EU Taxonomy and its Implementation at Vossloh

As part of the European Green Deal climate action initiative, the EU Commission aims to achieve the transition to a modern, resource-efficient and competitive economy and climate neutrality by 2050. A central component of this is the EU Taxonomy Regulation, a classification system for defining environmentally sustainable economic activities. The regulation, which went into effect July 12, 2020, defines six environmental objectives:

1. Climate change mitigation
2. Climate change adaptation
3. The sustainable use and protection of water and marine resources
4. The transition to a circular economy
5. Pollution prevention and control
6. The protection and restoration of biodiversity and ecosystems

The regulations differentiate between “taxonomy-eligible” and “taxonomy-aligned” activities. If activities can be assigned to the taxonomy criteria, they are taxonomy-eligible, regardless of whether the technical screening criteria are met. Activities are taxonomy-aligned if the taxonomy-eligible activities also meet the criteria.

The analysis of all activities of the Core Components, Customized Modules, and Lifecycle Solutions divisions revealed that all of Vossloh’s business activities can be assigned to the category “rail infrastructure” (Section 6.14. of the Delegated Act on the Taxonomy Regulation of June 4, 2021). According to the regulation, this category includes, among others, the construction, modernization, operation and maintenance of railroad lines. The lion’s share of Vossloh’s business involves the manufacture and supply of major rail infrastructure components and systems. In addition, Vossloh offers comprehensive rail-related services, a major part of which involves the maintenance of rails and switches. Vossloh is either directly involved in the construction, modernization or maintenance of railway infrastructure or supplies its products to customers who require them for the construction or maintenance of railway lines.

For economic activities to be classified as environmentally sustainable, they must meet the technical screening criteria for taxonomy-alignment. The taxonomy-aligned activities were analyzed and the taxonomy-aligned shares of sales revenues, CapEx and OpEx were determined to be as follows:
  • Substantial contribution: the activities of each business unit were reviewed to assess compliance with the technical screening criteria
  • Do no significant harm (DNSH): The DNSH criteria mainly relate to compliance with legal requirements or, in the case of the “Transition to a circular economy” objective, to key aspects of business activity. In this regard, an assessment of DNSH compliance at business unit level was appropriate, and performed regularly.
  • Minimum safeguards: A Group-wide approach was adopted to ensure compliance with the minimum safeguards requirements, which enables these criteria to be tracked precisely and consistently.

Substantial contribution

Vossloh’s business activities contribute to an accessible and efficient rail network which is a basic prerequisite for the environmentally desirable modal shift to rail (see the comments on page 86 of this annual report). No other mode of transport is more climate-friendly than rail. For the purposes of the Taxonomy Regulation, Vossloh’s business activities as a whole are to be regarded as an “enabling activity for climate-friendly mobility“. Vossloh’s business activities can generally be assumed to make a substantial contribution to climate change mitigation if they meet the technical screening criteria set out in the rail infrastructure category. According to the Taxonomy Regulation, Vossloh’s activities are presumed to make a significant contribution to climate change mitigation only if they are performed on electrified rail lines or on lines for which an electrification plan exists. This does not cover rail lines intended only for the transportation of fossil fuels.

The electrification of rail infrastructure is not Vossloh’s responsibility, and, in some cases, the locations where the products are used are not known. In analyzing whether the criteria for electrification are actually met, Vossloh followed a three-stage process. Initially, the company assumed that all activities that took place on high-speed lines and in rail-bound urban traffic would make a significant contribution to climate change mitigation, as these lines are generally fully electrified. Secondly, Vossloh analyzed the key individual projects in terms of the electrification of the rail lines. Thirdly, the electrification rate of the relevant country was used for analyzing the remaining projects. The data come from publicly available research and information from official statistical authorities, rail companies and associations. In addition, all activities of the Core Components, Customized Modules and Lifecycle Solutions divisions globally were examined with regard to existing rail lines designed for the transport of fossil fuels. These activities do not meet the criteria to be considered taxonomy-aligned. It emerged that no Vossloh activities could be associated with rail lines of this kind.

In analyzing its activities, Vossloh has focused mainly on how its operations contribute to the “climate change mitigation” environmental objective. Activities with a significant contribution to the “climate change adaptation” environmental objective were not identified.

Do no significant harm (DNSH criteria)

Next, activities classified as mitigating climate change were to be assessed to determine whether they led to a significant degradation of one or more of the above environmental objectives (DNSH criteria). With regard to the DNSH criteria for the EU environmental objective „climate change adaptation“, there is no evidence that the physical consequences of climate change significantly affect Vossloh‘s economic activities.

The criteria for the EU sustainable use and protection of water and marine resources environmental objective primarily refer to statutory and regulatory requirements with which Vossloh is obliged to comply. Many of Vossloh’s business activities do not require the use of water as a resource at all, such as the milling and grinding of rails and switches, welding services, logistics or assembly work. Otherwise, the resource is mainly used in Vossloh factories for the surface treatment of products, as a coolant in manufacturing processes and for the production of concrete ties. Contaminated wastewater is treated in the company‘s own wastewater treatment plants in such a way that it meets the discharge standards of the public water supply at a minimum (see also the comments on page 85).

