Av: Kristofer Dreiman

Länsförsäkringar Position Paper regarding forestry in the draft delegated act under the Taxonomy Regulation

Länsförsäkringar recommends to re-include the TEG report’s proposed activity Existing forest management. Forest companies contribute to climate change mitigation and enable a transition away from fossil fuels. Removal of the activity would counteract both the purpose of the taxonomy and EU’s climate objective. We are also of the opinion that Improved forest management should be withdrawn.

Länsförsäkringar supports the objectives of sustainable finance

Länsförsäkringar is a federation of 23 local mutual insurance undertakings with substantial non-life, life and banking operations in Sweden. LFAB is a financial conglomerate and is fully owned by them. In practice this means that the entire federation is directly or indirectly owned by its insurance customers. This business model has brought sustainability and long-term perspectives into focus at Länsförsäkringar. We sincerely appreciate this opportunity to provide reflections and comments regarding this very important topic.

Being an insurer, asset owner and investor with sustainability ambitions and climate goals, Länsförsäkringar supports the European Commission’s (EC) climate objectives, platform on sustainable finance and the purpose of the Taxonomy. Our view is that economic activities and screening criteria, under the Taxonomy, should direct investment to both i) activities that are considered sustainable and ii) enable transition towards more sustainable activities. Of the sectors in scope under the Taxonomy we have chosen to express our views and oppose the proposed changes to Existing forest management. 

Länsförsäkringar is both a share- and bondholder of forest companies and many of the forest owners in Sweden have insured their forests via Länsförsäkringar. We devote significant time to financial and ESG analysis, as well as active ownership dialogues with forest companies. Emphasis is placed on sustainable forest management practices, environmental certification of forests, CO2 impact as well as on biodiversity. We also consider academic research in sustainable forest management and encourage companies to be transparent with models for CO2 emissions, absorption and substitution.

We strongly question the suggested removal of the activity ‘Existing forest management’ from the Taxonomy

This is a significant deviation from the final recommendations of the TEG in March 2020. Removing Existing forest management will have negative effects for forest owners, companies and investors. It will unrightfully exclude sustainable forest management practices. Also, classifying the activity as non-eligible under the Taxonomy cannot be in line with the purpose of the Taxonomy regulation and will counteract EU’s climate objectives. Forest management is in fact contributing substantially to climate change mitigation:

  • Existing forest management in Sweden alone absorbs CO2, net (after harvest) over 40 million tons CO2e annually. This is as a substantial contribution to climate change mitigation.
  • In addition, the substitution effect of renewable raw material produced from the forest is even more substantial and replaces, importantly, fossil fuel-based and/or CO2-intense products. The substitution effect, if anything, can be viewed as an enabler for transition in line with EU’s climate objective. The forest raw material is also enabling other economic activities listed in Art. 10.1 of Reg. 2020/852.

We question the new ’Improved forest management’ and focus on ‘additionality’

We question if the removal of Existing forest management and addition of Improved forest management is aligned with the objectives of the Regulation. The extensive requirements set out in the new activity cannot be considered as merely technical screening criteria. Also, the activity has not been part of previous consultations.

The additionality criteria significantly narrow down the scope of eligible activities in countries with strict forest management laws, including requirements of re-planting after harvest. Already strict laws would make it difficult to prove that the activity would not be done since it is already customary in sustainable forest management.

Any legislation on European level regarding forestry must consider the different natural conditions and timeframes of forests. In the Nordics a forest’s life cycle is around 60-80 years, at least. Thus, a climate benefit analysis of only 20 years for an individual forest is too short and misleading. That analysis should at least cover one life cycle of forests.

Finally, we want to express our concerns regarding the proportionality and the detail level of the proposed act. The content and form of a Union action must not go beyond what is necessary to achieve the intended objectives. The measures proposed under forestry in the draft seem disproportionate since they do not recognise customary sustainability practices of ’existing forest management’. The detailed requirements for reporting and review put on forest owners is another example. Furthermore, the act manifests a lack of flexibility in relation to already existing national forestry laws with strict sustainability requirements. To summarise we believe that the proportionality aspects of this proposal needs to be reassessed.   

If any questions or comments please contact us by e-mail: press@lansforsakringar.se

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