5. Forest sector

The forest sector in Finland, Norway, and Sweden each have significant forest resources and are among the largest exporters of pulp, paper, and timber. Finland is one of the largest producers of pulp and paper globally, with the forest industry exports’ worth approximately EUR 15 billion in 2022.

Luke, Natural Resource Institute Finland. (2023).

Sweden is the fourth largest exporter of pulp paper and sawn timber, with export value of EUR 16,5 billion.

Swedish Forest Industries. (2024).

Norway’s forest industry export value in 2022 was about EUR 1,8 billion.

Landbruksdirektoratet. (2023).

The forest industry is thereby an important sector for all three economies. From the perspective of EU taxonomy, the forest industry provides an interesting case study since it has been one of the most challenging in terms of the development of the Technical Screening Criteria.

In the forestry sector, six companies have been interviewed across the three countries, two in Norway, three in Sweden, and one in Finland. Since six companies were included in the study, the findings presented below are not to be regarded as valid for the entire forest industry, but rather as illustrative examples of implementation of the EU Taxonomy in forestry companies. When searching for forestry companies to interview for this study, several companies declined participation in an interview. Several companies expressed that they felt their progress in Taxonomy work was insufficient to participate in an interview.

In the following sections, findings from the interviews with all six companies within the forest sector from Finland, Norway and Sweden are presented. The findings are divided into five thematic sections, answering the following five themes around the work related to the EU taxonomy:

The EU taxonomy is purposed to be a valuable tool for sustainable investments. It is however unclear how companies see it as part of their sustainability work, and whether their operations are affected by reporting on the EU taxonomy. This section will describe whether and how the companies value the Taxonomy for their sustainability work, and whether it is important for Nordic companies in the forest sector to be classified as sustainable according to the taxonomy.

All interviewed companies in the forestry sector have expressed that the Taxonomy does not significantly impact their sustainability efforts. They view Taxonomy reporting purely as a reporting and compliance exercise, rather than something that meaningfully influences their strategy or operations. All interviewed companies regard themselves as having sustainability at the core of their business model, and engaged in sustainability work within their operations, as well as communicating their efforts. The sustainability aspects of their operations are instead guided by certification schemes such as Forest Stewardship Council (FSC) and Programme for the Endorsement of Forest Certification (PEFC).

The interviewed companies do generally not use the EU taxonomy for marketing purposes. The only exception for this is one company that offers Green Bonds that are aligned with the EU taxonomy, which is communicated to relevant stakeholders.

All companies describe that there is a lack of interest in the Taxonomy from their investors. According to them, there is very little interest in whether their activities are aligned with the Taxonomy or not. It is a point of concern to some companies that the interest is low in the current situation. They anticipate that the EU taxonomy will have more impact on investments in the future, and then they could risk being “behind”, as their sector generally has low eligibility and alignment with especially the environmental objectives under the Environmental Delegated Acts (objective 3–6). This is especially concerning to some if investments will be more data or AI-driven, and qualitative aspects of sustainability are overlooked. Other companies have stated that they are not concerned about the Taxonomy becoming a significant competitive factor for attracting investments, as they believe the legislation will not have a major impact in the future.

This section will outline how the requirements imposed by the EU taxonomy legislation have affected the organisational structure within the interviewed companies, describing the work division, acquirement of new staff, and workload.

The interviewed companies have organized their work on the EU Taxonomy in slightly different ways. For most, the reporting tasks are shared between the sustainability and finance departments, with some also involving the communications department. The companies do not view the EU Taxonomy work as a significant burden; instead, it is integrated into the annual reporting process. Typically, the personnel responsible for the annual report are also assigned the tasks related to the Taxonomy.

Generally, the companies have not hired additional staff to carry out these tasks, but instead they have made internal restructuring if needed. In few cases, the companies have hired external consultants for certain tasks, such as designing the reporting systems, or carrying out the first year’s reporting. While the EU taxonomy is not seen as a large burden, and companies have not hired more resources to carry out the work, all of the companies that are obliged to report on the CSRD state that CSRD is a much larger workload, and that this has led to restructuring and in many cases new hirings in the company. These have been hired in roles such as ESG controller and new roles within the finance and sustainability departments.

