How is the real estate sector affected by EU Taxonomy?

Redirecting investors to finance energy efficiency retrofits will be crucial. Real estate investment trusts (REITs) and listed property companies represent a significant share of real estate investors. They not only develop new buildings within their own portfolio for rental property returns but, most importantly, acquire assets in need of energy retrofit and maintain them for the long-term. The development or acquisition of assets by these companies can have a significant impact on the city landscape and the sustainability of the built environment.

In general the taxonomy is a long list of economic activities which can be deemed “green”, if they contribute to one of the taxonomy’s goals and also do not violate the Do No Significant Harm (DNSH) principle.

Real estate sustainability has already been defined by delegated acts for the two environmental objectives: climate change mitigation and climate change adaptation under the Taxonomy Regulation. It is possible to designate an investment as sustainable if it finances an economic activity that is qualified as sustainable under the technical screening criteria of the delegated act.

For real estate, we found these most relevant economic activities (below also the link to Taxonomy Compass, which lists all economic activities):

• Construction of new buildings (primary energy demand at least 10% below the threshold set for low-energy buildings)
• Renovation of existing buildings (energy savings of 30% or in line with the EU Building Directive)
• Acquisition and ownership of buildings (acquired building has to have low energy demand- top 15% of national or regional stock)
• Individual measures (investments in building insulation, photovoltaic systems etc)

To be mentioned here, energy performance is defined by Energy Performance Certificate (EPC). Using an EPC, you can rate a property's energy efficiency from A (the most efficient) to G (the least efficient), and this rating is valid for ten years.

Example:

If a company is active in one of those economic activities (mentioned above), the turnover, OpEx, or CapEx of the activity is eligible for the taxonomy.

If it then also fulfils the substantial contribution criteria (some technical criteria (see below*)) and also does not violate the Do No Significant Harm criteria (also technical criteria (see below**)), the turnover, OpEx, or CapEx of the activity can then be classified as aligned with the taxonomy.