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14th of October, 2021

Handelsbanken Debt Capital Markets

EU taksonomia ja kestävä rahoitus

Kiinteistöarviointipäivä

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Sustainable Finance debt market overview

Steady global growth with 2021 being yet another record-breaking year Nordic market hitting record volumes as well

0

200

400

600

800

1000

1200

2015 2016 2017 2018 2019 2020 2021

Green Bond Social Bond

Sustainability Bond Sustainability Linked Bond

Green Loan Sustainability Linked Loan

0

10

20

30

40

50

60

70

2015 2016 2017 2018 2019 2020 2021

Green Bond Social Bond

Sustainability Bond Sustainability Linked Bond

Green Loan Sustainability Linked Loan

USDbn USDbn

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Green Loan YoY growth declining in the Nordics – Taxonomy to help?

-200 %

-100 %

0 %

100 %

200 %

300 %

400 %

500 %

600 %

2016 2017 2018 2019 2020 2021

Green Bond Social Bond Sustainability Bond Sustainability Linked Bond Green Loan Sustainability Linked Loan

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Real Estate sector keeps on pushing the market volumes up

Nordic Real Estate sector has been an early driver of the market Global Real Estate sector has seen significant growth – EUR volumes up

0

1

2

3

4

5

6

7

8

9

10

2015 2016 2017 2018 2019 2020 2021

Green Bond Social Bond

Sustainability Bond Sustainability Linked Bond

Green Loan Sustainability Linked Loan

0.0 %

10.0 %

20.0 %

30.0 %

40.0 %

50.0 %

60.0 %

70.0 %

80.0 %

0

5

10

15

20

25

30

35

40

45

50

2015 2016 2017 2018 2019 2020 2021

Green Bond Social Bond

Sustainability Bond Sustainability-Linked Bond

EUR SEK

USDbnUSDbn

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Fund focus on sustainability continues to grow too

Sources: Deloitte, Morningstar, Handelsbanken Capital Markets

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The EU Taxonomy - Overview

All aspects of the EU Taxonomy are required to be fulfilled to demonstrate Taxonomy eligibility / alignment

Technical Screening Criteria

Explained: The TSC detail the key criteria, definitions and thresholds

that specific Economic Activities must meet in order to demonstrate

‘substantial contribution’ towards one of the six Environmental Objectives

in order to be eligible under the Taxonomy.

Do-no-significant-harm

Explained: The DNSH detail key criteria and thresholds that the specific

Economic Activities must meet in order to demonstrate that they ‘do not

cause significant harm’ to any of the other Environmental Objectives.

Minimum Social Safeguards

Explained: MSS are designed to ensure that social principles and

foundations of the EU are considered alongside the newly introduce

environment and climate criteria.

i. OECD Guidelines for Multinational Enterprises

ii. The UN Guiding Principles on Business and Human

Rights

iii. The eight fundamental conventions identified in the

Declaration of the International Labour Organisation on

Fundamental Principles and Rights at Work

iv. The International Bill of Human Rights.

The Six Environmental Objectives

of the EU Taxonomy

.

Published in June, 2021

i. Climate change mitigation

ii. Climate change adaptation

Under development

iii. The sustainable use and protection of water and

marine resources

iv. The transition to a circular economy

v. Pollution prevention and control

vi. The protection and restoration of biodiversity and

ecosystems

In short, Taxonomy is a ”dictionary” that defines which activities can be considered green and based on what criteria

To be fully aligned

with the

Taxonomy, a

company must

essentially meet

all three criteria

categories

outlined on the

right.

The basic idea is

that in order to be

sustainable, it is

not acceptable to

achieve good at

the expense of

other

environmental or

social areas.

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2

3

7

Summary of key Taxonomy developments related to Real Estate

Source: Handelsbanken Capital Markets. EU Commission..

Technical Screening Criteria (TSC)

(main criteria)

NZEB-10%

New

Buildings

-30%

Renovation

EPC A or

Top 15%

Existing Buildings

built before 2021

NZEB-10%

Existing Buildings

built from 2021

(primary energy demand,

evidenced by EPC)

In Finland, this corresponds

to E-value 81 for new

apartment buildings

(reduction in primary

energy demand over a

maximum of 3 years)

Top15% in Finland currently

at approx. E-value of 85 for

apartment buildings

(primary energy demand,

evidenced by a EPC)

• TSC in all categories are fairly in line with how real estate criteria

function in todays market

• The addition of disclosure of the lifecycle GWP-potential of new buildings

is a welcome addition, but it’s highly important that standardized

methods, emissions data and additional guidance is published as soon

as possible.