Some companies have indicated that they do not currently see a willingness among clients or investors to pay for documented sustainability efforts. However, if this attitude shifts and it becomes clear that meeting the Taxonomy criteria enhances market competitiveness, they may be willing to invest more resources to the task.

Finally, on a more general note regarding the structure of the Taxonomy, as of 2024, there is still a selective coverage of sectors. While it is expected that more sectors will be included over time, this selective coverage creates challenges for the current reporting process. As such, the forest sector is included within the Taxonomy, but other related industries, such as the paper and pulp industry, are not. This lack of uniformity leads to inconsistencies in how sustainability is measured and reported across the value chain. Most of the large forest companies in the Nordics own the biomass-producing companies further downstream, which creates additional complexity as they must navigate differing regulatory requirements and standards. Since this downstream industry is not covered, it leaves a gap in how economic activities of these products and processes are assessed and reported. In general, the forest sector´s eligibility and alignment with the Taxonomy criteria is very low. Even though the companies are owners of very large forestry areas and carry out the forestry activities included in the Taxonomy, the forestry activities cannot be detected in the CapEx or OpEx as the products are used further down in their own value chain for biomass such as pulp and paper. The activities are only included in the company turnover when they are bought or sold. But this is rarely the case since the large forest companies own their own raw material feedstock. Hence these activities are not reflected in the annual reports neither included in the Taxonomy reporting. This could lead to incomplete or fragmented information about the overall environmental impact of forest-based products, making it difficult for stakeholders to get a clear picture of the entire supply chains. The selective coverage could in turn distort market and investment signals.

This section will detail the steps companies have taken to build an understanding of the EU Taxonomy and the measures they have implemented to develop internal competence in this area. This includes education of personnel, understanding legal requirements and guidance from national authorities.

Several of the larger companies interviewed indicate that they already have the appropriate personnel to manage the Taxonomy requirements and that the primary task is to build Taxonomy-specific competencies. Nearly all companies have undertaken educational initiatives, including internal courses, knowledge sharing sessions, and webinars. Those that have not yet implemented these efforts are currently assessing their competence-building needs, after which they will determine the best course of action.

To build internal knowledge, companies have designated specific individuals to study the legal texts and additional resources provided by the EU. All companies have acknowledged that the EU Taxonomy Regulation is complex and contains a vast amount of information. A significant challenge, therefore, is in reading, digesting, and effectively communicating this information to the relevant departments within their organisations. Moreover, several companies state that it is difficult to find the correct information from EU. This was common across the three studied countries, which is to be expected, since they are consulting the same online resources from the EU. One of the Swedish companies also expressed that the translation of legal and guiding documents into Swedish was bad, making it more difficult to interpret the legislation.

There is wide agreement among the companies that they have not received guidance on the EU taxonomy from national legislation. Some companies state that they have consulted documents from the national authorities, and that these provided good explanations, but that they were not very applicable. Other companies state that they have not encountered any written documents or guidance from national level. Several companies believe that this would help them in their taxonomy work, while two companies state that it may be more confusing with national guidelines in addition to the EU legislation.

This section describes the work undertaken by the companies to prepare for the upcoming legislation which covers knowledge building, dialogue with investors, legal interpretation and political work.

The companies undertook substantial preparatory work before the Taxonomy came into force. For many, there was uncertainty about the extent to which their activities would be eligible under the Taxonomy, making it challenging to determine the level of preparation required. Many describe the experience as a "learn-as-you-go" process, where they had to develop the necessary competencies while simultaneously carrying out the required tasks.

