EU taxonomy alignment case study: MN

Bloomberg data shows 78% of the portfolio was taxonomy-eligible. Only the refining (oil refinement) & marketing business was not eligible. Other activities included basic (plastic production) and speciality chemicals, and these could be linked to “manufacture of organic & inorganic basic chemicals”, a taxonomy-aligned activity. We also considered “manufacture of plastics in primary form” as a taxonomy-aligned activity relevant to LYB; hence its inclusion. We examined the chemicals the company produces and allocated them according to the taxonomy categories. The calculation of the average CO2 intensity of the whole company was based on data provided by CDP and compared to the industry average (the industry being all chemicals within our own benchmark). As LYB has a higher CO2 intensity than the industry average, and has no science-based targets, the full 78% cannot be taxonomy-aligned. We then weighted the different chemicals against their intensity threshold. If they were below both the threshold and the industry average, then the revenue percentage of that product was considered as taxonomy-aligned. This was the case for 36% of the chemicals (polymers and high value chemicals). No alignment could be made for the “manufacture of plastics in primary form” as they are not made from renewable feedstock. We did not identify any DNSH controversies, so there was a 36% alignment overall.

Eligibility (78.1%)

Active in the following sectors::

• Refining and marketing (21.9%) - BICS 131014 not eligible
• Basic and diversified chemicals (62.5% )- BICS 171011  eligible
• Specialty chemicals (15.6%) - BICS 171012 eligible

EU taxonomy categories

• Basic and diversified chemicals - manufacture of organic and inorganic basic chemicals
• Specialty chemicals - manufacture of organis and inorganic basic chemicals

Bloomberg data showed Vesteda was 100% taxonomy-eligible, as the company is active in residential real estate which matches with the taxonomy activities of building renovation, construction, acquisition and ownership of buildings. It was very difficult to measure the company’s PED for a number of reasons. 

First, the question of local stock was challenging, so to measure it more easily we classified it on a country/regional level (western Europe). Indeed, our universe would be too small to compare Vesteda if we only used country level (smaller real estate companies have very little data).

The city and regional levels were also extremely difficult to measure, because most companies do not report detailed data: Companies rarely report the square meterage (M2) of the properties they own; while they report the Kwh of their properties, they do not differentiate between residential and retail or office properties, which use considerably more energy.

In addition, it is challenging to estimate M2, given it differs by city and country, and it would be difficult to dive deep into the property locations for each individual company as they usually own more than 20,000 units. Energy labels were a more viable alternative.

As Vesteda is only active in the Netherlands, the distribution of energy labels within the country was used for comparison, with those in the top 15% of the local stock (the Netherlands) considered taxonomy-aligned. Some 29% of Vesteda’s properties have an A label - the highest possible - compared to 17.2% in the Netherlands overall. As this is very close to 15% and is the highest label, we would give Vesteda an alignment percentage of 29%.

Energy label development 2015-2024

29% taxonomy alignment

• 17.2% Dutch households have A label –> highest
• Given a house can’t obtain a higer rating and 17% is very close to 15%, it is fair to allocate 29% to Vesteda

Label distribution homes, 2007-2018

Bloomberg data shows 27% of the company was taxonomy-eligible, corresponding to its networks (transmission) businesses. However, we would argue that 38% is taxonomy-eligible, taking account of their renewables business. As Bloomberg does not distinguish between thermal and renewable activities, alignment was measured as per activity:

1. Electricity Generation: Renewable CO2e is generally at such low levels (8gCO2/Kwh) that it can be taken that all activities (hydro is usually the largest emitter, but in this case it is the biggest source) contribute to reduce life cycle emissions to below 100g CO2/kwh. While the taxonomy refers to scope 1 emissions having to reach net zero by 2050, it also includes scope 2, which is the largest source of CO2 for Enel. Emissions per renewable type were not available and it was not possible to link gas, as no CO2 data was available for gas alone. Further, it is unlikely gas will be within 100gCO2/Kwh inside five years, because the current goal for the whole group, including renewables, is to achieve a reduction to 215gCO2 Kwh. Therefore, all normal generation will exceed this figure. Renewables account for 10% of revenue and 43% of capex, and are taxonomy-aligned.
2. Transmission: The transmission business is eligible if (1) more than 67% of newly connected generation capacity in the system is below the generation threshold value of 100gCO2e/kWh, measured on a product carbon footprint (PCF) basis over a rolling five-year period; or (2) the average system grid emissions factor is below the threshold value of 100gCO2e/kWh, measured on a PCF basis over a rolling five-year average period. As the company’s aim is to reduce emissions to 220g/kwh by 2022, and the current average emissions factor of the grid is 418gCO2e/kwh, it is not eligible. However, transmission grid activities are eligible irrespective of whether the system is on a pathway to full decarbonisation if there is direct connection of low carbon emission generation, EV charging points and infrastructure, all with the goal of increasing the generation of renewable energy. Enel is active in all these activities but it is not possible to link a percentage of revenue or capex to that specific segment, hence the 0% alignment.
3. Enel’s electricity infrastructure business is called Enel X. A link can be made with Enel X as an enabling alignment source, as it allows clients to use technology to transform energy into new opportunities for growth and progress. For example, using smart lighting, smart grids and EV charging, as well as equipment to exchange renewable electricity between users, such as smart meters and grids. Enel X is active in all these areas, as well as in others that are not taxonomy-aligned, such as microfinance. Nevertheless, the majority of their activities are aligned. Taking this together with the fact that a lot of transmission activities do not contribute to alignment, though they should, we considered all turnover and capex from Enel X as aligned. This corresponded to 1% for revenue and 3% for capex.

Overall, this means 11% of the company is aligned based on revenue, and 46% based on  capex.

Main now financial indicators 2022