European Union concretises ESG criteria
As part of its Green Deal policy, the European Union (EU) has taken a further step towards defining sustainable investments. For the real estate industry, this means more clarity for climate protection requirements.
What is behind the term – ESG – criteria?
ESG is a term composed of the English words environment, social and governance. At the latest since the Paris Climate Agreement, major investors and institutional investors have been increasingly concerned with the issue and are focusing more on sustainable investments.
The 3 pillars of the ESG criteria are briefly explained as follows:
- Environment: Roughly speaking, this term refers to the environmental aspect in the form of strategies for climate protection, resource management and renewable energies. In addition, the aim is to minimise air and wastewater emissions and thus reduce the ecological footprint.
- Social: By complying with ESG criteria, companies commit to fair working conditions, respect for human rights, facilitated access to employee training, investments in workplace safety and health.
- Governance: Corporate management ensures that independent supervisory bodies combat corruption or anti-competitive behaviour. In addition, performance-based remuneration for board members is targeted when sustainability targets are achieved.
What is the content of the European Union’s ESG rules?
The EU has further concretised its taxonomy rules. Numerous companies that are of “public interest” due to their size and field of activity are covered by these new rules.
This therefore also indirectly affects the real estate industry.
The basis is the recently published EU – Disclosure Responsibility with the following contents:
- There is an obligation to inform and publish ESG-relevant products that define corporate processes and strategies.
- In addition, evidence of environmentally sustainable activities in investments, operating expenses and turnover must be provided through regular reporting.
However, there has been much criticism of this for reasons of non-transparency. The real estate industry did not see itself in a position to adapt to the ESG requirements, as the criteria were not specified according to which buildings could be designed to be ESG-compliant in the future.
On 21 April 2021, the EU presented the technical evaluation criteria for the Taxonomy Regulation (TSC). According to current planning, these are to come into force at the beginning of 2022.
In the current regulation, the criteria were initially only defined for the first two environmental goals of climate protection and adaptation to climate change. Due to the different EU states, the criteria are also based on the respective national requirements.
Due to their structure, four areas are relevant for the real estate industry, resulting from their economic activity:
- New buildings
- Refurbishment and fundamental renovation
- specific individual measures on buildings
- Acquisition and ownership of buildings
According to the TSC criteria, the following requirements have been defined:
New buildings (constructed from 2021):
The primary energy demand must be at least ten percent below the national requirements of the standard for low-energy buildings. An airtightness test and thermography are additionally required for buildings with a usable floor space of more than 5,000 m² per usable unit. Investors must notify their clients of any corresponding deviations. In addition, the greenhouse potential of the buildings must be shown on request.
Refurbishment and fundamental renovation:
In the case of renovations, an energy saving of at least 30 percent is required. This must be done in connection with the requirements of the national building directive. In Germany, this means the applicable GEG law.
Specific individual measures:
In principle, the implementation of further TSC measures, such as photovoltaic systems, wind turbines, improvement of external insulation and charging stations for e-vehicles, should be sought.
Acquisition and ownership:
The following requirements have been defined here:
- Class A EPC rating for buildings constructed by the end of 2020.
- Alternatively, a property can be in the top 15 percent of a country or region in terms of primary energy demand.
- In addition, for large non-residential buildings, more extensive testing and documentation obligations of heating, ventilation and air conditioning technology are required.