You have probably heard about The EU taxonomy, but you may not know what it will mean to you, your company, or your investments. Together with equity analysts Bengt Jonassen and Karl Fredrik Schjøtt-Pedersen from ABG Sundal Collier (“ABGSC”), we will try to explain the basics of the classification tool that the EU Commission intends to implement next year.
The taxonomy sets some minimum requirements for economic activities to be considered sustainable. The intention is to help investors and companies navigate the transition to a low-carbon and resource-efficient economy. The ambition is to make Europe the first climate-neutral continent by 2050.
To be deemed sustainable, an economic activity needs to make a substantial contribution to at least one of the taxonomy’s six environmental objectives:
1) Climate change mitigation
2) Climate change adaptation
3) Sustainable use and protection of water and marine resources
4) Transition to a circular economy
5) Pollution prevention and control
6) Protection and restoration of biodiversity and ecosystems
How do you think the taxonomy will affects the market?
“One likely consequence of the taxonomy is that more capital will be allocated to greener economic activities. In other words, complying with the taxonomy criteria’s will probably be rewarded with a lower cost of capital from the financial markets and in return better growth opportunities”, says ABGSC’s equity analyst Bengt Jonassen.
Will it prevent “greenwashing”?
“Sustainability has been a buzzword for years. But just because a solution is called “sustainable” doesn’t make it so. The taxonomy will prevent companies from falsely claiming their products are sustainable if they are not. I believe it will help both investors and consumers to make informed decisions, Bengt Jonassen says.
What industries will be considered sustainable is still somewhat unclear. There has been a heated debate among several members states around specific industries, and for some industries we still do not know how they will be classified.
“Many details of the taxonomy have not yet been ironed out, and it does not yet cover all relevant activities”, says ABGSC’s equity analyst Karl Fredrik Schjøtt-Pedersen.
According to Schjøtt-Pedersen, natural gas is one of the main topics of the debate.
“A draft from the fall of 2020 indicated that there will be a strict emission limit, which by industry bodies were viewed as a threshold so strict it effectively excluded gas from the list. However, discussions are still ongoing, and recent news articles indicate that gas can be included in the taxonomy in cases where it substitutes higher-emitting power sources, he explains.
Fish farming is another debated industry which is currently not considered sustainable according to the EU taxonomy framework.
“Seafood giant Mowi has raised concerns that not being included in the taxonomy early on could have a negative impact on the industry. However, on a positive note, the company underscores that the EU’s “Farm to fork” strategy aims to increase the production of seafood to feed a growing world population in a sustainable way”, says Karl Fredrik Schjøtt-Pedersen.
The EU taxonomy is intended to be implemented in January 2022, at the earliest. Until then, the debate will most likely be continued.

Published: 8 Apr, 2021