EU SUSTAINABLE FINANCE TAXONOMY CASE STUDY - APPLICATION, EXPERIENCE AND RECOMMENDATIONS - ENBW
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EU sustainable finance taxonomy case study Application, experience and recommendations
Table of contents
About this report 3
Forewords 4
Management summary 6
1. An overview of the development of (sustainability) reporting 7
1.1. Important developments relating to the requirements for (sustainability) reporting
1.2 The development of EnBW reporting
2. Objectives, background and elements of the EU taxonomy reporting requirements 13
2.1 EU taxonomy objectives and background
2.2 Taxonomy-related reporting requirements for companies operating in the real economy
2.3 Definitions of the terms revenue, capex and opex
3. Practical implementation of the EU taxonomy at EnBW 20
3.1 Project plan and project organization
3.2 Defining the taxonomy-compliant activities
3.3 Establishing environmentally sustainable revenues, capex and opex
3.4 Findings from the first-time reporting of the EU taxonomy
4. Recommendations for finalizing the EU taxonomy 31
Appendix: Important documents 34
Contact / imprint 35
Table of contents 2
About this report
As part of its climate policy positioning, the European experts (beyond the Sustainability department). In
Commission presented the European Green Deal addition, presentation options for reporting in line
in December 2019 following the Paris Agreement with taxonomy guidelines are analyzed together with
in 2015. With the Green Deal, the European Com- matters relating to the generation of the information.
mission’s declared aim is to reduce net greenhouse The document will also examine how the EU taxonomy
gas emissions to zero by 2050 and thus become cli- should be developed further in terms of content and
mate-neutral. The idea is to redirect capital flows into methodology against the backdrop of the objectives
environmentally sustainable activities to support the pursued with it by the EU.
objectives and financing of the Green Deal. To this
end, the EU sustainable finance taxonomy (hereinaf- By presenting the results of the taxonomy implemen-
ter: EU taxonomy) has been developed, a classification tation project, EnBW and Deloitte wish to contribute
system used to clearly define “environmentally sus- to an informative finalization and interpretation of
tainable” business activities. taxonomy-related reporting requirements. In the
summer of 2020, work began on examining the
The new reporting requirements associated with required information on the basis of the above-men-
the EU taxonomy are likely to significantly increase tioned Regulation and the delegated act. In addition,
the informative value of non-financial reporting by data on environmentally sustainable adjusted EBITDA
establishing a link between financial and non-finan- was ascertained. The corresponding information was
cial matters for the first time. They will be relevant included in the management report in the EnBW Inte-
to the capital market for meeting its own reporting grated Annual Report 2020. The management report
requirements and call for careful examination at an was audited as part of the statutory audit with reason-
early stage within the companies that are subject to able assurance by Ernst & Young GmbH Wirtschafts-
reporting requirements. The first reporting require- prüfungsgesellschaft.
ment comes into effect on 1 January 2022, relatively
soon after the Taxonomy Regulation was passed in The recording of relevant taxonomy-compliant EnBW
June 2020. Some of the required criteria need further business activities is taking place in two phases.
explanation, others have not yet been finalized. For the first phase, which provides the basis for this
report and the taxonomy reporting in EnBW’s 2020
This publication is designed to classify the require- Integrated Annual Report, EnBW business activities
ments of the EU taxonomy in the context of further in the Renewable Energies and Grids segments were
developing financial and sustainability reporting from analyzed. In the second stage, information on the
the perspective of a reporting company. The focus is taxonomy compliance of other Group activities will be
on the early application of the EU taxonomy require- gathered in 2021.
ments and their interpretation to produce information
on environmentally sustainable revenue, capex and The introduction of the EU taxonomy should make an
opex based on the Taxonomy Regulation of 18 June important contribution to transparency in relation to
2020 and the technical screening criteria in the draft the capital allocation envisaged by the EU in order
delegated act concerning the Taxonomy Regulation to achieve a climate-neutral economy, provided that
dated 20 November 2020 (see EnBW’s Integrated future delegated acts contain clear and ambitious
Annual Report 2020, p. 79 ff.) The perspective of a criteria that not only reflect the objective of a cli-
company operating in the real economy (the report mate-neutral economy in 2050, but, above all, set out
author's view) is adopted for the purposes of present- a path towards achieving this overriding objective and
ing and interpreting the requirements relating to the provide incentives for pursuing it.
implementation of the EU taxonomy. Furthermore,
the document is aimed at all stakeholders in the sus-
tainable finance community (besides report authors,
also standard setters, investors, policymakers, civil
society, etc.) It will be shown under which conditions
the implementation of the EU Taxonomy Regula-
tion is both sensible and possible, but also requires
sufficient lead time and the involvement of internal
About this report 3
Dear Madam or Sir,
The European Commission set a clear target following
the announcement of the Green Deal: Europe should
become the first climate-neutral continent by 2050.
This represents a central pillar in terms of the imple-
mentation of the Paris Agreement. The achievement
of climate neutrality and the path towards it is one of
the most important economic policy issues that com-
panies currently need to respond to.
