EU Taxonomy

General information on the taxonomy

Since January 1, 2022, listed companies in the EU must classify their economic activities in accordance with the EU Taxonomy Regulation and publish the results thereof in their consolidated non-financial statements or in their consolidated non-financial report (pursuant to the requirements of Section 267a and Section 243b Austrian Commercial Code). All economic activities are to be classified as to their environmental sustainability.

To this end, voestalpine is also availing itself of (draft) FAQs that the EU Commission published on December 19, 2022, on the application of the “technical assessment criteria” set forth in Delegated Regulation (EU) 2021/2139 to evaluations of taxonomy compliance. The wording contained in the legal framework at issue here still is subject to uncertainties in interpretation, especially as far as the determination of taxonomy compliance pertaining to rail traffic infrastructure is concerned. voestalpine’s interpretation follows below.

The reporting under the EU Taxonomy Regulation comprises three steps. They involve determining whether a particular economic activity is “taxonomy eligible” (i.e., whether it is basically covered by the Taxonomy Regulation) and also whether it is “taxonomy compliant.” An entity’s economic activities are considered “taxonomy non-eligible” if the Taxonomy Regulation does not cover them.

The Regulation identifies six environmental objectives. In order to be classified as taxonomy compliant, economic activities must make a substantial contribution to one of these objectives, at minimum. Furthermore, the given activities may not substantially undermine achievement of the other environmental objectives (i.e., “Do No Significant Harm” – DNSH). Finally, social minimum safeguards—e.g., concerning occupational safety and human rights—must be fulfilled as part of the three-step process.

The EU Regulation identifies six environmental objectives:

a. Climate change mitigation
b. Climate change adaptation
c. Sustainable use and protection of water and marine resources
d. Transition to a circular economy
e. Pollution prevention and control
f. Protection and restoration of biodiversity and ecosystems

At the time the present Report was published, solely the first two environmental objectives—“climate action” and “climate change adaptation”—were defined in the Taxonomy Regulation’s technical assessment criteria. In implementing the Regulation, voestalpine classified all of its economic activities as related to the “climate action” objective. This also prevents activities from being counted twice.

Implementation of taxonomy eligibility in the voestalpine Group

In a first step, which was already carried out in the business year 2021/22, the business activities of the voestalpine Group had to be examined as to their taxonomy eligibility.

A project team comprising personnel from the Group’s Finance, Investor Relations, Environment, and Corporate Responsibility departments along with experts from each division was set up to this end. External experts, including scientists, were consulted also. Furthermore, clarifying interpretations and statements were obtained from European industry associations such as the European Rail Supply Industry Association (UNIFE).

The implementation process included reviewing the taxonomy eligibility of all Group entities.

This analysis identified economic activities of the voestalpine Group as taxonomy eligible and allocated them to the following categories:

• 3.9. Manufacture of iron and steel
  The voestalpine Group engages in steel production based on the blast furnace route in Linz, Austria (Steel Division), and in Donawitz, Austria (Metal Engineering Division). The High Performance Metals Division engages in steel production based on electric arc technology at a total of three plants in Europe (Kapfenberg, Austria; Wetzlar, Germany; and Uddeholms, Sweden) and one in South America (Sumare, Brazil).
• 6.2. Freight rail transport
  voestalpine operates a rail transportation entity in Linz, Austria (Steel Division), that uses the European railway network.
• 6.14. Infrastructure for rail transport
  Worldwide, the voestalpine Group produces material components for railway infrastructure (Metal Engineering Division). These components include turnout systems (premounted complete systems incl. powertrains, locking systems, monitoring systems); diagnostic and monitoring systems; as well as railway infrastructure services (logistics, rail treatments, rail welding, rail grinding, recycling, etc.).

