An article by Dr. Christoph Holzmann
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 long-term goal of reaching net-zero greenhouse gas emissions was brought forward by five years from 2050 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. ↓
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The aim now is that Germany’s carbon dioxide emissions should be cut by at least 65 per cent by 2030. An 88 per cent reduction in emissions is to be achieved by 2040.
Strict rules, unclear guidance
One of the main issues hampering current efforts, however, is the widespread lack of clarity on what measures companies are supposed to take to achieve these targets. But one thing is apparent – large companies will pass on this pressure wherever they can. Like onto the owners of the properties they use, for example – including Union Investment.
The pressure on the real estate industry is increasing steadily anyway, with rules being tightened at product level as well. The first phase of the EU Action Plan was implemented in 2020. This means that since March 2021, companies have only been allowed to market specific products as sustainable. And there are no clear guidelines here either. Although the EU Taxonomy Regulation defines when a building is classed as sustainable, it doesn’t state how many sustainable buildings a fund must include for it to be rated as sustainable overall. Ongoing discussions suggest that a double-digit percentage is likely to be required. ↓
One thing is apparent – large companies will pass on this pressure wherever they can. Like onto the owners of the properties they use. Dr. Christoph Holzmann COO and Managing Director Union Investment Real Estate GmbH
We’re not starting from scratch
Limited time and unclear guidance. That also creates major challenges for us at Union Investment, but there is no reason to panic. After all, we’re not starting from scratch. We realised a long time ago that companies which are not serious enough about reducing their carbon emissions will face market losses in the long term – or even go under. Accordingly, we developed our “manage to green” strategy back in 2018: a step-by-step plan designed to make our portfolio climate neutral by 2050. A key component of this strategy is our proprietary Sustainable Investment Check (SI Check), which we use to regularly monitor the sustainability status of potential new acquisitions as well as the buildings already in our portfolio. We compare the current condition of the property with what is achievable, which tells us exactly where we need to make improvements.
In 2019, we then created the “atmosphere” sustainability scoring system, which calculates a percentage figure showing the extent to which a commercial property or portfolio already meets the climate targets for 2030. We also launched an energy monitoring pilot project around the same time. This involves not only gathering as much data as possible from the complex systems in our buildings, but also the ability to analyse this data and identify potential for savings. The initial results from this pilot project show there is still much potential to be unlocked, and it will make sense for us to expand the programme. ↓
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. Dr. Christoph Holzmann COO and Managing Director Union Investment Real Estate GmbH
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. •