As an important tool, the EU Action Plan on Financing
Sustainable Growth calls for the creation of a classi-
fication system for sustainable economic activities –
the EU taxonomy. That is because clear standards and
tools are needed, especially among investors on the
financial markets, in order to enable the assessment
of sustainability based on objective criteria. In line
with the taxonomy guidelines, performance indica-
ness reporting activities this year – before the official
tors linking the financial and non-financial aspects of
reporting requirement date – to include parts of the
business reporting are now set to be published for the
future mandatory taxonomy information. We had
first time. As a member of the TEG, we have actively
originally assumed that the major criteria would be
supported the development of the EU taxonomy.
in place by the time this report was finalized. This is
not yet the case. As a first step, we have therefore
In our view, it is essential for the successful imple-
restricted ourselves to activities that are highly likely
mentation of the taxonomy that attention is paid to
to be classified as “environmentally sustainable”.
what is technically possible and economically feasible
These cover electricity generation from wind, PV and
at the present time when establishing the specific
hydropower as well as the electricity grids.
criteria and threshold values. Maximum requirements
as currently being discussed are not helpful to the
With this report, we wish to contribute to the further
transformation process.
practical structuring of the EU taxonomy. We firmly
believe that this tool will make an important contri-
As a company, we have adopted a clear position: We
bution to the successful implementation of the EU
want to be climate-neutral by the end of 2035. On
Green Deal.
our way to achieving this aim, we will measure every
investment against sustainability criteria, thereby
Best regards,
inextricably linking our future growth to it. We took
the step to firmly root sustainability in our DNA at an
early stage. We are among the pioneers of integrated
business reporting and have been committed to
national and international initiatives on climate risk
Thomas Kusterer
reporting and sustainable financing for a number of
EnBW Chief Financial Officer
years.
In line with our sustainable corporate strategy, we
have taken a decision to expand our integrated busi-
Foreword 4
Dear Madam or Sir,
Sustainability means future viability: Changing stake-
holder expectations relating to the role played by
companies in society mean that sustainable compa-
nies can achieve competitive advantages in the sales
and human resources markets as well as through
innovations to seize new market opportunities and
cut costs over entire life cycles. On the procurement
market, companies are increasingly expected to take
responsibility for environmental protection, occu-
pational health and safety and human rights in the
supply chain. Regulatory measures aimed at miti-
gating climate change and facilitating the transition
to a circular economy, for example, will have a signif-
icant impact on the business models of many com-
panies. Companies that fail to keep abreast of this
profound change run the risk of being overtaken and
companies concerned: Besides sustainability experts,
left behind by their competitors.
the departments responsible for the reporting sys-
tems (particularly Accounting, Risk Management and
Against this backdrop, it is clear why sustainability
Controlling) must be involved at an early stage.
is now also emphatically demanded by the capital
market. Sustainability is relevant to value and has a
This case study shares initial valuable practical expe-
direct impact on cash flows, useful lives and capital
rience with you to enable an informative yet realistic
costs. Management boards and investors require
implementation of the new requirements as well as
reliable information as a basis for investment deci-
recommendations for their finalization.
sions. It is important to be able to reliably identify
informative, strategically relevant indicators and
Best regards,
show their impact on the economic situation. Risk
management, reporting and controlling systems
must be must be enhanced accordingly.
These developments are also reflected in the guide-
lines for external reporting. Significant develop-
Prof. Frank Beine
ments to date have been the International Integrated
Managing Partner Deloitte | Audit & Assurance
Reporting Framework, the TCFD recommendations
and the development of industry-related SASB stan-
dards. The new taxonomy reporting requirements on
“environmentally sustainable” revenue, capex and
opex are likely to increase the informative value and
comparability of reporting by mandatorily linking
sustainability and financial reporting for the first
time. They will be relevant to the capital market, as a
basis for investment decisions, but also for meeting
investors' own reporting obligations.
The proper implementation of these requirements
calls for a careful examination process within the
Foreword 5
Management summary
• Companies that are required to publish a non-fi- today. Taxonomy-compliant capex gives an indica-
nancial report (§§ 289b ff., 315b f. German Com- tion of how a company is adapting to a decarbonized
mercial Code (HGB)) must provide information on economy in 2050. An examination of capex, in par-
“environmentally sustainable” revenues, invest- ticular, could thus be paramount for evaluating the
ments (capex) and operating expenses (opex) for future viability of a company.
the first time in 2021 in accordance with the EU • The need to include reporting requirements for
Taxonomy Regulation. environmentally sustainable opex should be jus-
• The new reporting requirements associated with tified or, alternatively, deleted, because the added
the EU taxonomy are likely to significantly increase value in content terms is not clear to the majority of
the informative value and comparability of non-fi- sectors up to now.
nancial reporting. As a result of this reporting • To enable companies to realistically implement the
requirement, financial and non-financial informa- taxonomy requirements, standard reference values
tion is being mandatorily linked for the first time. for life cycle emissions should be established as far
• Companies should allow sufficient time to imple- as possible, rather than requiring them to analyze
ment taxonomy reporting requirements. Particu- individual plants.
larly, the initial work associated with determining • Taxonomy compliance demands, among other
taxonomy-compliant activities and deriving the things, that no significant harm (rather than harm
taxonomy performance indicators subject to report- of any kind) is done to other EU environmental
ing requirements (revenue, capex and opex) for the objectives. It has been possible to make reference
2021 reporting year will represent a considerable to compliance with demanding national and Euro-
challenge for companies. pean legislation within the project, because high
• The taxonomy implementation project comprises a environmental protection standards apply to the
specialist and system-side component: energy sector. We assume that compliance with
(1) A ssessing the environmental sustainability of these standards will generally exclude the possibil-
activities, including identifying relevant activities, ity of any significant harm being done to the envi-
evaluating their compliance with the taxonomy, ronmental objectives.
gathering evidence, etc. • Environmental impact assessment (EIA) require-
(2) T ranslating the sustainability assessment into ments should be adapted because it is conceivable
financial performance indicators, including that there are cases where no EIA has (permissibly)
taking stock of systems and processes for the been conducted, but it can nonetheless be proven
respective internal data acquisition of taxono- that there is no risk of significant harm to EU envi-
my-compliant performance indicators for each ronmental objectives.
business activity. • The current threshold value of 100 g CO2e/kWh
• The required taxonomy performance indicators for could act as a disincentive, hampering investment
the wind, solar/PV, hydropower and electricity grid in activities (such as gas power plants) that are
economic activities were ascertained for the 2020 essential for the transition to a decarbonized econ-
reporting year. In addition, the adjusted EBITDA omy.
performance indicator, which is relevant to EnBW, • The inclusion of transitional activities with ambi-
was determined. tious but realistic threshold values would help to
• Taxonomy-compliant revenue gives an indication significantly accelerate progress along this neces-
of how “environmentally sustainable” a company is sary decarbonization path in the short and medium
term.