Determination of taxonomy compliance

The underlying technical assessment criteria must be fulfilled in order for an economic activity to be classified as “environmentally sustainable” under the Taxonomy. These are quantifiable guidelines (environmental objectives) that determine how a particular activity is to be assessed in terms of its contribution to climate action and to climate change adaptation. Legally speaking, the Taxonomy prescribes these technical screening criteria and also evaluates whether the economic activities cause significant harm to one of the relevant environmental objectives. Hence the so-called “Do No Significant Harm” (DNSH) criteria must be taken into account besides the technical assessment criteria. This review must evidence that a given economic activity does not undermine the other environmental objectives.

voestalpine makes comprehensive contributions to climate action. As far as the business activities related to the production and downstream processing of steel as well as the transportation of freight by rail are concerned: They are generally deemed to contribute substantially to climate action as long as they fulfill the technical assessment criteria pursuant to Category 3.9 and/or 6.2 or are lower than the predefined CO₂ limits on emissions. As far as the business activities of voestalpine Railway Systems pursuant to Category 6.14 are concerned, they are generally deemed to make a substantial contribution to climate action as long as they fulfill the technical assessment criteria set forth in that category. Under the Taxonomy Regulation, the activities of voestalpine Railway Systems may be deemed to contribute substantially to climate action only if they will entail the use of trains within ten years that do not emit direct CO₂ emissions. This does not include railway lines used solely for transporting fossil fuels.

A comprehensive DNSH conformity assessment was carried out for the relevant economic activities (3.9, 6.2, 6.14).

The review of the DNSH criterion regarding the EU environmental objective, “climate change adaptation,” was conducted using a simulation-based software tool for identifying, quantifying, and disclosing physical climate risks to the relevant operating sites thereunder. A detailed climate risk and vulnerability analysis was performed for all relevant sites based thereon. Methodologically speaking, this included the representative concentration paths (RCP 2.6, RCP 4.5, RCP 6.0, and RCP 8.5) of future scenarios used by the Intergovernmental Panel on Climate Change (IPCC); the IPCC’s progress reports on climate change; and the European Commission’s important Copernicus Services. Adaptation solutions were determined as necessary and implemented based on the findings of this climate risk and vulnerability assessment.

In addition, the voestalpine Group uses the certified management systems it has put in place throughout its companies worldwide—e.g., ISO 14001 and the EU’s Eco-Management and Audit Scheme (EMAS)—to fulfill the requirements of the DNSH criteria. These systems ensure that environmental impacts are identified and reviewed as to their relevance to a given operating site’s environment and that any adaptation solutions aimed at impact mitigation are developed as necessary.

In particular, these analyses comprise and/or take into account environmental matters such as water (sustainable use and protection of water and marine resources) and biodiversity (protection and restoration of biodiversity and ecosystems).

To avoid and mitigate environmental pollution, the voestalpine Group has established processes in its Group companies pursuant to which materials are produced, utilized, and brought to market in ways consistent with both European and national laws on chemicals.

Comprehensive reviews of substitution options are conducted in connection with materials possessing potentially hazardous properties, taking economic and technical requirements into account. All legal parameters are put in place and assured if the materials at issue cannot be avoided (“essential use”) at the present time.

Pursuant to the Group-wide review of the DNSH conformity criteria, the relevant economic activities of voestalpine’s key production companies fulfill all criteria. In the future, dynamic developments regarding the EU Taxonomy’s rules and regulations may lead to adjustments of the economic activities.

Minimum safeguards

All economic activities that contribute substantially to at least one of the six environmental objectives, do not adversely affect another objective, and fulfill the (social) minimum safeguard requirement are recognized as being environmentally sustainable. Pursuant to Article 18 of the EU Taxonomy Regulation, the review of the minimum safeguards applicable to the working population and compliance with human rights also is the final stage of the taxonomy compliance review. This serves to ensure that a given economic activity also fulfills international human rights standards as well as rules and regulations regarding issues such as bribery, corruption, taxation, and fair competition. The standards specified in Article 18 identify four core topics in regards to which compliance with minimum safeguards is defined.

The following guidelines and standards must be complied with:

• OECD Guidelines for Multinational
• Enterprises
• UN Guiding Principles (UNGPs) on Business and Human Rights
• ILO Declaration on Fundamental Principles and Rights at Work (“ILO Core Conventions on Labor”)
• International Bill of Human Rights

The Platform on Sustainable Finance (PSF) takes up the following central issues as they apply to social minimum safeguards:

• Human rights (incl. rights of female workers)
• Avoidance of bribery and corruption
• Taxation
• Fair competition

voestalpine already reviewed the aforementioned topics in the past and also addresses them extensively in the present CR Report. For more information on human rights, please see the chapter of the same name. Issues pertaining to the rights of female workers and employees are taken up in the “Human Resources” chapter, among others.

