Taxonomy: Are Dutch Stocks Green?

In recent weeks, I analyzed how companies on Euronext Amsterdam score in terms of Taxonomy-alignment. The 3 key takeaways from my analysis are:

  • The average Taxonomy-alignment of Dutch stocks is <5%.
  • Sectors like real estate, non-life insurance and industrials stand out.
  • The top 3 consists of ASR Nederland, Signify and Unibail-Rodamco-Westfield*

I will briefly revisit what the Taxonomy is about before sharing more detailed findings of my analysis.

What is the Taxonomy again?

The EU Taxonomy is a list of business activities that the EU considers to be sustainable. The Taxonomy will provide investors with an objective methodology to determine if the company they invest in is really ‘green’.

The Taxonomy-alignment of Dutch stocks is just 3.8%

On average, just 3.8% of revenue of companies on Euronext Amsterdam is Taxonomy-aligned, according to my analysis. This means that less than 5% of revenue is related to activities that help preventing or adapting to climate change. Interestingly, mid cap stocks score higher than large caps as the AMX Index is 6% Taxonomy-aligned while this figure for the AEX-Index is just 1%. This can be explained by the different sector compositions of both indices.

As the Taxonomy-alignment of most companies is low, it will be hard for investors to build a portfolio with Dutch stocks that can be considered ‘green’. To be concrete: If you would construct an equally weighted portfolio with the 10 most Taxonomy-aligned stocks in the Netherlands, the portfolio would be 15-20% Taxonomy-‘proof’.

Things will get better, but it takes time

The good news is that the Taxonomy-alignment of companies will increase in the coming years, as the list of ‘climate-activities’ will probably be extended soon. Moreover, the European Commission intends to add activities that support other EU environmental goals like biodiversity protection, pollution prevention and a circular economy to the Taxonomy. However, this will take time as the Platform on Sustainable Finance will publish the criteria for the other environmental objectives only by the end of 2021.

The sectors real estate, insurance and industrials score highest

Real estate, insurance and industrials score highest as many Taxonomy-eligible activities are concentrated in these sectors. For example, the rental income of a real estate company is Taxonomy-aligned if its buildings are in the top 15% in terms of energy efficiency. For insurance companies, non-life premium income is potentially Taxonomy-eligible. The idea is that insurers play a role in climate adaptation as they provide insurance against climate-related hazards like storms, drought and flooding. Moreover, non-life insurers can add value on risk management of these kind of events. Obviously, the climate hazards mentioned are not always insurable. Finally, in the industrials segment companies with activities in engineering, chemicals and low carbon-products qualified.

The three ‘greenest’ companies on Euronext Amsterdam

The three companies on the Dutch stock exchange that scored highest in my analysis are, in alphabetical order:

  • ASR Nederland
  • Signify
  • Unibail-Rodamco-Westfield

ASR Nederland has a large exposure to non-life insurance. Signify ranks high as most of its revenue come from the sale of LED lighting. I need to point out that LED lighting is not yet part of the Taxonomy. However, the Technical Expert Group of the EU has indicated that it suggests that the Platform of Sustainable Finance includes LED lighting in the Taxonomy in the near-term. Finally, the shopping centers and offices of Unibail-Rodamco-Westfield are for a substantial part ranked ‘outstanding’ based on the BREEAM assessment method.

The methodology: browsing annual reports and other public data sources

I looked at 50 companies that are either part of the AEX or the AMX Index. To analyze their activities I browsed through annual reports, company websites and the CDP-database. The CDP database is a website where companies can publish data on their environmental performance including climate change.

This analysis: nothing more than a first indication

As companies do not yet report Taxonomy-related data, my estimates will differ from the figures that companies will report in 2022. By 2022, listed companies are required to report their Taxonomy alignment for book year 2021, according to the EU non-financial reporting directive (NFRD). The results of this analysis have not been discussed with the companies involved. Finally, I only considered Taxonomy-alignment of revenue and did not check for the ‘do-no-significant-harm’ criteria or if the companies meet minimum human and labor rights standards.

Maurits Heldring, CFA , Owner ClimaTrust

* I do not hold a private securities position in any of the companies mentioned. However, I may be invested in one or more stocks via previous employer passive pension plans.

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