• For a final assessment of the practical reporting,
auditing and utilization of taxonomy-related infor-
Environmentally sustainable revenue, opex, capex mation, the announced delegated act specifying
and adjusted EBITDA of the EnBW Group for the 2020 the reporting requirements is crucial. The current
financial year considerations propose an unjustified granularity of
the information by requiring that information is pro-
2020 2019 vided for each activity, environmental objective and
Revenue 18% 15% many other criteria.
• If the taxonomy is to be successfully implemented,
Opex 26% 24%
it is essential that attention is paid to what is tech-
Capex 60% 66% nically possible and economically feasible at the
Adjusted EBITDA 65% 59%
present time when establishing the screening crite-
ria and threshold values.
Summary 6
1. An overview of the development
of (sustainability) reporting
1.1 Important developments relating to the
requirements for (sustainability) reporting
1.2 The development of EnBW reporting
1.1. I mportant developments relating to Financial Disclosures (TCFD), the information to be
the requirements for integrated in the financial reporting on the oppor-
tunities and risks of climate change for a company,
(sustainability) reporting with a clearer emphasis on integrated corporate
governance than in the other important reporting
Since its launch at the turn of the millennium, the standards) and the SASB standards (industry-spe-
Global Reporting Initiative (GRI) has become an cific sustainability information for integration in the
increasingly recognized standard for the (voluntary) financial reporting). Other initiatives for enabling the
reporting of the environmental, social and economic impact to be measured and monetized build on these.
impact of a company’s business activities. The devel-
opment of the GRI standards put the highly regarded Due to the passing of the NFRD (2014/95/EU) and its
yet still very general reporting principles of the United adoption in national law (particularly in sections
Nations Global Compact into concrete terms. By the 289b ff., 315b f. HGB through the German CSR Direc-
time the GRI G3 reporting guidelines had been pub- tive Implementation Act (CSR-Richtlinie-Umsetzu-
lished in 2006, the GRI standards had been adopted ngsgesetz or CSR-RUG)), sustainability aspects have
by major international companies in particular. Since become more comprehensive. There is an explicit
the 2005 financial year, non-financial performance requirement to include them in the management
indicators, such as information on environmental and report (the information can also be published outside
employee-related matters, must be included in this the management report in a separate non-financial
context (§§ 289(3)(315)(1)(4), German Commercial report). Since the 2017 financial year, capital mar-
Code (Handelsgesetzbuch or HGB)). ket-oriented companies with more than 500 employ-
ees are thus required to add a non-financial state-
The founding of the International Integrated Report- ment to their (consolidated) management reports.
ing Council (IIRC) for the purposes of developing This must include information on environmental,
integrated reporting (IR) was a key driver in the devel- social and employee-related matters and details
opment and consolidation of financial and non-fi- relating to respect for human rights and measures
nancial reporting. This includes integrated corporate to combat corruption and bribery if such information
governance and the preparation of an integrated is needed to understand the business performance,
report. From the very start, the focus has been on the business results and situation as well as the impact.
companies’ overall value added. Accordingly, beyond
the economic situation, a more broadly defined The new taxonomy reporting requirement ties in with
meaning of the term capital has been assumed, one this reporting requirement. Accordingly, companies
that not only examines financial capital, but also that operate in the real economy and are required to
production-based, intellectual, human, social, net- publish non-financial reports in line with commercial
work-based and natural capital – particularly the law must include information on “environmentally
interaction between them. sustainable” revenue, capex and opex in financial
years for which a report is prepared on or after
The overwhelming emphasis on the past in conven- 1 January 2022 in compliance with the EU Taxonomy
tional financial reporting should be replaced by a Regulation. As a result of this reporting requirement,
short-, medium- and long-term examination of value financial and non-financial information is being
added so that the report conveys the company man- mandatorily linked for the first time. The information
agement’s strategic focus. The integrated reporting provides the basis for meeting the reporting require-
should be market-driven, in contrast to a legally reg- ments of financial institutions (pursuant to the EU
ulated report. Furthermore, no specific performance Disclosure Regulation 2019/2088) and therefore one
indicators should be required. Instead, in line with of the reasons why it is highly relevant for investors.
the strategic focus, companies should state the areas
they consider to be essential to the value added and When the EU NFRD was passed back in 2014, an
how they will quantify and report on them. announcement was already made that a revision of
the Directive should be expected based on analyses
The framework concept of IR has played a key role of the practical implementation of reporting require-
in shaping the development of companies’ reporting ments against the backdrop of the objectives pur-
activities, especially the most important frameworks sued by the EU. Following extensive consultations,
currently used, which are the EU CSR Directive (offi- this revision has been announced for the year 2021.
cially known as the Non-Financial Reporting Direc- In Germany, the Sustainable Finance Committee of
tive, or NFRD, primarily implemented in Germany the Federal Government, the ASCG and the German
through sections 289b ff., 315b f. HGB), the recom- Environment Agency, among others, have conducted
mendations of the Task Force on Climate-related relevant analyses.
1. An overview of the development of (sustainability) reporting 8
Initiatives / milestones
2006
Global Reporting Initiative (GRI)
Publication of the G3 guidelines for (voluntary)
sustainability reporting
2013
International Integrated Reporting Council (IIRC)
A framework concept for integrated reporting is
published
2015
Sustainable Development Goals (SDGs) Paris Agreement
The United Nations establishes 17 goals Global framework for combating climate change
for socially, environmentally and eco-
nomically sustainable development by
2030
2017
CSR Directive Implementation Act (CSR-RUG) Task Force on Climate-related Financial
Companies of a certain size are required to incor- Disclosures (TCFD)
porate sustainability information in their manage- Recommendations on taking into account the
ment reports opportunities and risks of climate change in gover-
nance, strategy, risk management and reporting.
