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1.3 TAXONOMY: ELIGIBLE ACTIVITY ANALYSIS
1.3 TAXONOMY:
ELIGIBLE ACTIVITY ANALYSIS
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THE EUROPEAN TAXONOMY
The way we operate and live today is strongly impacted by the climate crisis, whose negative consequences are concrete and tangible. However, this crisis is also a great opportunity for change. Accordingly, the 2030 and 2050 decarbonization goal set by the European Union through the Green Deal are the fundamental driving force for this opportunity to be seized by European organizations. Within this context, the European institutions have issued the Regulation (EU) 2020/852 - EU Taxonomy Regulation (referred to hereinafter also as “Regulation”), whose purpose is to define a Taxonomy, as a classification system that establishes the criteria for determining whether an economic activity qualifies as environmentally sustainable, with the aim of providing public institutions, companies and investors with criteria and methods for identifying, within regulated sectors, such activities.
According to art.3 of the Regulation, an economic activity is considered environmentally sustainable, and therefore falls within the scope of the Regulation if:
contributes substantially to one or more of the environmental objectives set out in Article 9 of the same Regulation: climate change mitigation; climate change adaptation; the sustainable use and protection of water and marine resources; the transition to a circular economy; pollution prevention and control; and the protection and restoration of biodiversity and ecosystems;
does not significantly harm (DNSH) any of the abovementioned environmental objectives;
is carried out in compliance with the minimum guarantees for the protection of human rights, including fundamental rights at work, provided for by art. 18 of the Regulation, in recognition of the importance of international rights and standards (including the OECD, the UN, and the International Labour Organization);
complies with the technical screening criteria established by the EU Commission, which, using a scientific framework, specify the minimum conditions that must be met in order for an economic activity to be qualified as contributing substantially to one of the environmental objectives. For each activity, the legislation identifies specific technical screening criteria for each environmental objective.
The publication of the information on the Taxonomy, in particular on how and to what extent the company’s activities are associated with environmentally sustainable economic activities, became an obligation from January 2022 for companies subject to EU Directive 2014/95 on non-financial reporting, in which also Maire Tecnimont Group falls within the scope. It should be noted that, currently, it is the delegated acts relating to climate change mitigation and adaptation objectives that have been regulated and made public and, therefore, the eligibility basis refers exclusively to these objectives. The integration of the remaining four objectives will be published in the upcoming years.
In this first year of reporting, art. 8 of the Regulation stipulates that non-financial enterprises communicate: (i) the proportion of their turnover derived from products or services associated with economic activities that qualify as environmentally sustainable (taxonomy eligible activities[1]); (ii) the proportion of their capital expenditure (CapEx) and the proportion of their operating expenditure (OpEx) related to assets or processes associated with economic activities that qualify as environmentally sustainable. No assessment regarding the principle of Do Not Significant Harm (DNSH)[2], in compliance with the minimum guarantees and the technical screening criteria indicated in the Technical Annexes of the Delegated Acts, is therefore required. This represents an intermediate step, with respect to verifying the alignment with the Taxonomy criteria, on which the entire regulatory framework was built and raises much uncertainty and debate about the practical interpretation of the concept of eligibility for different sectors and KPIs calculation. This is a moment of transition towards the subsequent assessment of the actual alignment to
8 Eligible activities are defined as the activities included in annexes 1 and 2 of Delegated Act 2139/2021. 9 The DNSH principle, established by Regulation 2020/852, stipulates that, in order for an activity to be taxonomy aligned, it must not cause damage to any of the other five objectives (in addition to significantly contribute to one of the defined objectives).
the technical screening criteria of the Taxonomy, which will include all six environmental objectives, for which the related Delegated Acts will have to be published, and will require the verification of KPIs by a third party.
Given the context in which this assessment has developed, It is important to emphasize that, to date, eligibility is in no way to be understood as a proxy of the level of sustainability of the company’s activities but only as a numerical translation of activities carried out and activities currently regulated by legislation, which for many currently unregulated sectors is not very significant.