With regard to the “transition to a circular economy” environmental goal, Vossloh products meet long durability and longevity requirements, as most components are designed for a particularly long service life and can be recycled and reused at the end of their useful life. In addition, the Lifecycle Solution division’s service portfolio extends the service life of rails and switches.

Vossloh also complies with the EU environmental goal of “preventing and reducing environmental pollution.” A large number of Vossloh products and services contribute to the reduction of track noise and vibrations (see also the “Track-related noise and vibrations” section on page 87).

Regarding the EU “Protect and restore biodiversity and ecosystems” environmental objective, environmental impact assessments (EIA) and comparable reviews are conducted by Vossloh where such a requirement exists. Vossloh is generally not subject to the EIA obligation when manufacturing products. Finally, by boosting track availability and enabling greater traffic through this land use, Vossloh is helping to minimize the land required for the construction of rail infrastructure, thereby contributing to the preservation of biodiversity.

Minimum safeguards

Information on compliance with the minimum requirements regarding occupational safety and human rights can be found on pages 89 et seq. and 98 et seq. in this report.

Based on this approach and the above assumptions and estimates, the Vossloh Group’s taxonomy-eligible and taxonomy-aligned sales revenues, CapEx, and OpEx are as follows:

 20222021
 Absolute
(in € mill.)
Taxonomy-
eligible (in € million / as a %)
Taxonomy-
aligned (in € million / as a %)

Absolute (in € mill.)
Taxonomy-
eligible (in € million / as a %)
Taxonomy-
aligned (in € million / as a %)
Sales revenues1,046.11,046.1 / 100672.3 / 64
942.8942.8 / 100584.5 / 62
CapEx58.245.6 / 7831.2 / 5466.257.6 / 8739.6 / 60
OpEx50.148.1 / 9632.8 / 6545.243.4 / 9629.1 / 64

The sales revenues allocated to taxonomy-aligned business activities exceeded the value of the previous year by 15.0 percent. This increase can primarily be attributed to the Core Components division. The other two divisions, Customized Modules and Lifecycle Solutions, were also able to significantly increase their sales revenues. The share of taxonomy-aligned sales revenues saw a slight increase of 2 percentage points. This was mainly due to a higher share of sales revenues related to electrified railway lines.

Capital expenditure (CapEx) related to taxonomy-aligned activities was 21.2 percent below the previous year‘s figure. The share of taxonomy-aligned sales revenues decreased accordingly by 6 percentage points. The percentage decrease was mainly driven by higher capital expenditure for a Group-wide uniform ERP system, which by definition is not taxonomy-eligible. As a result, in accordance with the criteria of the regulation, environmentally sustainable capital expenditure now makes up a lower overall share of total capital expenditure.

Operating expenditure (OpEx) related to taxonomy-aligned activities increased by 12.7 percent year on year. The share of taxonomy-aligned operating expenditure increased by one percentage point. The upturn is largely due to higher maintenance and repair expenses.

Further information on sales revenues, CapEx and OpEx

Sales revenues are defined as net sales revenues in accordance with IFRS as reported in the income statement and therefore relate only to fully consolidated subsidiaries. The share of environmentally sustainable sales revenues is calculated by dividing the taxonomy-aligned net sales revenues by the total Group sales revenues. Further information on sales revenues can be found on page 131 et seq. of the annual report.

Breakdown of the sales revenues numerator

€ mill.20222021
Sales revenues from contracts with customers672.3584.5
Total672.3584.5

CapEx comprises capital expenditure in non-current intangible or tangible assets, including those acquired through asset or share deals, as shown in the consolidated balance sheet. Capital expenditure (CapEx) is calculated on a gross basis, i.e. without taking into account revaluations, depreciation, amortization or impairments. For further information on CapEx, please refer to page 141 et seq. of the annual report.

The numerator used to determine the taxonomy-aligned CapEx is calculated as follows:

Breakdown of the CapEx numerator

€ mill.20222021
Additions to property, plant and equipment1.61.4
Additions to intangible assets24.422.6
Additions to investment properties0.01.4
Additions to rights of use5.23.7
Additions to assets acquired in business combinations0.010.5
Total31.239.6

Operating expenses (OpEx) take into account non-capitalizable expenses recognized in the income statement such as research and development, building renovation measures, short-term leasing, maintenance and repair and all other direct expenses from the maintenance of property, plant and equipment to ensure that the taxonomy-eligible assets are ready for operation.

The numerator used to determine the taxonomy-aligned OpEx is calculated as follows:

Breakdown of the OpEx numerator

€ mill.20222021
Research and development6.16.1
Maintenance and repair expenses23.920.7
Lease expenses2.01.7
Training expenses0.80.6
Total32.829.1