The Paris Agreement is the first universal, global climate treaty for climate adaptation, developing climate resilience and limiting global warming to no more than 2°C relative to pre-industrial levels. In line with this agreement, the EU set itself the goal of becoming climate neutral by 2050. To achieve those objectives, the EU launched an action plan for financing sustainable growth (the EU Action Plan) in March 2018. This action plan is part of the European Green Deal to make the European economy more sustainable. The three main elements of the EU Action Plan are:
Redirect capital flows toward a more sustainable economy;
Make sustainability a permanent aspect of risk management;
Encourage transparency and long-term thinking.
The next step was the adoption of the EU taxonomy, a classification system that shows whether cash flows support ecologically sustainable business activities.
The EU taxonomy serves six environmental objectives:
Climate change mitigation;
Climate change adaptation;
Sustainable use and protection of water and marine resources;
Transition to a circular economy;
Pollution prevention and control;
Protection and restoration of biodiversity and ecosystems.
In line with regulations, Alliander reports according to the EU taxonomy. The obligation for 2022 only concerns the first two environmental objectives (mitigation of and adaptation to climate change), with reporting on climate-related and ecologically sustainable business activities.
In concrete terms, the report must include the following information relating to the first two environmental objectives:
Alliander’s operations have to be assessed against the EU taxonomy to establish whether they qualify as climate-related business activities on the basis of the definition (i.e. are eligible).
The assessment of the climate-related business activities involves determining whether they meet the criteria for substantial contribution to the environmental objectives, and also meet the criteria for doing no significant harm in relation to the other five environmental objectives.
Whether the minimum safeguards are met with regard to human rights, corruption, tax and fair competition will be determined at the corporate level.
Business activities are ecologically sustainable (i.e. aligned) according to the EU taxonomy if they meet the previous three conditions.
Three financial KPIs are reported per activity: Revenue, CapEx (investments) and OpEx (operating expenses), both in amounts and in percentages.
Business activities that are eligible under the EU taxonomy
The EU taxonomy defines which business activities are climate-related and thus qualify as eligible under the taxonomy. The business activities ‘Transmission and distribution of electricity’ (code 4.9) and ‘District heating/cooling distribution’ (code 4.15) were designated climate-related for 2021. As regards 2022, the business activities ‘Transport by motorcycles, passenger cars and light commercial vehicles’ (code 6.5) and ‘Acquisition and ownership of buildings’ (code 7.7) are reported on; although they do not generate revenue, they do contribute to Alliander’s sustainable objectives as supporting business operations. The business activities that do not qualify under the EU taxonomy mainly concern the distribution of natural gas. The business activities that are eligible under the EU taxonomy were assessed on the basis of the ‘climate mitigation’ objective. They do not overlap, so that there is no duplication in the reported figures.
Ecologically sustainable business activities
The conditions for meeting the minimum safeguards were published at the end of 2022. Because of this, Alliander was unable to carry out a systematic analysis in 2022 to identify and assess risks of breaching human rights in the production chain. This is also the reason why we do not yet fully meet the requirements of the minimum safeguards and why Alliander's operations are not yet fully aligned with the EU taxonomy. More details about the minimum safeguards are given below.
Climate-related but ecologically non-sustainable business activities
The infrastructure for distributing electricity is part of the European electricity network and so this facilitative business operation meets the most important criterion relating to substantial contribution. However, direct connections between the network and third-party production units with emissions exceeding 100g CO2/kWh do not meet the requirements. Energy meters that are not smart meters are likewise excluded. The financial value of these activities is therefore included in a separate line. Electricity distribution meets the ‘Does no serious harm’ (DNSH) criteria for the other environmental objectives; a climate impact assessment has been carried out and the criteria relating to circularity, pollution prevention and biodiversity are satisfied.
Heat distribution fully complies with the substantial contribution criteria (more than 50% of the distributed heat is residual heat) but not with the DNSH criteria; for instance, a climate impact assessment specifically for the district heating networks has not been carried out. It is also not possible to demonstrate that the DNSH criteria for the marine environmental objective or for pollution prevention have been met.
As regards transport by motorcycle, passenger cars and light commercial vehicles, only some of the passenger cars meet the emission requirement of no more than 50g CO2/km as set in the substantial contribution criteria. The information to determine whether these vehicles also meet the DNSH criteria for the other environmental objectives is not yet available from the lease companies who supply the vehicles or any other source.
As regards acquisition and ownership of buildings, we have determined the locations at which investments have been made in new-build or renovation. These projects meet the substantial contribution criteria as regards energy efficiency. We should also point out that no climate impact assessment has been performed for this business operation to determine which measures have to be taken for climate adaptation. With regard to new construction, DNSH criteria for the other four environmental objectives also apply, but no information is available to determine whether these criteria are met.
Non-climate-related business activities
Natural gas distribution and other (supporting) operations are not considered to be climate-related business activities under the EU taxonomy and are therefore not eligible for the EU taxonomy.
The requirements the EU taxonomy imposes in the minimum safeguards are based on international treaties relating to human rights and labour laws and on guidelines for Corporate Social Responsibility. There are many similarities with the SDGs, which Alliander has reported on for several years in its annual report.
The minimum safeguards concern four topics:
Bribery and corruption
The requirements focus on having policy and processes in place to comply with these treaties and guidelines, and on transparency if breaches occur.
Policy has been established for all four topics, for example in the form of codes of conduct and reporting systems. Within the scope of risk management and control, processes and instruments have been set up to implement this policy. Policy monitoring and accountability are ensured with periodic reports on the results, findings and follow-up of measures.
An effective Human Rights Due Diligence (HRDD) process containing six elements will have to be set up for the topic of human rights to safeguard due care. Alliander considers human rights to be a very serious topic and it has taken various steps in recent years to safeguard human rights. HRDD elements are currently part of our standard procurement processes, such as the tendering procedure where various requirements are placed on tendering parties and annual audits are carried out at suppliers and contractors. To comply fully with the minimum safeguards, these steps will be further integrated into our operations in the coming year and brought into line with the details of the specific elements in the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises.
The revenue under the EU taxonomy is consistent with IFRS reporting standards and is therefore equal to the net revenue as included in the financial statements under note 21. The revenue is then allocated to Alliander’s various business operations on the basis of the EU taxonomy. The table shows which items in each operation comply with the EU taxonomy.
The CapEx relates to investments in property, plant and equipment (note 3), investments in intangible assets (note 4) and additions to right-of-use non-current assets (note 3). The portion of the total investments that concerns climate-related business activities was determined by identifying the economic activity to which each asset group is related and assessing whether this activity is mentioned in the EU taxonomy.
The OpEx under the EU taxonomy is defined as the non-capitalised direct costs for preserving the assets. Based on this definition, Alliander has only classified maintenance and outage costs as operating expenses under the EU taxonomy. We have determined which part of these maintenance and outage expenses is associated with climate-related business activities.