Thomas Kusterer is a member of the task force
2018
EU Financing Sustainable Growth Action Plan EU Technical Expert Group (TEG) on Sustainable
The sustainable finance taxonomy is at the heart Finance
of a total of ten overriding measures aimed at Proposals for crucial elements of the action
redirecting private capital flows into sustainable plan. Thomas Kusterer is on the panel of experts
investments, also with the aim of achieving the
goals of the Paris Agreement
2020
EU sustainable finance taxonomy EU Platform on Sustainable Finance
The Taxonomy Regulation is passed, establishing a EU Commission advised on the further development of the
reporting requirement for companies operating in EU taxonomy (including technical screening criteria)
the real economy with effect from the 2022 finan-
cial year
2021
The Sustainable Finance Committee of the
Federal Government
2023
The final report “Shifting the Trillions” includes
detailed recommendations for the ongoing
development of (non-financial) reporting. Dr.
“CSR-RUG2” first used
Lothar Rieth was co-leader,
Announced: Companies are required for the first time
Dr. Matthias Schmidt associate member
to apply the revised requirements, as incorporated in
202X
of the working group
the German Commercial Code (HGB), in their non-fi-
nancial reporting in line with commercial law
Non-Financial Reporting Standards
A requirement to use (global or
European) non-financial reporting
standards (initiatives of EFRAG and
IFRS Foundation)
1. An overview of the development of (sustainability) reporting 9
All analyses reveal the following need for further Reliability:
progress, especially from the perspective of the • Requirement to audit content
report recipients: • Clarification of governance requirements, espe-
cially requirements for management boards and
• Materiality: Too much non-essential information supervisory boards vis-à-vis reporting systems and
is (permissibly) provided. There is no reporting internal control systems for non-financial reporting
requirement for some types of relevant information along the lines of financial reporting.
– relating to longer-term development, for exam- But also taking into consideration sustainability
ple. aspects in compliance and risk management sys-
• Comparability: The reporting is largely qualitative tems.
in nature. Quantitative information is often not
comparable in the absence of standardization. After finalizing the Directive at EU level and enact-
• Availability: There are numerous ways of disclosing ing it in national law (in accordance with predefined
non-financial information; at the same time, the approaches, including draft consultations), it is
circle of companies that are subject to reporting expected that the revised requirements will have to
requirements is limited. be applied for the first time for the 2023 financial
• Reliability: Considerable reservations concerning year. By widening the circle of companies that are
the recording, processing, availability and quality subject to reporting requirements, more companies
of the data, especially when compared to financial would be required to publish information on taxono-
information. my-compliant revenues, capital expenditures (capex)
and operational expenditures (opex).
The following amendments are being discussed for
the draft consultation of the revised EU CSR Directive It is becoming apparent that investors and regulators
(NFRD2): expect non-financial reporting quality to be brought
closer to that of financial reporting in a timely man-
Materiality: ner, e.g. in terms of the clarity and unambiguity of
• Clarification of “double materiality”: Relevant reporting requirements, but also in terms of what is
impact alone is sufficient for the reporting require- required from the management boards to guarantee
ment, without taking into account the economic full and accurate reporting as well as in terms of
relevance. (Proposal by the Sustainable Finance content-based auditing. Due to their level of ambi-
Committee relating to section 289c(3)(1) HGB: “as tion, the taxonomy reporting requirements are being
well as” replaced by “or”). carefully discussed, particularly among those com-
• Barriers lowered for risks for which there is a panies that are subject to reporting requirements –
reporting requirement and the forecasting horizon but they tend to provide an indication of the direction
extended (DRS 20 (Group Management Report): in which non-financial reporting will develop in the
generally one year); potentially mandatory scenario future.
analyses in keeping with the recommendations of
the Index for the Task Force on Climate-related
Financial Disclosures (TCFD).
Comparability:
• Development of non-financial reporting standards:
Disclosure of specific and, if necessary, sector-spe-
cific performance indicators (particularly initiatives
by EFRAG and the IFRS Foundation).
Availability:
• Increase in the number of companies that are sub-
ject to reporting requirements
• Integrated reporting (in the management report)
• Virtual raw database for the public disclosure of
non-financial performance indicators that are sub-
ject to reporting requirements
1. An overview of the development of (sustainability) reporting 10Development of taxonomy guidelines and effects on EnBW reporting
Passing of the EU Taxonomy Regulation: The reporting requirement is immediately effective; there is
no need to enact it in German law.
18.06.2020
›
The Taxonomy Regulation requires companies that must Requirement: Identify “environmentally sustainable” busi-
prepare a non-financial statement to provide information ness activities.
on “environmentally sustainable” revenue, capex and opex
in the future. “Environmentally sustainable” activities are Corresponding data acquisition to ensure proper reporting.
those that make a substantial contribution to one of the six
EU environmental objectives.
Delegated act with technical screening criteria Required reporting elements for the 2021 financial year:
for the EU environmental objectives:
Revenue, capex and opex connected to activities that make
›
Approval of the delegated act on the a substantial contribution to the achievement of objectives
structure of the Taxonomy Regulation: 1 and 2 and do no significant harm to the achievement of
1. Climate change mitigation further environmental and social objectives.
2. Climate change adaptation
Announced: 31.12.2020 Analyze related project activities initially based on the draft
Expected: Q2/2021 consultation for the criteria.
Delegated act to establish the new Establishing the reporting requirements:
reporting requirements:
›
Determining revenues, capex and opex, among other things,
Announced: 01.06.2021 together with their presentation in tabular form and other
(Art. 8(4) Taxonomy Regulation) required explanations.
Guidance is taken from the ESMA draft consultation from
Q4/2020 and the final report from Q1/2021 in this regard.
