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 aim of the Taxonomy Regulation is EU achieving its climate targets and the objectives of the European Green Deal.

Peab has analyzed and classified its operations according to the EU Taxonomy for 2023. As of 2023 the two environmental objectives climate change mitigation (CCM) and climate change adaptation (CCA) are supplemented by the remaining four environmental objectives: sustainable use and protection of water and marine resources (WTR), transition to a circular economy (CE), pollution prevention and control (PPC) and protection and restoration of biodiversity and ecosystems (BIO). Thereby the Taxonomy Regulation now comprises all six environmental objectives. For 2023 it is obligatory to disclose to what extent Peab’s operations are comprised by all six environmental objectives but it is only necessary to report environmental sustainability for the first two objectives which are climate related (CCM and CCA). The basis is the range of economic activities listed in the 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.

New for 2023 is also the obligatory disclosure regarding exposure to nuclear energy and fossil gas related operations. Peab does not have any activities in these areas as shown in the table below.

Peab’s conditions and disclosures 2023

Peab has complex and diversified operations in community building. 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 taxonomy. At the same time Peab’s operations are characterized by further conditions that provide the framework for how our reporting according to the 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 to guide customers through dialogues 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.

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 taxonomy, which sets a new standard for the industry. Our disclosures for 2023 are based on our current interpretation of the rules and can alter as praxis develops and general knowledge about the taxonomy grows. Over the past year we have continued to work on building up our capacity to measure the relevant data we need to evaluate taxonomy criteria.

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 taxonomy and consider the following activities relevant and material for Peab:

Manufacturing

• CCM 3.6 Manufacture of other low carbon technologies – Economic activity within the environmental objective “Climate change mitigation”

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 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 and the pro­duct meets the requirements for climate-improved concrete according to Svensk Be­tong’s (Swedish Concrete’s) 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 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

• CCM 6.14 Infrastructure for rail transport – Economic activity within environmental objective “Climate change mitigation”
• CCA 6.15 Infrastructure for road transport and public transport – Economic activity within environmental objective “Climate change adaption
• CCA 6.16 Infrastructure for water transport – Economic activity within environmental 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. For 2023 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 taxonomy.

Construction and real estate

• CCM 7.1 Construction of new buildings – Economic activity within environmental objective “Climate change mitigation”
• CCM 7.2 Renovation of existing buildings – Economic activity within environmental objective “Climate change mitigation”
• CCM 7.7 Acquisition and ownership of buildings – Economic activity within environmental objective “Climate change mitigation”
• CE 3.4 Maintenance of roads and motorways – Economic activity within environmental objective “Transition to a circular economy”

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. In business area Project Development operating expenses and capital expenditures for leased assets in properties are included. Also includes net sales from construction contracts for operation and maintenance to external customers in the business area Civil Engineering.

For 2023 Peab’s operations in the group Construction and real estate parts of operations in 7.1 Construction of new buildings (CCM) are considered to meet the technical screening criteria and the criteria for DNSH. Peab has defined minimum requirements for the certificates that must be presented to verify that the criteria have been met. Taxonomy-aligned construction projects will regularly secure such documentation during the project and after completion be able to provide all the certificates.

Water supply, sewerage, waste management and remediation activities

• WTR 2.1 Water supply – Economic activity within environmental objective “Sustainable use and protection of water and marine resources”
• WTR 2.2 Urban waste water treatment – Economic activity within environmental objective “Sustainable use and protection of water and marine resources”
• CE 2.7 Sorting and material recovery of non-hazardous waste – Economic activity within environmental objective “Transition to a circular economy”

Includes net sales from construction contracts to external customers regarding water supply and waste water treatment in the business area Civil Engineering. Also includes direct sales (not used in own production), operating expenses and capital expenditures for Merit (recycled raw material) in business area Industry. For 2023 Peab’s operations in the group Water supply, sewerage, waste management and remediation activities are not considered to sufficiently meet the technical screening criteria to be defined as environmentally sustainable according to the taxonomy.

Services

• CE 5.5 Product-as-a-service and other circular use- and result-oriented service models – Economic activity within environmental objective “Transition to a circular economy”

Includes net sales, operating expenses and capital expenditures for rental operations in business area Industry. For 2023 Peab’s operations in the group Services are not considered to sufficiently meet the technical screening criteria to be defined as environmentally sustainable according to the taxonomy.

All the operations in business area Construction and Project Development are completely taxonomy-eligible. Operations not classified in the taxonomy are in business area Civil Engineering’s other construction contracts and infrastructure projects not comprised by the group Transport, Water supply, Construction and real estate or Services. Operations in business area Industry not classified in the taxonomy are mineral aggregates 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 construction contracts for external customers in activity 7.1.

Applied accounting principles

Net sales: Includes 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, rental revenue from machine and crane services and sales of ECO-Betong, ECO-Prefab and ECO-Stomme. 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: Includes 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, paving operations and rental operations. Operating expenses also include R&D expenses related to business areas Industry, Civil Engineering and Construction.

Capital expenditures: Includes investments in buildings, machines and equipment as well as the acquisition of buildings and land classified as tangible assets. Capital expenditures are mainly related to business area Industry and manufacturing ECO-products, production of other paving operations and machines and cranes used in rental operations. Capital expenditures also include investments in property in business area Project Development classified as tangible assets.

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.