4. Construction sector

The construction sector has substantial impact and relevance in Finland, Sweden and Norway. Construction activities have a vast negative impact on the environment and climate, accounting for a substantial portion of global energy use, greenhouse gas emissions, and resource consumption. Across the Nordic countries, the building sector holds a prominent position in economic activities and development initiatives. It is a key driver of economic growth, infrastructure development, and urban planning.

The following sections present the key findings from interviews with nine companies in the construction sector across Finland, Norway, and Sweden. As the study has been carried out with qualitative methods with a sample of nine companies, the findings cannot be considered as representative for the whole construction sector. They can however point to relevant considerations and focus points regarding the implementation of the EU Taxonomy. Based on the small sample of interviews, it has not been possible to specify specific findings as valid for the whole sector or for one country. Instead, the findings are presented in a more overarching manner, where company or country specific examples have been mentioned where relevant. Since the Taxonomy is still in its early stage of implementation and adaptation, it is work in progress among stakeholders on the market to learn and adopt to the reporting framework, hence no standardised way of reporting nor effects on market behaviour can be concluded yet.

The interview findings are organized into five thematic categories, each addressing specific aspects of the companies' work related to the EU taxonomy:

This section explores whether or how the companies evaluate the Taxonomy for their sustainability work, and whether it is important for Nordic companies in the construction sector to be classified as sustainable.

All the interviewed companies have chosen environmental objective one – climate change mitigation – as their significant contribution. Additionally, environmental objective 2 – climate change adaptation – is also a key area of focus.

For most of the companies, sustainability is part of the strategy and has been for at least a few years, making it an integral part of the company culture and influencing decisions at all levels. Some of the interviewed companies have reported that the Taxonomy has played a role in elevating the sustainability agenda, making it more central to decision-making across the entire organization. This shift is not tied to any specific country but is instead influenced by each company’s culture and historical drivers.

In the construction sector, there has been a long-standing focus on energy efficiency and low energy housing, particularly in building construction. Hence, the construction sector mostly aligns with the criteria under environmental objective one, climate change mitigation.  The biggest challenge lies in meeting the DNSH criteria for environmental objective 3–6. Only one company (FI) has reported alignment above 50%. A few companies have reported around 20% whereas the majority have reported less than 5% alignment. This clearly highlights the challenges companies face in interpreting the various criteria. The primary reason for the low alignment percentage is the difficulty in demonstrating compliance with the DNSH criteria for Environmental Objectives 3–6.

What is particularly unique for construction companies, compared to other manufacturing companies, is that their work is project-based. As a result, taxonomy alignment can vary significantly between projects and from year to year. The EU taxonomy has not yet influenced overall company strategy and goals; instead, its impact is primarily experienced at the project level.

In general, it is not considered important yet for the interviewed companies whether they are aligned or not with the EU taxonomy and as such are classified as sustainable. This is primarily due to the limited interest from both investors and customers in aligning construction projects and investments with the EU taxonomy. It was raised from the companies a desire to in the long run align with additional environmental objectives apart from the two objectives part of the Climate Delegated Act. The concern is that investors or customers in the future might require this kind of alignment, and therefore preparational work is necessary. For construction projects to be aligned with the environmental objectives under the Environmental Delegated Acts, the technical criteria must be complied with for the economic activities to be considered sustainable. This alignment would require extra resources and investments beyond how “business-as-usual” projects are carried out at the market today, in 2024. Therefore, for companies´ economic activities to contribute to more than one of the six environmental objectives, more investments are needed. This is however, not a requirement by the Taxonomy Regulation as of 2024, since it is only a reporting requirement, but more of a desire from the companies to be able to achieve this kind of alignment in the future.

Nonetheless, there has been specific examples from all three countries where clients and banks have inquired about the Taxonomy and efforts needed to increase alignment on specific projects. Interest seems to be somewhat higher in the capital areas compared to less urban areas, but there does not seem to be any general difference between the three countries. Given the limited interest and the absence of mandatory requirements in the Taxonomy, companies find it difficult to justify the additional investments needed to build in accordance with Taxonomy criteria.