Delegated act with technical screening criteria for the Required reporting elements for the 2022 financial year:
EU environmental objectives:
Revenue, capex and opex connected to activities that make
Formulation of EU environmental objectives 3–6. a substantial contribution to the achievement of objectives
›
3. Sustainable use and protection of water and marine 1 to 6 and do no significant harm to the achievement of
resources further environmental and social objectives.
4. Transition to a circular economy
5. Pollution prevention and control Further analysis of business activities vis-à-vis taxonomy
6. Protection and restoration of biodiversity compliance for environmental objectives 3 to 6.
and ecosystems
Announced: 31.12.2021
1. An overview of the development of (sustainability) reporting 111.2 The continuous development of EnBW annual reporting
Integrated reporting, which takes into consideration the environmental and social aspects as well as the
economic aspect, has played an important role at EnBW for a number of years. With a separate sustainability
report having been published up until 2011, the changing information needs of the stakeholders led to the
classic, two-part financial and sustainability reporting at EnBW being gradually replaced by integrated report-
ing in recent years. Starting in 2012, the company initially published a combined report, which then became
an Integrated Annual Report (IAR) in 2014 and has since been continuously developed and enhanced by adding
both voluntary and binding reporting elements. Within the Integrated Annual Report, the management report
shows all the essential information that is critical to the analysis of EnBW’s business performance, business
result and situation over the past financial year. The management report in the EnBW Integrated Annual
Report is audited with reasonable assurance.
2013
A clear stakeholder focus and a 2014
growing need for integrated thinking First integrated report based on the
within the company. Publication of 13 recommendations of the International
2012 key performance indicators and their Integrated Reporting Council (IIRC).
First combined report: targets for 2020.
Financial and sustainability
reporting merged with due
regard to the requirements Integr
ierter 2015
Ohne
Gesch First complete examination of
äftsbe
An
Bericht 2
Erkläru hang und oh
of the Global Reporting Ini- richt 2
ng zur ne
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resources within the business
hrung
tiative (GRI) and the German Energiewe
nde. Siche
Sustainability Code (GSC).
r. Machen
. model: finances, relation-
ships, employees, environ-
ment, infrastructure, exper-
17
tise.
richt 20
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2013 ›
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Integrie
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201230
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Machen
EnBW
2020 2016
Auf Ku
Communication and integration of Further development of how
the content relating to the sustain-
Integrierter
Str rs ategie
interdependencies are pre-
sented and the inclusion of
able corporate strategy with a focus 2020
Geschäftsbericht 2020
on climate neutrality, voluntary Ohne Anhang und ohne Erklärung zur Unternehmensführung
important new non-financial
inclusion of the initial content from Fassung
ohne Anha
key performance indicators on
ng
the EU Taxonomy Regulation, based climate protection and corpo-
on the Taxonomy Regulation (ver- AMBITION rate reputation. Further har-
sion dated 18 June 2020) and monization of non-financial
screening criteria (draft version of Kurzfa
ssung
and financial performance
the delegated act dated 20 Novem- indicators.
ber 2020).
2017
First presentation of climate-related risks
based on the recommendations of the Index
2019 for the Task Force on Climate-related
Communication of the targets for Financial Disclosures (TCFD) and presenta-
financial and non-financial key 2018/2019 tion of the robustness of the business model
performance indicators for the Further development of EnBW’s vis-à-vis climate protection. First reporting
year 2025 (with simultaneous strategy (2025) to become a sus- based on the requirements of the CSR
pursuing of the targets for the tainable and innovative infrastruc- Directive Implementation Act (CSR-RUG).
year 2020). ture partner, governance consolida-
tion: Anchoring sustainability Full presentation of the non-financial state-
objectives in the investment pro- ment.
cess and further developing the
materiality analysis process, first
reporting on green bonds.
www.enbw.com/report2020
1. An overview of the development of (sustainability) reporting 122. Objectives, background and
elements of the EU taxonomy
reporting requirements
2.1 EU taxonomy objectives and background
2.2 Taxonomy-related reporting requirements for compa-
nies operating in the real economy
2.3 Definition of the terms revenue, capex and opex2. Objectives, background and elements of the EU taxonomy reporting requirements
the EU Commission). The trade in emission allow-
2.1 EU taxonomy objectives and ances could also be extended to other sectors. Other
background measures – in relation to emission threshold values,
the circular economy and environmental standards,
Having signed up to the Paris Agreement in 2015, among other things – concern i.a. the mobility, food
the international community is committed to limiting production and chemical industries. To finance the
global warming in the 21st century to well below 2°C measures, 30 percent of a package worth 1.8 tril-
– preferably to 1.5°C. To this end, there is a drive to lion euros from the EU budget (2021–2027) and the
cut global CO2 emissions by 80–95 percent by 2050, EU stimulus package (“NextGenerationEU”), will go
resulting in extensive decarbonization of the global towards mitigating climate change. With funding of
economy. 672.5 billion euros, the biggest program among the
EU stimulus package must reserve 37 percent of
The achievement of these climate objectives (in addi- this amount for climate projects. In addition, private
tion to other sustainability targets) is being closely capital flows of between 180 and 290 billion euros
monitored at EU level through the European Green per year are set to be redirected towards sustainable
Deal and the EU Financing Sustainable Growth investments and projects. The following six envi-
Action Plan: Europe is set to be climate-neutral by ronmental objectives are pursued in the Taxonomy
2050. Greenhouse gas emissions must be 55 percent Regulation.
lower by 2030 than they were in 1990 (subject to final
agreement between the European Parliament and
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
2. Objectives, background and elements of the EU taxonomy reporting requirements 14The increased level of transparency brought about by not “environmentally sustainable” as understood by
the EU taxonomy in relation to “environmentally sus- the EU taxonomy because e.g. a) they do not meet the
tainable” business activities represents a key tool for criteria or b) there are currently no criteria available
achieving the EU objectives. The EU taxonomy forms at all, are “not sustainable” or even “not viable for the
a sufficiently detailed and distinct catalog of criteria future”.
