ESG soon to be a central component
ESG factors and resulting legal regulations have become significantly more important for the real estate industry. This is because they now have an impact on the entire life cycle of a property – from financing and planning to realization, construction, use and disposal.
The risk of a property losing value or even becoming a stranded asset due to non-compliance with sustainability criteria is therefore a concern for all players in the real estate industry. In order to prevent this, it is important to keep an eye on the legislative requirements and further developments and to take action in good time.
Sustainability in real estate investments
The European Disclosure Regulation and the Taxonomy Regulation contain the obligation to disclose sustainability targets, criteria for their achievement and information on the achievement of targets. As of January 1, 2023, the Regulatory Technical Standards on the Disclosure Regulation will apply, which will determine the specific content, the methodology to be used and the manner of presentation of the information to be disclosed. The Taxonomy Ordinance defines when an economic activity is environmentally sustainable. The taxonomy compliance of a property can be assessed using the technical assessment criteria of the delegated acts of the Taxonomy Regulation. Even if the Disclosure Regulation and the Taxonomy Regulation are initially only directed at certain financial market participants and companies, the obligations they standardize already affect the entire real estate industry, at least indirectly: Properties that do not comply with these criteria will be very difficult to finance and, at least also as a result, will be less in demand on the market in the medium to long term; this is likely to have a negative impact on value development.
Tightening of EU directives for a climate-neutral building stock
The European Climate Change Act has legislated the achievement of the EU climate target to reduce emissions in the EU by at least 55% (compared to 1990 levels) by 2030. To achieve this and the EU’s climate neutrality by 2050, the “Fit for 55” package includes updating and tightening the Energy Performance of Buildings Directive.
In October 2022, the Council reached an agreement on stricter energy performance requirements for buildings and the revision of the Directive. According to this, all new buildings are to be zero-emission buildings by 2030 at the latest – for new buildings in public ownership, this applies until 2028. Existing buildings are to be converted to zero-emission buildings by 2050.
The proposed amendments still have to be negotiated in the European Parliament and implemented nationally following European agreement. But it is already clear that stricter requirements with regard to sustainability criteria in the building sector are coming and must be taken into account in planning, implementation and construction.
Ongoing legislative activity
It is already clear that both the EU and national legislators will further tighten existing legislation. To the extent that the annual targets for achieving Net Zero in the real estate industry are not met, the legislature will attempt to counteract this with new legislative measures. In the coming years, the real estate industry will therefore have to adapt to constantly changing conditions.