The significant potential for investors to influence the market has been emphasized. If the companies see an increased demand and investors are willing to pay for the extra effort that is necessary, the sector indicates they would be prepared to make those changes. For the future, the companies see it as an investment risk if only a small proportion of projects are Taxonomy aligned.  

One company in Norway, which frequently collaborates with the public sector, identified the public sector as the primary driver of sustainability compared to the private sector. Conversely, a company in Finland found the private sector as the leading force behind sustainable development in the country within the construction sector.

Only a few companies have reported that they have begun marketing new building projects as Taxonomy aligned. Most companies and the majority of projects being sold do not mention the EU taxonomy. Neither has there been interest in the EU taxonomy reporting during annual general meetings.  

This section presents how the requirements imposed by the EU Taxonomy legislation have affected the organisational structure within construction sector companies in the Nordic countries.

Since the enforcement of the EU taxonomy, it has somehow affected the internal organisational workload and responsibilities. The reporting obligations on the EU taxonomy has not led to major restructurings within the interviewed companies per se, but each company has appointed at least one person who is responsible for the overall sustainability reporting, including the EU taxonomy. A few companies have recruited specifically for the EU taxonomy purpose. For most companies, this new role primarily involves reporting tasks related to the enforcement of the EU Taxonomy. Previously, the same individual often had a broader role that included a wider range of sustainability responsibilities. This shows that the Taxonomy does require new resources, even though it has been possible to reallocate internally so far. For most companies (especially the largest >1000 employees) it is nearly a full-time job to monitor and report on the Taxonomy and prepare for the upcoming CSRD reporting in 2025, with the responsibility distributed among different individuals across various countries and levels within the company (project level, country level, group level).

Regarding cooperations across departments, the EU taxonomy has within some companies managed to permeate existing structures and improve collaborations across departments. Companies from all three countries have mentioned this, so it is not possible to point out differences between countries, it is rather a difference only between company cultures. A specific example comes from a Swedish company that emphasised how the EU Taxonomy has significantly impacted their overall strategic work. Environmental issues have now taken on a more central role within the company. They explain that the Taxonomy has made it possible to cooperate and understand each other across the different departments within the company and that everybody must take responsibility and contribute to improve both sustainability work and the reporting part. Previously, sustainability efforts were largely confined to the sustainability department, but the Taxonomy has enhanced collaboration across various departments, including finance, human resources, communications, procurement, and project management on different construction projects.

This section describes what the companies have done to build an understanding of the EU taxonomy, and what measures they have taken to build up competence within the company.

The Taxonomy requires extensive documentation to ensure proper implementation. However, all companies agree that they are used to reporting on sustainability data and collect data on climate impact and sustainability, and so the reporting per se has not been seen as the challenging part. It is the interpretations of the criteria that are hard to define and agree on. It has especially been the DNSH criteria for environmental delegated act 3–6 that have been hard to interpret. It can partly be explained by the fact that the sector has not to the same extent as for climate measures (climate delegated act), worked with these criteria previously, as climate measures have been prioritised. The companies have especially highlighted the challenges in interpreting the criteria for environmentally hazardous substances and determining the necessary documentation. They noted that meeting these criteria would require extensive documentation, and that this is not available from the processes undertaken today.

The TSC under each environmental objective is still work in progress from the EU Commission and is therefore being updated regularly, which also makes the interpretations hard to work with. Interpretations made a year ago can be outdated for the next reporting year. Everyone confirms though, that a common interpretation and understanding of the Taxonomy and CSRD would be appreciated. Both on national level (from authorities e.g.) and at Nordic level. Many of the companies in the construction sector operate in more than one Nordic country, and a common language would be helpful and ease the workload. The companies see it as a big risk that not even the Nordic countries have developed common interpretations on the Taxonomy criteria, as it might lead to even bigger discrepancies with other countries in Europe. At the same time, all companies acknowledge that they view this as a "learning by doing" process, as they continue to implement routines and refine their interpretations.

