Implementing the EU’s ambitious sustainability goals requires capital. To achieve the necessary transformation by 2050, the financial sector needs to be involved. Accordingly, in early 2018 the European Commission presented its action plan on financing sustainable growth, commonly referred to as the EU Action Plan, which is aimed at financial market participants. Essentially, it’s a kind of agenda for sustainable finance and has three objectives:
Reorient capital flows: more capital should flow into sustainable investments.
Manage risks: the financial risks arising from damage to the environment or social imbalances need to be considered.
Sustainable business practices: financial products need to be more transparent, and “greenwashing” should be prevented ↓
Essentially, the EU Action Plan is a kind of agenda for sustainable finance.
Disclosure: how is money being invested?
The EU Action Plan has several components, two of which have already been finalised. The first is theSustainable Finance Disclosure Regulation, which came into force on 10 March 2021. It is designed tocreate transparency in the financial sector. “Investors should be able to see how companies deal withsustainability risks,” explains Roman Dirscherl from the sustainable real estate team at Union Investment.Information is made available to investors on the Union Investment website and published in the prospectuses of the individual real estate funds.Companies must also disclose the sustainability risks associated with their investment products, how they evaluate these risks and what measures they are taking to counter them. Sustainability risks include environmental, social and governance (ESG) issues that could jeopardise the value of investments. This affects funds that hold real estate which might be affected by flooding due to climate change, for example. “Note that the Disclosure Regulation doesn’t say sustainability risks have to be eliminated. It’s about presenting information in a transparent manner on how such risks are managed,” says Roman Dirscherl. “Union Investment has been taking sustainability risks into account since long before the Disclosure Regulation and is now simply making that process even more transparent. ↓
The Disclosure Regulation doesn’t say sustainability risks have to be eliminated. It’s about presenting information in a transparent manner on how such risks are managed. Roman Dirscherl sustainibility real estate team at Union Investment
Taxonomy: how sustainable are the products?
The Taxonomy Regulation was the second component of the EU Action Plan and was published in June 2020. It determines the extent to which financial market products are sustainable. The regulation lists six objectives:climate change mitigation, climate change adaptation, sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control, protection and restoration of biodiversity and ecosystems.Products qualify as sustainable if they make a “substantial contribution” to one or more of these environmental objectives. A prerequisite is that they “do no significant harm” (DNSH). This means that they do not significantly harm any other environmental objective and meet certain technical criteria. For properties, these criteria include water-saving fixtures as well as the stipulation that at least 70per cent of construction and demolition waste is recycled – and also that buildings constructed from 2021 onwards consume at least 10 per cent less energy than the near Zero Energy Building standard in the relevant country.“Transformation isn’t possible overnight,” says Roman Dirscherl. Furthermore, buildings like the Urban Environment House in Helsinki, which meet the specified criteria, are few and far between. One focus for Union Investment at present is therefore to improve the existing portfolio, he adds: “To do that, we first need clarity about the status quo within buildings and an associated roadmap: What steps do we need to take with regard to which building?” A key measure is the introduction of energy monitoring, as is already being carried out by Union Investment in a pilot project. ↓
Transformation isn’t possible overnight. Roman Dirscherl sustainibility reat estate team at Union Investment
Additional demands arising from national legislation
Alongside the EU Action Plan, differences in national legislation present an additional hurdle. Union Investment currently manages properties in 23 countries. In the Netherlands, for example, from 2030 it will no longer be possible to let an office building with an EPC rating of less than A. In France, owners of buildings that do not meet certain sustainability objectives not only face fines but will also be put on a publicly accessible “name and shame” list by the government. “Because the EU Action Plan and national laws are based on the Paris climate goals, luckily we are seeing a certain amount of overlap in the requirements,” says Roman Dirscherl. “But neither the taxonomy nor national legislation say anything about how close individual buildings already are to meeting the climate objectives – or which steps are necessary to ultimately comply with them. The real estate sector definitely needs to engage with these issues." •
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