The debate on the possible inclusion of natural gas and nuclear power as potentially eligible activities related to the Climate Change Mitigation and Climate Change Adaptation environmental objectives led to the publication of the Complementary Climate Delegated Act in force from 1 January 2023, which will provide the inclusion, under certain strict conditions, of activities where the use of fossil fuels is assumed, including natural gas. By way of example, the activities mentioned by the Complementary Climate Delegated Act include: electricity generation from fossil gaseous fuels, high-efficiency co-generation of heat/cool and power from fossil gaseous fuels, and production of heat/cool from fossil gaseous fuels in an efficient district heating and cooling system. Therefore, it is expected that this extension may impact the adherence to the Taxonomy starting from the next reporting year.
MAIRE TECNIMONT’S POSITION
Regulation (EU) 2020/852 – EU Taxonomy Regulation, in this first phase of application is primarily focused on carbon intensive sectors, which have as their primary objective decarbonization and only marginally overlaps with the activities of EPC general contractor in the traditional business (hydrocarbons BU). On the basis of the current EU Taxonomy Regulation, customers operating plants built by the Maire Tecnimont Group with high energy efficient production processes and limited or no environmental impact are fully included among eligible activities under the Taxonomy, while only a part of the Maire Tecnimont Group’s activities, placed on the plant design and construction chain, falls under the EU Taxonomy’s definition of a substantial contributor to climate change mitigation.
The general contractor can reduce the environmental impacts of the plant as a whole, or of some components, only to the extent that these interventions are laid down in the technical details established in the customers’ contractual specifications. This means it is difficult to act independently, which constitutes a clear and objective impediment both to the eligibility of activities and to their subsequent alignment as required by the legislation from 2022.
This situation is even more apparent in the case of customers located outside the European Union, who do not have the European regulatory framework as a reference and are therefore not subject to the EU Taxonomy criteria. The proportion of activities carried out for non-European customers in the Maire Tecnimont Group’s portfolio is quite high (about 90%). This demonstrates the objective difficulty of being able to guarantee full alignment with EU Taxonomy eligible activities in the short and medium term. In particular, on the basis of current legislation, full eligibility is provided for producers of virgin polymers (fossil-based), but not for those who design and build production plants, such as Maire Tecnimont.
A further problem arises when analyzing the Maire Tecnimont Group’s activities in the area of plants for the treatment and transformation of natural gas (gas monetization), which accounted for about 80% of 2021 revenues. European regulation on Taxonomy has not yet definitively included natural gas within the scope of eligible activities, nor even in a transitional manner. As a result, the classification of our gas processing activities under the Taxonomy will only be possible once the political process to fully approve the Regulation will be concluded.
Even in a context that remains transitory, however, the positive positioning achieved by the Group in Green Energy activities is clear. In this sector, the Group’s activities are eligible 99% of the time. This is due to the fact that this sector is specifically aimed at developing solutions for climate mitigation and adaptation and the different role played by the Group as a technologist and project developer. In the green chemistry sector, the Maire Tecnimont Group can play a large part in guiding the technological choices and basic layout of the plant, in line with the objectives of the EU Taxonomy, although revenue volumes are still small compared to traditional activities.
The taxonomy currently only regulates the goals of mitigation and adaptation, while four other goals are yet to be regulated. This includes the circular economy, an area in which the Group is investing, both in organizational and technological terms. Although we have included in this first classification exercise activities related to waste recycling plants among those taxonomically eligible, given
they correspond to a specific cluster already provided for by the existing Regulation, it is reasonable to expect that as the regulatory framework for the circular economy develops, the scope of eligibility for the Group’s waste-chemistry based activities would be extended.
For all the reasons above, in the case of the Maire Tecnimont Group the disclosure of the KPIs required by the Regulation is likely to be not representative and might provide a misleading picture. The reporting activity was carried out for compliance reasons in accordance with the European Taxonomy, stressing this mechanism cannot be considered a method of objectively and fully representing the Group’s activities.
Despite all the difficulties and the provisional nature of the regulatory framework, an initial exercise was carried out to map and analyze the Group’s eligible activities in relation to those set out by the European Taxonomy as part of the Technical Annexes of the Delegated Acts of the Regulation, dividing the two Business Units and adopting the same configuration used to comment on the financial results at the consolidated level of the Maire Tecnimont Group: “Hydrocarbons” and “Green Energy” Business Units.