• Criteria for EPC-levels are determined nationally, meaning that the

requirements are different in Finland compared to, eg. Netherlands. This

may leave real estate companies in some countries in a less favorable

position simply due to national implementation of the EPC scheme

• For Nordic companies, it should be fairly straight forward to map out

share of alignment and to disclose the KPIs outlined in the Taxonomy

Regulation

• Some illogicalities still exist, for example the DNSH criteria for the

Acquisition and ownership activity, where there are no DNSH criteria if

one would acquire a building in June 2021 whereas the same building, if

built eg. January 2021 would have had to go through all DNSH criteria

comments

8

MemberStates or the

EU whencreating

product labels

Companiessubject to publishing

non-financialstatements

(NFRD)

Financial market

participantsofferingfinancialproducts

EU Taxonomy – Implications for companies

Source: Handelsbanken Capital Markets, European Commission

Who needs to comply with the Taxonomy Regulation? When should I take the Taxonomy into consideration?

1 Planning to issue

green debt?

• No legal obligation

to follow EU

Taxonomy

• Investors may still

ask you to provide

details on

Taxonomy

alignment if they are

obliged to disclose

information to their

own clients

• The EU Taxonomy

will not make your

outstanding green

bonds ”non-green”

Subject to the Non-

Financial Reporting

Directive?

• Two KPIs will be

mandatory to report

starting from 2022

1. Revenue aligned

with the EU

Taxonomy

2. Capex and Opex

aligned with the

EU Taxonomy

• Commission will

publish Delegated

Act by June 2021 to

elaborate more on

methodology

Stock exchange

listed company?

• No legal obligation

due to being listed

• Likely, however,

you are subject to

the NFRD

requirements

• You may also be

asked by your share

holders to start

reporting on at least

the revenue

alignment against

EU Taxonomy3

2

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Taxonomy assessments starting to emerge – Room for improvement

Source: Bloomberg, Handelsbanken Capital Markets, European Commission

Bloomberg has taken a stab at estimating figures for OMXH25 companies

It’s important to distinguish between eligibility and alignment when assessing the Taxonomy

• Bloomberg’s estimation is based on revenue

generation from activities that are mentioned in the EU

Taxonomy

• Taxonomy eligibility is not the same as Taxonomy

alignment (Bloomberg has only assessed what

percentage of revenue comes from activities that are

in the Taxonomy, but has not taken a view whether

companies can meet all the detailed criteria)

• Some anomalies can be spotted

• This illustrates the challenges that capital markets are

facing as the taxonomy becomes a tool for investors to

evaluate companies

• Impossible at the moment to have high accuracy in

external estimations without deep dialogue with the

company

October 2021 Taxonomy Eligiblity

Konecranes Oyj 100 %

Cargotec Oyj 100 %

Telia Co AB 100 %

Kojamo Oyj 100 %

TietoEvry Oyj 100 %

Nokia Oyj 100 %

Elisa Oyj 100 %

Kemira Oyj 100 %

Wartsila Oyj Abp 100 %

Metso Outotec Oyj 100 %

Fortum Oyj 100 %

Valmet Oyj 100 %

QT Group Oyj 100 %

Nokian Renkaat Oyj 99.19 %

Sampo Oyj 83.44 %

Huhtamäki Oyj 74.99 %

Neste Oyj 35.09 %

Kesko Oyj 9.06 %

Outokumpu Oyj 8.70 %

UPM-Kymmene Oyj 4.03 %

Stora Enso Oyj 0.32 %

Orion Oyj 0 %

KONE Abp 0 %

Metsä Board Oyj 0 %

Nordea Bank Abp 0 %

Bloomberg is working to improve Taxonomy assessments and data availability External assessment will be challenging

June 2021 Taxonomy Eligiblity

Cargotec Oyj 100 %

Neles Oyj 100 %

KONE Oyj 100 %

Elisa Oyj 100 %

Kemira Oyj 100 %

Wartsila Oyj 100 %

TietoEvry Oyj 100 %

Telia Co AB 100 %

Nokia Oyj 100 %

Valmet Oyj 100 %

Fortum Oyj 100 %

Metsä Board Oyj 87.50 %

Outokumpu Oyj 76.80 %

Nokian Renkaat Oyj 75.80 %

Konecranes Oyj 64.80 %

Huhtamäki Oyj 25 %

Stora Enso Oyj 7.10 %

Metso Outotec Oyj 6.50 %

UPM Kymmene Oyj 5.50 %

Kesko 0 %

Orion Oyj 0 %

Neste Oyj 0 %

Nordea Bank Abp 0 %

Kojamo 0 %

Sampo Oyj 0 %

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Implications of the EU Taxonomy?

Harmonization

Transparency

Scalability

Reporting requirements

Short vs long term impacts

Bank lending, capital market instruments, equity?

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