3.4 Use of NACE
This report uses NACE for industry classification and the TEG has developed screening criteria for priority sectors within NACE. Other activities may be also eligible, so long as the company or investor can demonstrate compliance with the substantial contribution criteria and that no significant harm has been done to any other environmental objective.
Examples of these include:
Manufacturing
For some corporates who manufacture as well as sell the end products, they may attribute revenue to the end product rather than to the manufacturing process. Technical screening criteria in this report lays out expectations of the manufacturing process. When aligning testing criteria to manufacturing, it may be necessary to review revenue classified to the sale of the end product by the same organisation, even though the eligible activity would be assessed within the manufacturing processes. This is not a supply chain assessment, the corporate needs to own the manufacturing process to qualify.
For example, technical screening criteria are provided under NACE code 23.51 – Manufacture of Cement.
However revenue for these manufacturing processes may be attributed under:
Name NACE Name
Concrete Products 23.61 Manufacture of concrete products for construction purposes Concrete Block & Brick 23.61 Manufacture of concrete products for construction purposes Concrete Pipe 23.61 Manufacture of concrete products for construction purposes Other Concrete Products 23.61 Manufacture of concrete products for construction purposes
Similarly for non-ferrous metals, the production process should meet the testing criteria but the revenue may be attributed under the final product.
Name NACE Description
Iron & Steel Forging 25.50 Hot, warm and cold forge both iron and steel.
Metal Containers & Packaging 25.92 Manufacture metal containers used in packaging applications. Includes metal cans and aluminium foil.
When considering an activity that does not align with the provided NACE codes, it may be possible that the activities of that corporate can still make a substantial contribution to one or more of the
environmental objectives. This activity can be considered eligible, so long as the testing criteria that exist within the report are satisfied.
Construction
Activities of main and secondary building contractors can be found within NACE 43, with additional sub-sectors under NACE 42. The activities of these companies could be considered eligible (as enabling activities) if they contribute to construction activities that comply with the taxonomy criteria set under ‘New Constructions and Renovations’. Eligibility would need to be assessed on a project-by-project basis, as a contractor would have different projects within their portfolio of work, some complying with the taxonomy and others not.
Activities of manufacturers of building products and machinery (sub-sectors within NACE 16, 23 and 28) could be considered eligible (as enabling activities) if they produce low carbon technologies for buildings (for example, efficient windows, insulation etc.) and comply with the criteria set out within the manufacturing section of this report.
Real estate brokers and agencies (NACE 68.31) activities could be considered eligible (as Enabling Activities) if they support the acquisition of properties that comply with the criteria set for “calculated performance” in acquisition & ownership, but this would have to be assessed and disclosed on an acquisition-by-acquisition basis.
Property management (NACE 68.32) - Activities of these companies could be considered eligible (as Enabling Activities) if they satisfy the criteria for “measured performance” set in Acquisition & Ownership;
compliance would have to be assessed on a property-by-property basis.
3.5 Assessing the Taxonomy criteria for Green Debt and Loans
Green debt or lending activities may be allocated a NACE or equivalent industry classification code.
Where financial instruments are allocated a NACE listed in this report, the substantial contribution and significant harm tests can be applied as listed. However, there may be some examples where the activity may be suitable to test, even if the industry or sector of the overall business may not be listed within this report. Such examples include:
Multi-sector eligibility
Where the proceeds of a bond or loan are allocated to a project, and the project is allocated across more than one sector (e.g. solar, hydro and wind investments), then each of the projects or assets shall meet the specific eligibility criteria provided within this taxonomy report (Production of Electricity from
Hydropower, Solar PV or Wind Power). If the capital allocation to the projects was split evenly across the three activities and only one of the projects satisfied the technical screening criteria, then only 33% of the investment would qualify.
Sector alignment
Where the proceeds of a bond or loan are allocated to a project or asset that sits outside of the normal industry classification of the asset owner (e.g. Agricultural upgrade of farming vehicles to electric vehicles), then the nature of the project or asset needs to be assessed in line with the appropriate taxonomy testing criteria. In this example, the assets (electric vehicles) would qualify under Transport (<
50g CO2/Km) even though the bond or loan may be classified under Agriculture.
Where a corporate in an industry not covered within this report wishes to invest in new infrastructure that would enable more energy efficiency in their process, and those projects allow the corporate to meet the technical screening criteria, then they would qualify. Demonstration of the technical screening criteria met would be required in the associated prospectus.