How is the real estate sector affected by EU Taxonomy?
According to European Public Real Estate Association (EPRA), buildings account for 40% of Europe's energy consumption in Europe. To help investors reorient capital into more sustainable technologies and businesses, policymakers have been working on the EU Taxonomy as part of the EU Sustainable Finance Strategy. 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.
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.
* Part of the Substantial contribution criteria for the economic activity of “Construction of new buildings” for the EU Taxonomy goal of “contribution to climate mitigation”:
The Primary Energy Demand (PED), defining the energy performance of the building resulting from the construction, is at least 10 % lower than the threshold set for the nearly zero-energy building (NZEB)
** Part of Do No Significant Harm criteria for the economic activity of “Construction of new buildings” for the EU Taxonomy goal of “contribution to climate mitigation” for the DNSH criteria Circular Economy
At least 70 % (by weight) of the non-hazardous construction and demolition waste generated on the construction site is prepared for reuse, recycling and other material recovery…
For inquiries please contact:
RBI Regulatory Advisory
Raiffeisen Bank International AG | Member of RBI Group | Am Stadtpark 9, 1030 Vienna, Austria | Tel: +43 1 71707 - 5923