Another challenge with the interpretations is that banks and investors do their own interpretations, which is not necessarily in line with the industry´s. The competence level between the different stakeholders varies a lot, which makes it difficult to talk the same language between the companies and the investors. It has been expressed that people from the financial sector are still hesitant to ask questions about the EU taxonomy, due to limited knowledge and a lack of understanding of its full potential and market impact. There is a need for increased knowledge across the whole market, to fully accelerate the financial impact the Taxonomy could have.

So far, the industry across all three countries mainly focus on environmental objective 1 and 2, climate mitigation and adaptation. A Swedish company pointed out though, that there are ongoing discussions within the industry-wide network on how to interpret environmental objective 6, protection and restoration of biodiversity. While nothing concrete has been established yet, there is growing awareness that significant efforts will soon be necessary to meet the criteria. Another problematic aspect that is discussed across the industry is how to interpret the technical criteria on land use and land exploitation, which also belongs under environmental objective 6. The challenging aspect of this criterion is that, to ensure alignment with the DNSH criteria, land that has not been previously developed must not be exploited. However, the sector points out that many building projects require the use of undeveloped land due to the growing demand for housing and infrastructure. As a result, the industry advocates for updates to the significant contribution criteria on biodiversity, suggesting a shift in focus towards improving land use and exploitation practices, rather than adhering to an all-or-nothing approach. Companies also agree that they expect future revisions to the biodiversity criteria to emphasize how land can be improved even as it is being developed.

The interpretation of the taxonomy is driven and understood by separate interpretations for each country. Common for all three countries (FI, NO, SE) is that the interpretations within a country are primarily impacted by:

In all three countries, national legislation plays an important role in interpreting the TSC. This has been pointed out by the companies to be dangerous to do at such an early stage of the Taxonomy Regulation. A Norwegian company specifically said that:

Some criteria can as such be considered aligned by companies if national legislation is met. In the interviews, Sweden and Finland were specifically mentioned in this context. In Sweden, national laws more broadly fulfil the alignment requirements, whereas in Finland, the TSC has been interpreted more independently of national legislation.

All companies interviewed are part of an EU taxonomy working group within either the business federation for construction companies in each country respectively or working groups at the national Green Building Council (GBC), which is also present in the three countries. The collaboration between the two organisations seems to be close, and since there is no guidance that is considered “national”, companies across the whole industry are leaning towards the available guidance from either the business federations or the GBC.

The business federations have taken on a significant role by bringing the sector together to jointly discuss and interpret the criteria, particularly those that have been more challenging for companies to understand. Through this collaborative effort, the sector in each country has been able to establish common ground on some interpretations. However, many companies have expressed concerns about this approach, noting that it may be risky for business federations to assume this role rather than relying on a neutral third-party body. It was specifically pointed out by companies in Norway that the common interpretations in some cases have been less stringent than the primary interpretations made by the companies alone. A company in Norway initially reported 0% alignment at the beginning of 2024 because they interpreted the DNSH criteria very strictly and were unable to provide the necessary documentation to meet the criteria. However, the sector, through collaboration within the business federation, developed a less stringent interpretation that relied more on national laws. As a result, the company, by complying with national laws—which they already did—was able to bypass some of the extensive documentation requirements and subsequently demonstrate that their activities were aligned. As the company put it themselves:

Companies should not compete on interpretation, but rather on how the projects are executed.

Since the interpretations vary across companies, it is still difficult to compare both eligibility and alignment between companies and between countries. All companies that operate in more than one country have had to follow national interpretations and legislation to report on the Taxonomy. The screening process and calculations are all done nationally and then compiled at group level. That means, that each country is responsible for their own reporting, but reporting schemes and internal processes are established at group level.

The construction sector is used to working with certification schemes, e.g. the Nordic Swan Ecolabel, BREEAM, LEED, Miljöbyggnad (SE) and Rakennustieto (FI). These certification schemes have started to harmonise their criteria with the EU taxonomy to ease the work for the companies. Hence, the companies can increase their alignment with the Taxonomy by following the criteria for the specific certification scheme.

