An article by Karim Esch
Time is running out. Anyone who thought the German government’s climate targets were more of a vision than a concrete plan received a wake-up call in early summer 2021. Firstly, the Federal Constitutional Court ruled that more effective action was needed by the German government in order to reduce the country’s carbon emissions. Then, just a few weeks later, the German cabinet presented new draft climate protection legislation which included revised reduction targets. The aim now is that Germany’s carbon dioxide emissions should be cut by at least 65 per cent by 2030 compared with 1990 levels – the previous target was 55 per cent. An 88 per cent reduction in emissions is to be achieved by 2040, instead of the previously proposed 70 per cent. The statutory net greenhouse gas neutrality target in Germany has been brought forward to 2045.
Other countries are taking similar action. One example is the Netherlands, where the District Court of The Hague bypassed politicians altogether and ordered oil company Shell to cut its carbon emissions by 45 per cent by 2030 compared with 2019 levels. ↓
According to the Federal Climate Protection Act 2019, carbon dioxide emissions in Germany are now to be reduced by 65 per cent.
Strict rules, unclear guidance
The crux of the current situation is this: it remains largely unclear what measures companies are expected to take to achieve these targets. What is clear, however, is that companies can pass on requirements through their property relationships – for example, to the owners of the properties they use, including Union Investment.
At the same time, pressure on the property sector is already mounting steadily. This is because regulations are also being tightened at the product level. In 2020, the first steps of the EU Action Plan were implemented. This means that, since March of this year, companies have only been permitted to market very specific products as sustainable. And here, too, there is a lack of clear guidelines. Whilst the EU Taxonomy Regulation defines when a building is considered sustainable, it does not specify how many sustainable buildings a fund must contain in order to be classified as sustainable overall. Based on the current state of discussions, it is only becoming apparent that this figure is likely to be a double-digit percentage.
One thing is apparent – large companies will pass on this pressure wherever they can. Like onto the owners of the properties they use. Karim Esch Member of the management board
We’re not starting from scratch
Tight deadlines and unclear guidelines. This is a major challenge for us at Union Investment too – but no reason to panic. After all, we are not starting from scratch. Companies that do not make sufficient efforts towards decarbonisation may be exposed to competitive and market risks. That is why, in 2018, we developed our ‘manage to green’ strategy, with the aim of gradually reducing energy consumption and CO₂ emissions across our actively managed property portfolio. A key component of this is the Sustainable Investment Check (SI-Check), which we developed to regularly assess the sustainability status not only of potential new acquisitions but also of the buildings in our portfolio. We compare the current situation with the potential for improvement. This tells us exactly where we need to start.
Almost in parallel with this, we have also launched a pilot project on energy monitoring. To do this, we must not only collect as much data as possible on the complex systems in our buildings, but also be able to identify where potential savings lie. The initial results of the pilot project show that there is still a great deal of untapped potential, and it is worthwhile for us to expand the programme.
“We must not only collect as much data as possible, but also be able to identify where potential savings lie.”
Energy monitoring involves not only gathering data from the complex systems in our buildings, but also the ability to analyse this data and identify potential for savings. Karim Esch Member of the management board
Tenants and investors must join in
Nevertheless, the task that lies ahead of us is substantial and complex. We cannot tackle it on our own. In particular, we need the support of our tenants, not least because we can’t simply make changes to buildings without consulting them. We also need their consent to collect and evaluate important data for the purpose of making energy monitoring even more efficient. Also, the buildings don’t actually belong to us, but to many thousands of investors. And a lot of the things that benefit the environment or tenants appear to be bad for investors at first sight. After all, they are the ones who bear the cost of energy improvements – but when service charges are reduced as a result of these improvements, only the tenants benefit. It’s therefore also our job to make the case for sustainability. We want to demonstrate that if we take decisive action to cut carbon emissions now, everyone will benefit in the long run. That’s the only way to ensure that buildings, real estate funds and returns remain attractive over the long term.
Because we know that decarbonisation is essential if we want to tackle climate change effectively. Because we see that our courts and politicians are ratcheting up the pressure on companies to take action. And because we firmly believe that if companies want to remain successful in the future, they should avoid any further delay. They need to be at the forefront of developments. •