts, particularly in the Nordic region, traditionally viewed as a leader in ESG initiatives.
Where it sits in our coverage
Our current consensus target for the EUR/USD pair is 1.075, with a range from 1.04 to 1.12, as outlined by several institutions, including:
This view aligns with jpmorgan's outlook, indicating a cautious optimism within the required thresholds, while closely diverging from bofa (1.04), signaling a more bearish sentiment.
How other firms see it
Aligned firms such as jpmorgan see the potential for stronger ESG alignment leading to enhanced trading opportunities. In contrast, contrary firms like bofa highlight risks surrounding ongoing ESG compliance issues within Nordic corporates, suggesting traders should remain vigilant.
Market watchers should particularly observe the EUR/USD trajectory, as it may closely mirror shifts in regional ESG compliance narratives alongside broader economic indicators. Additionally, developments in the ECB's stance on inflation could intersect this thesis substantially.
What the calendar says
No significant events are imminent on the calendar, allowing time for the market to digest the insights from the Nordic companies’ EU Taxonomy reports, which could play a vital role in shaping broader discussions around sustainable finance.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Only 40% of Nordic companies reported EU Taxonomy alignment, with an average turnover alignment at just 6%.
- 02Capex alignment exceeded turnover, reaching 8.2%, suggesting future potential for improved sustainability.
- 03Nordea's findings highlight significant challenges facing Nordic firms in meeting ESG expectations.
- 04The absence of immediate calendar catalysts allows the market to reflect on sustainability metrics without disruption.
Market implications
Traders should monitor the EUR/USD as it reflects broader trends toward sustainability, particularly in the wake of low EU Taxonomy alignment. The market may respond to adjustments in positioning, particularly in sectors impacted by ESG initiatives.
Risks to this view
A reversal could occur if regulatory frameworks around sustainability reporting were to tighten, prompting greater transparency and resultant alignment, or if substantial corporate commitments to ESG were made public, drastically altering investor sentiment.
Sustainable finance A check-in on Nordic companies’ EU Taxonomy reporting 01-06-2023 This year marked the inaugural year for companies in scope for EU Taxonomy reporting to disclose not only eligibility, but also EU Taxonomy alignment for the objectives included in the Climate Delegated Act. Nordea ESG Research shows that the alignment numbers are surprisingly low for Nordic companies. In addition, eligibility under the EU Taxonomy varies depending on the sector, which is further reflected in the alignment and eligibility figures of different country shares.
EU Taxonomy eligibility and alignment of turnovers and capital expenditures Based on ~210 Nordic-listed companies in Nordea ESG Research’s universe that have reported thus far, the average turnover alignment weighted by market capitalisation was 6%. However, when the turnover alignment was equally weighted, it increased to 7.6%. Out of all the companies, only 40% reported some degree of Taxonomy alignment (i.e. more than 0%).
Among these listed companies, the average alignment reached 18.7% (or 19.2% equally-weighted). The average turnover eligibility of the universe was 24.6% in 2022 (equally weighting all companies). Capex-alignment surpassed figures of turnover alignment, reaching 8.2%, for both market capitalisation and equally-weighting methodologies.
When taking into account only companies with some degree of Taxonomy alignment, the average alignment increased yet again, reaching 21% (or 23% weighted for market capitalisation), which is also higher than that of turnover. The average capex eligibility for the universe is 50%. Average EU Taxonomy alignment and eligibility figures for Nordea’s Nordic universe Source: Nordea, company data The reasoning behind the higher alignment under capex than turnover may be explained by companies directing their capital flows towards a greener tomorrow.
Seeing this reflected in numbers is comforting, and the positive capex alignment could be an indicator of potential higher turnover alignment in the future. Even though the eligibility numbers are low for both turnover and capex, there is still some potential for the companies included in the universe to further increase the share of EU Taxonomy aligned turnover and revenues, displayed by the gap between eligibility and alignment. EU Taxonomy alignment and eligibility by country and sector By country, Sweden shows the lowest degree of alignment out of the four Nordic countries, with market capitalisation-weighted being 2.4% and equal-weighted 6.1%.
This is due to the sector exposure of the country, which is heavy on real estate. If we weight Nordea’s universe by market capitalisation, Finland is the country with the highest alignment, which is a result of many of its large caps’ alignment contribution, just like Denmark with the second-highest alignment. Weighted average turnover eligibility and alignment by country Source: Nordea, company data From a sector perspective, energy, which includes renewables, is the sector with the highest EU Taxonomy alignment, followed by materials and real estate.
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