Since these are two profoundly different Business Units, both in terms of global footprint (the Hydrocarbons Business Unit generates 90% of revenues outside the European Union while the Green Energy Business Unit generates 99% of revenues in the European Union) and in terms of underlying activities (more than 80% of revenues for the Hydrocarbons Business Unit come from gas monetization while the majority of revenues for the Green Energy Business Unit relate to activities in the energy transition areas), it is believed that consolidated analysis of the data would lead to a misinterpretation of the degree of eligibility. For more information regarding accounting policy and CapEx and OpEx KPIs, refer to the sustainability Performance Appendix).
The table below shows the turnover-related KPIs, with reference to the identified activities, without taking into account the technical screening criteria.
ASSESSMENT OF COMPLIANCE WITH REGULATION (EU) 2020/852
The eligibility analysis, carried out via a survey of the individual turnover-generating orders during FY2021, is aimed at situating the activities carried out by the Group within the framework currently set out by the Taxonomy, based on the regulations and FAQs published. This analysis does not describe the business and does not constitute a performance KPI. The results of the analysis reflect the peculiarities of the sector in which the Maire Tecnimont Group operates.
The results of the eligibility analysis can be attributed to the following activities:
Manufacture of equipment for the production and use of hydrogen: the Group supplies treatment plants and technologies for the production and recovery of hydrogen (e.g. reformers, PSA - Pressure Swing Absorption, etc.);
Manufacture of batteries:
Maire Tecnimont designs and installs in plants that produce batteries for energy storage;
Manufacture of other low-carbon technologies: in line with the description of the eligible activity within the regulation (such as the supply of reactors for the production of ammonia from renewable sources or urea production systems with greater energy
3.2
3.4
3.6
TURNOVER KPIs
14%
ELIGIBLE PROPORTION
99%
ELIGIBLE PROPORTION
BU HYDRO CARBONS
BU GREEN ENERGIES
86%
NON-ELIGIBLE PROPORTION
1%
NON-ELIGIBLE PROPORTION
NON-EU REVENUES
>90% <1%
efficiency), when dealing with the design and implementation of plants for the production of urea and ammonia, Maire Tecnimont also works on the development of alternative technologies that drive reductions in GHG emissions;
Transmission and distribution of electricity: the Group carries out the design and construction of high-voltage energy transmission systems and lower voltage redistribution;
Production of heat/cool using waste heat: Maire Tecnimont produces and supply, mainly for ammonia and urea plants, heat production integrations that allows the reuse of heat generated by the process systems by improving energy efficiency;
Construction, extension and operation of water collection, treatment and supply systems: among various services and products, Maire Tecnimont carries out design, construction and expansion of water and effluent treatment plants;
Material recovery from non-hazardous waste: in line with the description of the eligible activity in the regulation, the Group recycles waste when dealing with the design, construction and use of plants for the management and recycling of non-hazardous waste collected separately for reuse as raw material;
Infrastructure for rail transport: the Group, as part of its business activity related to railway engineering, deals with the construction and maintenance of railway lines and underground / surface transport;
Construction of new buildings: in supplying its plants, the Group also includes within the work the construction of buildings, civil and otherwise, to support the structure and manages its maintenance;
Installation, maintenance and repair of instruments and devices for measuring, regulation and controlling energy performance of buildings: the Group, in providing its works, also deals with assistance and maintenance of measurement technologies aimed at monitoring the efficiency of civil and industrial plants (e.g.: supply and installation of control systems, HVAC systems – Heat, Ventilation and Air Conditioning);
Data-driven solutions for GHG emissions reductions: via the activities of the business units connected to digital services, the Group is able to support clients with the development and supply of solutions aimed at monitoring current consumption and estimating and optimising future consumption (e.g. operating simulators, analysis tools, Distributed Control Systems, etc.);
Close to market research, development and innovation: through its Research and Development facilities, Maire Tecnimont carries out research aimed at developing solutions able to reduce, remove or avoid GHG emissions (e.g. studies on the reduction of emissions for urea plants; studies for the storage of energy from high-intensity solar plants).
This analysis is based on the first two goals governed by the European Taxonomy. As soon as the Technical Annexes relating to the other environmental goals enter into force, it is reasonably expected that the eligibility rate may change significantly. With reference to the “transition to the circular economy”, it will be possible to present further opportunities for eligibility and alignment with the Taxonomy, in addition to those types of technologies and projects that have already been included among the eligible activities given their relation to the recycling of non-hazardous waste.