For information on fair competition and taxation, see subsections Compliance and Taxes

Results of the KPIs

A compilation of three performance indicators— revenue, investment expenditure, and operating expenditure—related to voestalpine’s taxonomy-eligible and taxonomy-compliant economic activities follows.

Taxonomy-Eligible / Taxonomy-Compliant Revenue

Pursuant to the EU Taxonomy Regulation, revenue as per IAS 1.82(a) must be used to determine the taxonomy-eligible revenue. The revenue figures equate to the revenue shown in the Consolidated Income Statement of the Annual Report 2022/23 and thus are used as the denominator in the following table to determine taxonomy eligibility. The numerator comprises the revenue generated from economic activities covered by the EU Taxonomy Regulation. As per the initial conformity review in the business year 2022/23, 25.4% of the revenue is taxonomy compliant and is generated primarily from the rail traffic infrastructure segment and the economic activity set forth in item 3.9, “Manufacture of iron and steel,” using electric arc processes. voestalpine’s taxonomy-compliant revenue stands at EUR 4,626.2 million.

This leads to the following classification for the voestalpine Group:

Taxonomy eligibility
by economic activity

Taxonomy compliance
by economic activity

Taxonomy-Eligible/-Compliant Capital Expenditure (CapEx)

Additions to assets—including additions from business combinations to property, plant and equipment; intangible assets; and right-of-use assets under leases—were utilized as the basis for determining the taxonomy-eligible CapEx. Investments via joint ventures, investments in financial instruments as well as additions to goodwill were not considered. The difference between the capital expenditure used here as the denominator and the data published in the “Business Segments” chapter of the Annual Report 2022/23 solely concerns additions to goodwill. The numerator comprises all CapEx generated through economic activities covered by the EU Taxonomy Regulation. Taxonomy-compliant CapEx accounts for 23.8% (EUR 218.9 million) of all CapEx. This does not contain investments from CapEx plans.

This leads to the following classification for the voestalpine Group:

Taxonomy eligibility
by economic activity

Taxonomy compliance
by economic activity

Taxonomy-Eligible/-Compliant Operating Expenditures (OpEx)

Unlike the revenue and the capital expenditure, the figure for the operating expenditure cannot be taken directly from the Annual Report 2022/23. This is because only a few expense categories are relevant to the determination of the denominator for the operating expenditure. These include building renovation activities; maintenance and repairs of property, plant and equipment; research and development costs; employee training expenses; as well as current lease expenses. The numerator comprises those operating expenses that are generated from economic activities covered by the EU Taxonomy Regulation. Operating expenditure from taxonomy-compliant economic activities stands at EUR 274.1 million, which equates to 29.0% of the taxonomy-eligible operating expenditure.

This leads to the following classification for the voestalpine Group:

Taxonomy eligibility
by economic activity

Taxonomy compliance
by economic activity

Voluntary disclosure in connection with taxonomy reporting 

The voestalpine Group has participated in the international Science Based Targets Initiative (SBTi) since 2022. Associated activities have led the Group to define internal greenhouse gas (GHG) emissions reduction targets that conform to the Paris Agreement on Climate Change.

voestalpine’s greentec steel serves to pursue an ambitious step-by-step plan for the decarbonization of steelmaking in the long term. In a first step to be achieved by 2027, this includes reducing CO₂ emissions by roughly one third. To this end, both the Steel Division and the Metal Engineering Division are replacing the existing blast furnace route in part with hybrid electric arc technology. The latter will make it possible in the future to produce high-quality, CO₂-neutral steel products.

At the same time, the voestalpine Group is carrying out intensive research on breakthrough technologies with the aim of gradually increasing the use of green hydrogen in steel production in the long term. The H2FUTURE hydrogen pilot plant^® is one example of these activities.

Other research projects are dedicated to the storage and reuse of unavoidable residual emissions.

For more information thereon, see the “Product Sustainability” chapter.