European Union taxonomy

The European Commission has established a specific classification system to identify environmentally sustainable economic activities, acting as an important enabler to support sustainable investment and to implement the European Green Deal.

By providing appropriate definitions of the economic activities that can be considered environmentally sustainable, it is intended to create security and transparency for investors, protect private investors from greenwashing, help companies plan the transition, mitigate market fragmentation and, ultimately, bridge the sustainable investment gap.
The European taxonomy established six environmental objectives to identify environmentally sustainable economic activities: 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. An economic activity is defined as environmentally sustainable if:

  • it makes a substantive contribution to at least one of the six environmental objectives;
  • it does no significant harm (DNSH) to the other five environmental objectives;
  • it meets minimum safeguards.

In July 2018, the European Commission established a Technical Expert Group (TEG) on sustainable finance to develop recommendations for technical screening criteria for economic activities that can make a substantial contribution to climate change mitigation or adaptation while avoiding significant harm to the four other environmental objectives.
Based on the contribution of the TEG and a wide range of stakeholders and institutions, the taxonomy regulation was published in the Official Journal of the European Union on June 22, 2020 and entered into force on July 12, 2020.

Starting from January 2022, companies which are subject to the obligation to publish a Non-Financial Declaration (NFD) must make public the share of their turnover, capital expenditure and ordinary operating expenditure that qualify as environmentally sustainable.

Based on this approach, Enel has classified all its economic activities in the value chain into the following three categories:
Eligible: an economic activity that meets both of the following two conditions:

  • it was explicitly included in the European taxonomy regulation because it contributes substantially to climate change mitigation or adaptation;
  • it satisfies the criteria set out in the European taxonomy regulation for the two environmental objectives.

Ineligible: an economic activity that meets both of the following two conditions:

  • it was explicitly included in the European taxonomy regulation because it contributes substantially to climate change mitigation or adaptation;
  • it does not satisfy the criteria set out in the European taxonomy regulation for the two environmental objectives.

Not covered: an economic activity that:

  • was not included in the European taxonomy regulation because it does not contribute substantially to climate change mitigation or adaptation and therefore no specific technical criteria have been developed. The European Commission believes that this type of activity may not have a significant impact on climate change mitigation/adaptation or could be integrated into the European taxonomy regulation at a later stage.

The existence of this third category makes it impossible to achieve a business model that is fully compliant with the European taxonomy criteria, since currently some activities within the electric utilities value chain are not considered to substantially contribute to climate change mitigation.

Statement on the compliance of Enel’s business with the European taxonomy

Although the European taxonomy regulation establishes an obligation for companies to declare compliance with the taxonomy starting from January 2022, given its importance for the financial community and policymakers, Enel has decided to highlight this in the 2020 Integrated Annual Report and in the 2020 Sustainability Report, to which reference should be made for further information.
The summary of results and results by Business Lines in the “Performance & Metrics” chapter contain the results of the statement on compliance with the European taxonomy for the activities of the Enel Group in 2020 and 2019.
In analyzing these results, it is helpful to consider the following elements as they are relevant for the preparation of the statement:

  • the statement was prepared exclusively following the criteria established in the draft version of the delegated act of the European taxonomy concerning the climate change mitigation goal because at the time of the preparation of the 2020 annual reports the final version had not yet been published. Final publication could introduce important changes that might significantly affect the result presented in this statement;
  • one change that could significantly affect the final result concerns the manner in which the retail business segment will finally be represented in the European taxonomy. Enel, together with other utilities, has asked the European Commission to include this business activity because, similarly to electricity distribution, it contributes substantially to climate change mitigation as an enabler of the decarbonization of other industries by promoting the electrification of energy consumption;
  • Enel performed a detailed mapping of all its hydroelectric assets on the basis of the “power density” metric required in the draft delegated acts. For plants with a power density lower than 5 W/m2, a further analysis was conducted to verify that the emissions (calculated over the entire life cycle) were below the specific emission limit of 100 gCO2eq/kWh. The findings indicated that 99% of the installed hydroelectric capacity is eligible in accordance with the European taxonomy criteria for climate change mitigation only, while only 1% – for which it was not possible to conduct a timely assessment due to the lack of robust data – was ruled out on a conservative basis;
  • in order to maintain this conservative approach, the business activity relating to the generation of electricity from geothermal sources was considered almost entirely ineligible pending certification by an independent third party of compliance with the threshold for geothermal plants of 100 gCO2eq/kWh for the entirety of Group’s geothermal assets;
  • activities relating to the infrastructure and networks business in Chile, Colombia, Peru and Argentina were considered ineligible, again adopting a conservative approach. However, during 2021 an in-depth analysis will be performed for the distribution and transmission system, which could lead to a change in eligibility status;
  • the Enel X portfolio was analyzed at the Business Line and product cluster level, as it was not possible to associate all the financial metrics required by the European taxonomy with each individual product. However, as a precaution, only the Business Lines and product clusters that fully meet the criteria were designated as eligible, excluding the others (for example “e-home” and “distributed energy”);
  • the statement was prepared without performing an exhaustive review of the DNSH criteria, which will be carried out once the delegated acts are approved in the second quarter of 2021. Nonetheless, Enel is confident that it can demonstrate a high level of performance, as over the years it has implemented complete and comprehensive environmental management systems that go beyond legal requirements and are applied throughout the value chain. Additional information on Enel’s environmental performance is available in the “Environmental Sustainability” chapter of the 2020 Sustainability Report;
  • the European Commission has not yet finished drafting the delegated acts for the other four environmental objectives. The latter could strengthen the compliance of Enel’s business model with the European taxonomy, considering that the current statement only covers the climate change mitigation objective;
  • the aggregates being analyzed refer to the “sector” level and only include items in respect of third parties. Accordingly, they do not include inter-sectoral exchange between sectors;
  • although not explicitly required, Enel has also performed an assessment in terms of the ordinary gross operating profit, as it believes that this metric represents the effective financial performance of integrated utilities such as Enel. A metric that only considers revenue is strongly influenced by business activities with a high volume of revenue (such as the wholesale market) that do not contribute proportionately to the growth of the gross operating profit like other business activities.

The statement also gives a view that excludes “not covered” activities to underscore the compliance of the Group for only the economic activities for which the European taxonomy has developed criteria and therefore the most significant from the point of view of the climate change mitigation objectives.