Many companies entered into dialogue with financial institutes and investors and tried to make a common projection for how to prepare for the Taxonomy. Also, there was widespread collaboration in the industry association, where companies participated in working groups where they developed common interpretations of the legislation. In Sweden, the relevant industry organisation was The Swedish Forest Industries, in Finland the collaboration is made through the Finnish Forestry Federation, and in Norway it was done through the Norwegian Wood Cluster. Through these working groups the companies were in some cases offered an audit for the first round of reporting. In Norway, the Norwegian Wood Cluster developed a guide on sustainability reporting.

Norwegian Wood Cluster. (2024).

Several companies also state that they have taken part in the lobbying work before the directive was in place, and that they have taken part in stakeholder consultations for the technical screening criteria for the six environmental objectives. One of the forums this was organized through was the European Confederation of Paper Industries.

While climate adaptation and mitigation have been large topics for Taxonomy alignment, Environmental objective 6 on “Protection and restoration of biodiversity and ecosystems” has been in the background. The larger companies have reported the eligibility for environmental objective 6 in CapEx and Opex, and whether they fulfil DNSH criteria for biodiversity. Several of the interviewed companies express that the biodiversity work that they are doing in their operations is not mirrored in the taxonomy. Several companies express that they are unsure of how to fulfil and report on the DNSH criteria. The uncertainty regarding DNSH reporting is also seen in the biodiversity related questions in the FAQ issued by the EU. It is to be expected that there will be more clarification on reporting of the DNSH criteria for forestry activities in the future.

Many of the interviewed companies have also used their accountants as advisors on the interpretation, as well as on the reporting format. It has been raised as a challenge, that the accountants may not be able to provide enough advice when it is the same firm that is consequently carrying out the audit. An example of a case where it has differed is in the guidance on how the reporting format should be set up, including how much it can diverge from the official EU format.

Based on the interviews, there are common challenges in implementing the EU taxonomy in the forestry sector across Finland, Norway and Sweden, which will be summarised below.

One challenge that was highlighted is that, according to the companies, the legislation is not tailored to the specific conditions of Nordic forestry. The production methods and market conditions are different in the Nordics than in the rest of Europe, since there are large forestry areas, and companies own the whole value chain from forest to biomass product. Several companies claim that the taxonomy criteria are not very accommodating towards this. Another factor is that Nordic forestry is largely made up by small forest owners – this is especially notable in Norway where 80-85% is privately owned. There are differences between stately owned forests and privately owned, and according to some companies, the legislation does not account for this.

Another point that has been raised across the Nordics is that the Taxonomy legislation is not necessarily well adapted to forestry as a sector. One example of this is that the technical screening criteria contain requirements for a third-party audit after two years of the commencement of the activity. It has been raised that it can be difficult to set up a baseline within forestry since it is a continuous practice. This was mentioned specifically in relation to documenting environmental objective 6.

The interviewed companies noted that there is minimal compensation from banks for the sustainability efforts they undertake, and there is little interest in Taxonomy-aligned practices. This lack of financial incentive makes it challenging for companies to invest in the economic activities covered in the reporting, as they are uncertain whether these investments will ultimately be financially worthwhile.

Another common challenge is difficulty in providing evidence for the DNSH criteria. Even though the companies are confident in the sustainability work within their operations and, according to themselves follow the highest standards, it is sometimes too demanding to provide evidence to live up to the technical screening criteria. In some cases, this instead results in “underreporting”. The uncertainty regarding how to provide evidence sometimes stems from uncertainty regarding who “owns” the evidence. An example mentioned was when the companies sell forestry management services to customers who own the forest, which can be other forestry companies, private persons, or funds. The customer then owns the certification for the land.   

In general, the companies have found that there has been very little guidance from national authorities across the countries. While this has not been an issue for most of the companies, two companies have expressed a desire for more concise written instructions, as opposed to relying on the full legal text. They believe that shorter, clearer formats would be more helpful.

Common challenges have thereby been connected to market conditions, compensation for sustainability efforts, providing evidence for Taxonomy reporting and guidance from national authorities.