Reporting according to the EU Taxonomy

The EU Taxonomy Regulation (EU) 2020/852 entered into force in July 2020 and is a classification system that is meant to help investors and other stakeholders assess how sustainable a business is and thus steer capital flows to environmentally better alternatives.

The Taxonomy Regulation requires a large number of European companies to report on how much of their business is eligible according to the Taxonomy. As of 2022 reporting will be complemented with to what extent that business meets the criteria for being defined as sustainable according to the EU taxonomy. The basis is the range of economic activities listed in the EU taxonomy. For an economic activity to be classified as environmentally sustainable it must substantially contribute to one or more of the established environmental objectives, do no significant harm to any of the other objectives as well as meet certain minimum social safeguards. There are two environmental objectives defined for 2022: Climate change mitigation and climate change adaptation.

As a community builder Peab has broad and diversified operations. We are active in four Nordic countries with an extensive geographic presence as well as customers in both the private and public sectors. Our four business areas Construction, Civil Engineering, Industry and Project Development are independent but ensure through collaboration that we utilize local resources as far as possible in the form of our own personnel and input goods. In other words, Peab’s business comprises many different kinds of activities that come under the EU taxonomy. At the same time Peab’s operations are characterized by further conditions that provide the framework for how our reporting according to the EU taxonomy should be understood. Our operations are primarily carried out as projects where every project is unique, which makes evaluating each project demanding. In our construction and civil engineering operations customers by and large formulate the specifications of the project. This reduces Peab’s ability to influence the outcome, even if we work actively with holding dialogues with customers early on. In addition, lead times are long in the industry – from zoning to completed project – and therefore it takes years before new requirements are realized in operations and reporting.

Work done during 2022

We, like the entire industry, are at the beginning of a challenging transition that will require changing our work methods and closer monitoring. One example is that several certification systems are already being adapted to the EU taxonomy, which sets a new standard for the industry. Our disclosures for 2022 are based on our current interpretation of the rules and can alter as praxis develops and general knowledge about the EU taxonomy grows. Over the past year, together with our industry, we have put a great deal of energy into comprehending and interpreting the criteria. We have also worked on building up our capacity to measure the relevant data we need to evaluate taxonomy criteria and on producing a support tool to use in projects where meeting the criteria is a prerequisite. Our focus has been on crucial activities and climate and vulnerability analyses, and going forward our ambition is to completely integrate this into our ordinary way of working.

Minimum Social Safeguards

According to the Taxonomy Regulation, in addition to the criteria substantial contribution and do no significant harm (DNSH), an economic activity must take certain minimum social safeguards into consideration to be classified as environmentally sustainable. This is to ensure companies cannot classify activities as sustainable when they, for example, run a business that does not meet regulations concerning human rights (including workers’ rights), taxation, fair competition or corruption. According to EU’s report published in October 2022 “Plat­form for sustai­nab­le fi­nan­ce” about reporting on minimum social safeguards it is our assessment that Peab meets these minimum social safeguards. Human rights, taxation, fair competition issues and corruption are all fundamental parts of Peab’s Code of Conduct, which in turn is built on international covenants and national laws such as the UN Global Compact’s principles which include the precautionary principle and the UN’s Human Rights Declaration as well as ILO’s core covenants. Peab also adheres to the UN Guiding Principles on Business and Human Rights (UNGP) as well as OECD’s Guidelines for Multinational Enterprises. We also continuously educate and inform our employees about Group procedures and processes regarding minimum social safeguards.

Operations considered eligible according to the Taxonomy Regulation

We have evaluated activities included in the EU taxonomy and consider the following activities relevant and material for Peab:

Manufacturing

• 3.6 Manufacture of other low carbon technologies

Includes net sales, operating expenses and capital expenditures in Peab’s own developed ECO-products in business area Industry such as ECO-Asfalt which is manufactured with biofuel in our asphalt plants, ECO-Betong (ECO-Concrete) which is manufactured with alternative binder that partially replaces cement and ECO-Prefab where climate-improved concrete is used and the reinforcement consists of recycled steel.

Supported by The Swedish Construction Federation’s interpretation of the EU taxonomy cri­te­ri­a and our own assessment supported by ex­ternal ex­per­tise, Peab’s ECO-products are considered to meet the criteria for a substantial contribution to climate change mitigation since the climate impact of these products is substantially lower than the stan­dard­ pro­ducts available on the market.

Merit, a slag-­ba­se­d bin­de­r used to replace ce­ment in concrete, has a substantially lower climate impact than tra­di­tio­nal ce­ment. The manufacture of one ton Merit ge­ne­rates the cli­mate impact equal to 3-6 percent of that generated in the manufacture of one ton of ce­ment. Merit, or an equivalent binder, is used in ECO-​Betong (ECO-Concrete) and the pro­duct meets the requirements for climate-improved concrete according to Svensk Be­tong’s (Swedish Concrete) stan­dard and has thereby a substantially lower climate impact than stan­dard­ concrete. Climate-improved concrete means concrete with at least 10 percent lower carbon emissions compared to reference concrete with the same func­tion. Climate-improved concrete is a component in producing ECO-​Prefab and ECO-​Stomme (ECO-Frame), which generates a substantially lower climate impact than pre­fab ­pro­ducts produced with stan­dard­ concrete. The pro­ducts meet the requirements for climate-improved concrete according to Svensk Be­tong’s (Swedish Concrete) stan­dard for pre­fab­ pro­ducts. Carbon neutral biofuel is used in the manufacture of ECO-​Asfalt, which substantially lowers the climate impact of ECO-​Asfalt compared to production in stan­dar­d asphalt plants. According to The Swedish Transport Administration’s calculation model, ECO-​Asfalt reduces climate impact by more than 60 per­cent, compared to the benchmark for the asphalt industry. Life cycle analyses have been performed and EPDs are available for the ECO-​products.