for this purpose. Further measures involve low-car-
bon benchmarks, EU standards for green bonds (EU In June 2018, a Technical Expert Group on Sustainable
Green Bond Standard) and an EU Ecolabel for sus- Finance (TEG) was appointed to draw up specific rec-
tainable financial products. ommendations. Among other things, its task was to
develop a concept for a sustainable finance taxonomy,
The classification of which economic activities are incl. proposals for taxonomy criteria. The focus of the
considered to be “environmentally sustainable” is TEG was on the development of criteria for environ-
especially intended to provide security for investors mental objectives 1 and 2 – climate change mitigation
and prevent greenwashing. There has also been a and climate change adaptation. Once the TEG had
debate as to whether “green” as well as “grey” and fulfilled its brief in the fall of 2020, it was replaced by
“brown” activities should or even can be clearly dis- the Platform on Sustainable Finance in October 2020.
tinguished from one another. A decision has been Building on the work of the TEG, its task, among other
taken to avoid doing this for the time being. As such, things, is to help the European Commission to devise
only those activities that make a substantial contri- the taxonomy criteria for the remaining four environ-
bution to aspects such as climate change mitigation mental objectives and expand the scope of the taxon-
(often referred to as “dark green activities”) are cur- omy to include social objectives.
rently identified as green by the taxonomy criteria.
Conversely, this does not mean that activities that are
EU Technical Expert Group on Platform on Sustainable Finance:
Sustainable Finances (TEG):
The TEG's task was to help the European Com- This has replaced the Technical Expert Group on
mission to devise the following elements: Sustainable Finance and has an advisory role
relating to the following aspects:
• An EU classification system (EU taxonomy)
to determine whether an economic activity is 1. The taxonomy, including the four environmen-
“environmentally sustainable”; tal areas in addition to climate change mitiga-
tion and climate change adaptation,
• An EU Green Bond Standard;
2. The expansion of the taxonomy to include
• Methods for EU climate benchmarks and dis- other sustainability objectives, such as social
closure measures for benchmarks; and and non-sustainable activities and
• Guidelines to improve the way in which compa- 3. A sustainable financial policy in the broader
nies disclose climate-related information. sense.
July 2018–September 2020 Since October 2020
2. Objectives, background and elements of the EU taxonomy reporting requirements 15The EU taxonomy only covers (for the time being) Business activities are “environmentally sustainable”
criteria for economic sectors and economic activities within the meaning of the Taxonomy Regulation if
that have the potential to make a substantial contri- they:
bution to the mitigation of and adaptation to climate
change. The criteria for the rest of the environmen- (1) make a substantial contribution to the mitiga-
tal objectives are now set to be worked out by the tion or adaptation of climate change, evidenced
Platform on Sustainable Finance. For the objective by compliance with certain criteria (technical
of climate change mitigation, sectors have been screening criteria) that are not part of the EU
chosen that are responsible for 93.5 percent of direct Taxonomy Regulation, but feature in subordinate
greenhouse gas emissions in the EU. These sectors delegated acts,
currently include:
(2) do no significant harm (DNSH) to the achievement
• Agriculture and forestry of the four other EU environmental objectives
• Certain industry branches (cement, aluminum, iron (equally described in the delegated acts) and
and steel, chemicals)
• Energy and water supply (3) comply with minimum safeguards for occupa-
• Mobility, transport and logistics tional safety and human rights.
• Information and communication technology
• Real estate industry Activities that cumulatively fulfill these criteria are
“environmentally sustainable” in the sense of the
Taxonomy criteria have been submitted in draft form Taxonomy Regulation. As a result, the revenue, capex
for the main activities of these sectors. It should be and opex associated with these activities must be
assumed that criteria covering all business activities determined and reported.
and the entire business portfolio are so far only avail-
able for a small handful of companies.
Substiantially
Do no significant
contribute to at
harm to any of
least one of the Comply with
the other five
six environmen- minimum safeguards
environmental
tal objectives
objectives
2. Objectives, background and elements of the EU taxonomy reporting requirements 16Discussions and empirical findings to date suggest
2.2. An overview of taxonomy-related that many companies may currently only achieve
reporting requirements for single-digit or at most low double-digit figures when
companies operating in the real stating their "environmentally sustainable" revenue,
economy despite demonstrating a long-standing and serious
commitment to sustainability. Even very good results
in the sustainability ratings and rankings do not nec-
The taxonomy reporting requirement is linked to the
essarily go hand in hand with an above-average level
requirement to prepare a non-financial report pur-
of “environmentally sustainable” revenues and opex.
suant to Articles 19a and 29a of the EU Accounting
The question here for companies is whether they
Directive (implemented in Germany in sections 289b
voluntarily give their investors additional information,
ff. and sections 315b HGB “CSR-RUG”); the corre-
when similarly applying the taxonomy logic, on the
sponding information is part of this non-financial
future viability of non-taxonomy-compliant activities.
report (Art. 8(1) Taxonomy Regulation). These articles
There are known cases, for example, where compa-
19a and 29a have been incorporated in the Account-
nies that are only able to rate a very low percentage
ing Directive by the EU Non-Financial Reporting
of their revenue as taxonomy-compliant intend to
Directive (NFRD). These provisions are currently
supplement their non-financial reporting by provid-
being revised.
ing additional information on CO2 savings that can
be achieved with their products or on approaches to
In the EU Commission’s view, the percentage of rev-
decarbonizing production processes.
enue, capital expenditures (capex) and operational
expenditures (opex) that is to be considered "environ-
It should be noted that the EU NFRD is currently
mentally sustainable" as set out in the EU taxonomy
being revised and a widening of the circle of com-
(Art. 8(2) Taxonomy Regulation) should be stated
panies that are subject to reporting requirements
for the first time for financial years for which the
is expected. Pursuant to the Taxonomy Regulation,
corresponding report is prepared on or after
these companies will then have to publish the infor-
1 January 2022 (Article 27(2)(a) Taxonomy Regula-
mation in the future (most likely from the 2023 finan-
tion). According to the taxonomy regulation, compa-
cial year onwards).
nies must disclose “environmentally sustainable”
turnover, which refers to the term used in the EU
Accounting Directive. As EnBW prepares financial .3 Definitions of the terms revenue,
2
statements in accordance with IFRS, the company capex and opex
reports taxonomy-compliant revenues, which is the
equivalent IFRS term.