Among most stakeholders, it is generally considered easier to obtain a BREEAM Excellence certificate, which simultaneously ensures taxonomy alignment, because the guidance and interpretations are clear and straightforward. In contrast, aiming for taxonomy alignment without the support of a certification scheme is seen as more challenging. Since the certification schemes are perceived as clearer and offer less room for individual interpretation, many companies have expressed a preference for using these methodologies to ensure alignment, rather than interpreting the Taxonomy on their own. However, companies from all countries have raised concerns that this approach could be risky, as the certification schemes essentially dictate how interpretations are made, and these interpretations have not been validated by an independent body.

Companies from Sweden have specifically mentioned that they do Environmental Impact Assessments (EIA) before starting a new construction project. The EIA is in turn partly used as documentation for the DNSH for environmental objective 6. It has not been clear though to what extent companies in Norway or Finland use this as documentation. As such, Sweden is only mentioned as an example.

Educating personnel responsible for Taxonomy reporting requirements has been recognized as both important and necessary by all companies. Resources have been allocated to send these individuals to external courses specifically dedicated to the EU Taxonomy, ensuring they gain a fundamental understanding of what the Taxonomy entails and its implications for the company. Additionally, this training helps ensure that they remain up to date with the frequent updates and new regulations released by the EU Commission, which are often issued without prior notice.  

Some of the bigger companies (>1000 employees) have created internal webinars that can be seen by everybody to educate people across the whole organisation. It is seen as important that it is not only the person responsible for the Taxonomy that has knowledge, but people throughout the whole organisation and especially people working directly in the projects, to be able to talk to clients and make sure the Taxonomy becomes relevant and accurate at an early stage. Tools and training material is also something the majority of the companies have developed or invested in, to educate people all the way from C-suite level to project leads and people working at the building sites. One company from Finland mentioned that they have launched an internal EU taxonomy platform, which will be central in the future to inform and increase awareness across the whole company.

A company in Norway has bought an external software developed specifically for the Taxonomy reporting. The software is developed to help companies with the screening and structure around the Taxonomy for the entire company. It can be used by various employees simultaneously within the company who can answer questions related to their specific work and activities, but it can also be used to accumulate data on group level. The company that uses it says it is great support in that the questions are clearly scoped for each project activity and which financial figures that should be included. As the questions are project-based, they felt the need to use a software that both can handle data on project basis, but at the same time generate data for the entire company.

This section outlines the efforts made by companies to prepare for the upcoming legislation and explores the anticipated impact of the Taxonomy on their future operations.

The Taxonomy has primarily driven the market to provide more detailed documentation and establish new routines for screening each activity at the product level, rather than just at the project level. This shift has led to the creation of new internal processes, particularly as departments that previously did not collaborate are now required to work together. For example, cooperation between the sustainability and financial departments, as well as across all construction projects, has increased. However, the reporting process itself and the companies' prioritization of climate mitigation measures have not necessarily changed since the enforcement of the Taxonomy.

The biggest challenge in the actual screening process is to map the value chain to get an overview of all the involved actors and to evaluate the impact. The Swedish companies have interpreted some of the DNSH for environmental objective 6, being fulfilled if an environmental impact assessment has been conducted before the project started. However, there is still considerable work to be done in mapping the impact of each project, as the involvement of numerous subcontractors in a single project adds complexity to this task. 

All interviewed companies believe that the Taxonomy will likely have a greater impact on sustainability efforts in the future. However, to achieve this, it is essential to establish clear requirements or goals for the various activities under the EU Taxonomy. This would help push the market to change the way building projects are designed and manufactured today. The interviewed companies agree that guidelines alone are not sufficient, as the current market pressure has not been strong enough to drive significant changes to business as usual. Despite the introduction of the Taxonomy, companies continue to operate in compliance with existing laws and regulations without making substantial adjustments. Penalty, such as fees or sanctions for not living up to the EU taxonomy criteria has also been mentioned as an efficient way to put pressure on the market. Another suggestion that came up during the interviews was to assign a premium instead to taxonomy aligned construction projects, instead of doing business-as-usual. Both carrot and stick has been mentioned as necessary to help the market transition faster.