The criteria for DNSH have been evaluated and Peab’s ECO-​products are considered to meet them.

• Climate change adaptation: Considered met because we have performed climate risk and vulnerability analyses for all the manufacturing units of ECO-products and identified possible risk reducing measures.
• The sustainable use and protection of water and marine resources: Considered met because of compliance with valid laws since water activities and other situations that affect environment quality norms for water always require an Environmental Impact Assessment (EIA) and taking relevant safeguards.
• The transition to a circular economy: Considered met because Peab applies the industry’s guidelines for waste management that steer towards sorting for possible material recycling. Peab also regularly evaluates the possibility of circular material flows concerning both input raw material for production and the recyclability of manufactured products. Examples of this are the binder Merit, based on slag which is a byproduct from the steel industry, our ECO-Ballast (ECO-Mineral aggregates) which is based on 100 percent reused raw material and is used in concrete and asphalt as well as reclaimed asphalt pavement as raw material in our paving production. There are EPDs for all our ECO-products.
• Pollution prevention and control: Considered met because of compliance with valid laws since substances that are forbidden or under strict restrictions are covered by existing legislation.
• The protection and restoration of biodiversity and ecosystems: Considered met because of compliance with valid laws since ECO-products cannot be manufactured freely in or close to areas with biodiversity and the permit processes in relevant cases include EIAs and requirements for any safeguards.

Transport

• 6.14 Infrastructure for rail transport
• 6.15 Infrastructure enabling low-carbon road transport and public transport (objective climate change mitigation)
• 6.15 Infrastructure for road transport and public transport (objective climate change adaption)
• 6.16 Infrastructure enabling low carbon water transport (objective climate change mitigation)
• 6.16 Infrastructure for water transport (objective climate change adaption)

Includes net sales and operating expenses from engineering contracts to external customers for rail transports, road transports and mass transit as well as port and water transports in business area Civil Engineering. Further includes net sales, operating expenses and capital expenditures from paving operations in business area Industry. We have come to the conclusion in 2022 that 6.15 Infrastructure for road transport and public transport is applicable in both business area Civil Engineering and paving operations in business area Industry. This was not included in the Annual Report 2021.

For 2022 Peab’s operations in the group Transport are not considered to sufficiently meet the technical screening criteria to be defined as environmentally sustainable according to the EU taxonomy.

Construction and real estate

• 7.1 Construction of new buildings
• 7.2 Renovation of existing buildings
• 7.7 Acquisition and ownership of buildings

Includes net sales in new construction, renovation, rebuilding and extensions for external customers in business area Construction as well as sales of our own developed, newly built buildings in business area Project Development. Further, includes rental income from owned buildings and net sales from the divestiture of project and development property recognized as inventories in business area Project Development. Also includes operating expenses in the form of R&D regarding new construction. In business area Project Development capital expenditures for leased assets in properties are included.

For 2022 Peab’s operations in the group Construction and real estate are not considered to sufficiently meet the technical screening criteria to be defined as environmentally sustainable according to the EU taxonomy.

All the operations in business area Construction and Project Development are completely taxonomy-eligible. Operations not classified in the EU taxonomy are in business area Civil Engineering’s other contracts and infrastructure projects not comprised by the group Transport, and operation and maintenance work. Operations in business area Industry not classified in the EU taxonomy are mineral aggregates operations, rental operations, other prefab operations and product sales.

Double counting has been avoided since only external sales have been included in summation of the relevant activities. The use of our own ECO-products in construction and civil engineering contracts has been excluded in activity 3.6 and is included in the reporting in contracts for external customers in activity 7.1.

Applied accounting principles

Net sales: Net sales include external net sales according to IFRS 15 Revenue from contracts with customers and IFRS 16 Leasing (rental income) in taxonomy-eligible activities. For business areas Construction and Civil Engineering this means the income from contracts with external customers. For business area Industry net sales refer to all external revenue from paving contracts and sales of ECO-Betong (ECO-Concrete), ECO-Prefab and ECO-Stommar (ECO-Frames). In business area Project Development net sales include external revenue from divestitures of various kinds of housing and commercial property as well as rental income from properties.

Operating expenses: Operating expenses include operational costs related to tangible assets in taxonomy-eligible activities, primarily in business area Industry. For the most part these consist of repairs and maintenance of factories, machines and equipment for ECO-products and paving operations. Operating expenses also include R&D expenses related to business areas Industry and Construction.

Capital expenditures: Capital expenditures refer to investments in buildings, machines and equipment as well as the acquisition of land classified as tangible assets. Capital expenditures are mainly related to business area Industry and manufacturing ECO-products, production of other paving operations along with leased assets regarding buildings.

Acquisitions regarding project and development property in business area Project Development have not been included in taxonomy-related capital expenditures since they are recognized as current assets in the Group.