The terms revenue, capex and opex and their deri-
vation are not defined in the Taxonomy Regulation. It
The information must be audited by the Supervisory
has been announced that a delegated act for the spe-
Board as part of the non-financial reporting in line
cific reporting requirements in the Taxonomy Regu-
with commercial law and pursuant to section 171
lation will be adopted by 1 June 2021. The European
of the German Stock Corporation Act (Aktiengesetz
Commission had asked the ESMA to come up with
or AktG). There is no requirement for an auditor to
recommendations. The ESMA presented a corre-
check the content in the course of performing the
sponding draft consultation in November 2020 (par-
statutory audit. Such assurance engagements of
ticularly for the reporting obligations of companies
non-financial reports according to sections 289b ff.,
operating in the real economy). In March 2021, the
315b f. HGB can be reasonable or limited assurance
main findings from the consultation were published,
engagements or - as in the case of EnBW reporting
including recommendations for the EU Commission
as an extension of the statutory audit (with reason-
to draw up the delegated act. The recommendations
able assurance).
provide an initial point of reference for the delegated
act to put into concrete terms the reporting require-
The authoritative legal source is the Taxonomy
ments that will be developed on this basis. The ESMA
Regulation, which lays down the criteria for "envi-
recommendations presented to the EU Commission
ronmentally sustainable" business activities and the
are detailed below and, in some cases, critically
reporting requirements for the percentage of these
ranked. The ESMA consultation paper from Novem-
activities attributable to revenue, capex and opex. The
ber 2020 has been taken into account in EnBW’s
Regulation applies directly. Unlike a Directive (such
reporting, although the reporting does not fully con-
as the EU NFRD), it must not firstly be enacted in
form to these proposals.
national law (in the HGB, for example).
2. Objectives, background and elements of the EU taxonomy reporting requirements 17The three performance indicators are to be deter- According to the ESMA recommendations, “envi-
mined and published in accordance with the rules ronmentally sustainable” opex should include indi-
applied in the financial statements: If the financial vidually attributable, non-capitalized expenses for
statements are prepared in accordance with IFRS, research and development, building renovations,
“environmentally sustainable” revenue, capex and short-term leasing, maintenance and repairs, and
opex must also be determined in accordance with other operating expenses necessary for maintaining
IFRS. If the financial statements are prepared in “environmentally sustainable” business activities.
accordance with national law (in Germany: HGB), the Depreciation of long-term assets (non-current
three performance indicators must be determined assets) required for this purpose are not mentioned
on the basis of these guidelines. The latter may be in the ESMA recommendations.
relevant if the circle of companies that are subject to
reporting requirements is widened in the future to The information on environmentally sustainable
include capital market-oriented companies (required revenues, capex and opex should be presented in
to prepare their accounts in accordance with IFRS). standard table form together with supplementary
This ESMA recommendation is to be welcomed, explanations. This should ensure that the basic
because it was suggested in the TEG taxonomy report approach used to calculate the performance indi-
that revenue should be calculated in accordance with cators, including any necessary assumptions, is
the EU Accounting Directive and capex in accordance explained. The ESMA recommendations state that for
with IFRS (no statement was made by the TEG the in every business activity relevant to the company that
relation to opex at the time). is subject to reporting requirements the identification
of the substantial contribution to one (or more) of
Revenue should be viewed as taxonomy-compliant the EU environmental objectives, the assessment of
under the following conditions: the DNSH criteria and the compliance with minimum
safeguards. If an activity makes a substantial contri-
• Principle: If the business activity makes a sub- bution to the achievement of several EU environmen-
stantial contribution to the achievement of one tal objectives, it should be stated how double count-
of the objectives, does no significant harm to the ing has been avoided, e.g. by providing breakdowns,
achievement of the other objectives and complies including any underlying assumptions. For the three
with minimum safeguards for employee and human performance indicators, the key drivers of change
rights. in the reporting periods should be stated in each
• Only in relation to EU environmental objective 2 case. The qualitative information should be located
(climate change adaptation): If the business activity close to the three performance indicators. By way of
enables the customer to adapt to climate change. exception, however, references are also permissible
within the report. Figures for the previous year must
According to the ESMA recommendations, capex be stated from the second reporting year onwards.
should be calculated on a gross basis, i.e., without Information on targets or forecasts is not explicitly
taking into account revaluations, scheduled depre- required. Such requirements may arise for German
ciation or impairment losses. Capex should include companies, however, if the performance indicators
investments in long-term tangible and intangible have to be viewed as relevant to the ongoing mana-
assets (non-current assets). It should also include gement of the company within the meaning of
goods that have been acquired as part of asset deals DRS 20.106.
(capex immediately discernible) or share deals (capex
calculated as part of the purchase price allocation).
For capex to be deemed “environmentally sustain-
able”, the expenses should further be incurred as
part of a plan that leads to a taxonomy-compliant
business activity within five years. The plan should
be formally passed by the company management or
agents acting on their behalf.