Another question for the future is whether the Taxonomy will replace any of the existing certification schemes used to ensure alignment in sustainability work in the construction sector. Some certification schemes (e.g. the Nordic Swan Ecolabel or BREEAM Excellence) have already begun harmonizing their criteria with the EU taxonomy, which shows that there has been some impact already on the market. However, this remains speculative on the part of the companies, as there are currently no indications of any impending changes or replacements.

An EU initiative, the EU Green Bond Standard,

European Commission (2023c). Regulation (EU) 2023/2631 of the European Parliament and of the Council of 22 November 2023 on European Green Bonds and optional disclosures for bonds marketed as environmentally sustainable and for sustainability-linked bonds.

is an EU-wide standard to support the green transition and help investors tackle greenwashing. The Standard, which is voluntary, has been mentioned by companies as a potential supporting tool to define green economic activity, as it may help steer investments in the same direction as the Taxonomy.

Based on the interviews, there are challenges and advantages identified across Finland, Norway and Sweden. This section will summarize what some of the main challenges and advantages are across all countries.

There is very little (close to zero) guidance from national authorities on how to interpret the EU taxonomy on national level. The available information is fragmented, making it difficult to find comprehensive and easily accessible resources. At the moment, the sector to a large extent relies on interpretations made by the national Green Building Council and the national business federations. Hence, there is nothing yet that can be considered as “national guidance”. A third neutral body that could provide national guidance has been requested by several of the companies. A national agency like the Environmental Protection Agency or similar has been highlighted as a suited candidate.

All countries seem to rely more or less on national regulation as proof for alignment. This has been highlighted as a risky approach, particularly so soon after the Taxonomy's enforcement, as the Taxonomy is intended to drive market change and go beyond existing national regulations. However, it is uncertain at the moment, to what extent this affects the overall taxonomy reporting results.

Another challenge for the construction sector across the Nordics is that the industry is severely affected by the economic recession, which means that there is little economic excess to do extra investment in sustainability measures. It is hard to make changes and have additional expenses outside of business-as-usual in difficult times. The economic recession is not a hinder in itself to report on the Taxonomy, it is only seen as an obstacle by the companies to be able to achieve further alignment among the six environmental objectives in the long run to live up to more sustainability criteria. When the market shifts, companies understand what actions are necessary, but these changes require additional costs and investments to implement. If no investors are willing to cover these extra expenses, making the necessary changes will be challenging. All but two of the interviewed companies are listed, making them more dependent on investors to help drive the agenda and influence market demand.

Another challenge mentioned by the interviewed companies is that there might be interpretation discrepancies between the Nordics and other parts of the EU. The companies´ own perception is that the Nordic countries tend to be detailed and strict in interpreting laws and regulations both nationally and at EU level. Furthermore, the Nordic countries have advanced significantly in terms of climate regulations and standards, resulting in a higher baseline compared to other parts of Europe. Because the interpretations of the EU Taxonomy are partly influenced by national standards and regulations, companies believe that their interpretations may be stricter relative to those in other countries.

Lastly, a big challenge for the sector is to start working on the Environmental Delegated Acts 3–6, which cover the environmental aspects. Several of the companies point out that there is an urgent need to start prioritising these four environmental objectives. A Finnish company has begun developing a roadmap for the entire organization to establish a strategy and direction for environmental improvements, focusing on identifying low-hanging fruits. While the EU Taxonomy emphasises best practices, the industry is seeking more guidance on what constitutes good versus bad practices, as there is a significant gap between current industry standards and the best practices outlined in the Taxonomy. To bridge this gap, the industry needs support in the form of guidance, investments, innovation, and funding.  

The construction sector in the Nordics has been working with climate related measures for a long time (e.g. climate efficiency, low energy housing). The reasons are mainly due to the cold climate and ambitious regulations, and therefore the criteria in the EU taxonomy related to these are prioritised by the sector to align with. The sector also believes that the energy efficiency in general in the Nordics is better than in other parts of the EU.

Finally, all companies are positive to a Nordic collaboration, both in terms of interpretations as well as learning from each other to bridge gaps and build knowledge. Everyone sees great potential in a Nordic collaboration, since the countries are like-minded, and the industry is similar across the countries.