Nordic 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.
What the desk is arguing
The desk sees the rise in EU Taxonomy alignment among Nordic firms as a positive indicator for sustainable investment growth in the region. Per the full note from Nordea, the average revenue alignment among Nordic companies increased from 7.5% in 2022 to 8.0% in 2023, reflecting a growing awareness and adaptation to sustainable finance practices.
While the current alignment still fails to meet earlier projections of 12%, there is a strong sentiment that future gains are probable as companies familiarize themselves with the classification framework. Marco Kisic, Head of ESG Research at Nordea, is optimistic about increasing alignment numbers as green activities proliferate in various sectors.
Where it sits in our coverage
Currently, our consensus target is set at 1.075, with a range from 1.04 to 1.12. Notable firms in our coverage include: - jpmorgan — Target: 1.10 (Mar26) - bofa — Target: 1.04 (Mar26)
This view aligns with jpmorgan's more optimistic outlook, while contrasting with bofa's relatively conservative position, indicating a divergence based on expectations of market dynamics tied to sustainability disclosures.
How other firms see it
Aligned firms view the increase in EU Taxonomy adoption as a crucial signal for future investment in sustainable sectors, enhancing their growth outlook. In contrast, firms like bofa express concerns about the pace at which companies can adapt to these new standards and the regulatory challenges involved.
The outlook here intersects with broader discussions around currency pair movements, particularly EUR/USD trends, as shifts in investor sentiment could filter through to demand for Nordic currencies, potentially affecting exchange rates significantly.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Nordic companies' EU Taxonomy alignment increased from 7.5% to 8.0% in 2023.
- 02Current alignment still falls short of the previously forecasted 12%.
- 03Positive growth expected as firms adapt to sustainability requirements.
- 04Implications for sustainable finance could impact investment strategies.
Market implications
Monitor the EUR/USD pair closely as further increases in EU Taxonomy alignment could drive investor sentiment positively towards Nordic currencies, leading to stronger demand. A level above 1.075 may trigger additional buying interest based on improved sustainability reporting.
Risks to this view
Should regulatory challenges or broader economic factors impede the pace of alignment adoption among Nordic firms, any reversal in reported figures could dampen investor enthusiasm and potentially reverse recent currency trends.
Sustainable finance Nordic companies’ EU Taxonomy alignment on the rise 21-05-2024 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. 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: Climate mitigation Climate adaptation Water Waste and circularity Pollution 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 ). Show more 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.
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