2. Objectives, background and elements of the EU taxonomy reporting requirements 18The current status of the discussion and an initial on the interpretation of the terms, although company
evaluation reporting systems should be examined at an early
stage to determine whether they can present the
Following an initial review, the ESMA recommenda- information required by the EU taxonomy. Adjust-
tions to the EU Commission generally appear to be ments to the reporting systems may be necessary to
clear and comprehensible. The ESMA recommenda- guarantee that the information is both complete and
tions are not directly aimed at companies that are (in accurate. Here it appears advisable to make a start
future) subject to reporting requirement, although on the systems used until now for recording revenue,
EnBW has in principle been guided by them. How- capex and opex rather than upgrading the existing
ever, a critical view must be taken of recommenda- data acquisition software for sustainability data,
tions concerning the fact that the three performance unless they have been directly linked to the financial
indicators must not only be stated at Group level – as reporting.
required by Art. 8 (2) of the Taxonomy Regulation –
but also The relevance and informative value of environmen-
tally sustainable opex is debatable for internal and
(1) for every single taxonomy-compliant activity of a external stakeholders. The need to include reporting
company, requirements for environmentally sustainable opex
(2) broken down into transitional or enabling activi- should be justified or alternatively deleted, because
ties and the added value in content terms is not clear.
(3) individually for each of the six EU environmental
objectives.
The taxonomy guidelines, for example, detail 25 tax-
onomy-classified business activities for energy gen-
eration alone. If energy generation companies have
to state the three performance indicators for all six
environmental objectives for these activities, includ-
ing an aggregated Group view, that would result in
26x3x6=468 individual pieces of information, each
needing to be supplemented by qualitative informa-
tion. The value added provided by this level of detail is
not discernible for the user of the data. If aggregated
reporting at Group level is considered to be insuffi-
ciently detailed, reporting at business segment level
within the meaning of IFRS 8 (business segments)
would be a practicable middle way in order to guar-
antee consistency between the financial and non-fi-
nancial reporting.
It must be assumed that the required information is
not currently available as standard in companies. In
the case of corresponding profit center costings, the
information can be determined in EnBW’s experience
in accordance with cost-benefit considerations based
2. Objectives, background and elements of the EU taxonomy reporting requirements 193. Practical implementation of
the EU taxonomy at EnBW
3.1 Project plan and project organization
3.2 Defining the taxonomy-compliant activities
3.3 Establishing environmentally sustainable revenues,
capex and opex
3.4 Findings from the first-time reporting of the EU taxono-
myThe following shares were d
debate and deliver added value for internal segment:
Energies and exter-
3.1 Project plan and project nal stakeholders.
organization
"Environmentally sustainable
The reporting was based on the adjusted
Taxonomy EBITDA
Regulation
from busine
EnBW opted to incorporate key parts of the future from 18 June 2020 and the technical screening
Energies segment crite-
binding provisions from the Taxonomy Regulation ria set out in the draft delegated act on the Taxonomy
in its integrated reporting before the EU taxonomy Regulation dated 20 November 2020, also taking into
in € million
reporting requirements come into force. The results account the ESMA consultation paper
Revenue
on reporting
were first published in the 2020 Integrated Annual pursuant to Article 8(2) of the Taxonomy Regulation
Report, which EnBW unveiled at the end of March dated 5 November 2020. In March Renewable
2021, theEnergies
main segment
2021 at the press conference on annual results. The findings from the consultation wereofpublished,
which "environmentally
publication of the data and the experience gained including recommendations for thesustainable"
EU Commission
in € million / in %
from the associated implementation project with to draw up the delegated act.
Opex
Deloitte should contribute to the sustainable finance
Renewable Energies segment
of which "environmentally
Activities examined for the EU Taxonomy Regulation sustainable" in € million / in %
Capex
Examined segments
Renewable Energies segment
of which "environmentally
sustainable" in € million / in %
Sales Grids Renewable Generation Adjusted EBITDA
Energies and Trading
Renewable Energies segment
of which "environmentally
Examined activities: Examined activities:
» Electricity distribution grids
sustainable" in € million / in %
» Onshore wind
» Electricity transmission grids » Offshore wind
Activities not examined: » Solar
» Gas distribution grids » Hydropower
For activities across the who
» Gas transmission grids Activities not examined:
» Grid services » Biomass were derived for the areas c
» Water
"Environmentally sustainable
and adjusted EBITDA of the E
in € million
The following shares were derived for the Grids segment:
Revenue
"Environmentally sustainable" revenue, opex, capex and Group
adjusted EBITDA from business activities in the Grids segment of which "environmentally
sustainable" in € million / in %
Environmental objectives: in € million 2020 2019
Opex
1. Climate change mitigation Revenue Substantial contribution to at least one Requirements:
1 environmental objective (substantial
2. Climate change adaptation contribution, currently to environmental
Group
• OECD Guidelines on Multinational
Grids segment objectives 1 or 2).
3,658 3,460 Enterprises
3. Sustainable use and of which "environmentally
protection of water and of which "environmentally • UN Guiding Principles on Business and
marine resources Humansustainable"
Rights in € million / in %
sustainable"
2 in € million / in % 2.506 / 69 2.376 / 69
4. Transition to a circular • ILOCapex
Declaration on Fundamental Rights
Do no significant harm (DNSH) to any of the
economy Opex other other EU environmental objectives
at Work
5. Pollution prevention and Group Bill of Human Rights
• International
control
Grids segment 1,122 1,039
• (intersect with NFRD,
of which NAP human rights,
"environmentally
6. Protection and restoration of of which "environmentally
3 supply chain legislation).
sustainable" in € million / in %
biodiversity and ecosystems sustainable" in € million
Minimum/safeguards
in % 692 / 62 623 / 60
Adjusted EBITDA
Capex
Group
Grids segment 1,407 Share
1,231of “environmentally
To be
sustainable” economic activities
of which "environmentally
of which "environmentally disclosed:
Revenue sustainable" inX%
€ million / in %
sustainable" in € million / in % 975 / 69 778 / 63
Capex Y%
Adjusted EBITDA
Opex Z%
Grids segment 1,347 1,355
3. Practical implementation
of which of the EU taxonomy at EnBW
"environmentally 21
sustainable" in € million / in % 987 / 73 960 / 71You can also read
