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EU taxonomy, ESG & disclosure requirements – what does this mean for the construction and real estate industry?

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EU taxonomy: Sustainable business and ESG-compliant strategiesIn 2015, the EU established suitable strategies with the Paris Agreement, which are committed to the environment and promote sustainable management. Financial markets are obliged to ensure that capital flows are more geared towards sustainable investments. In addition to the consideration of sustainability criteria, the corresponding transparency of projects is coming to the fore. One result of the agreement is the EU taxonomy, which is a milestone in the aforementioned European Green Deal. The EU taxonomy defines guidelines for CO2 emissions and energy efficiency, which must be taken into account, for example, in new buildings or the renovation of existing buildings. You can read here which rules apply from 1st of January 2023. Taxonomy conformity is checked by means of a disclosure obligation for corresponding project information. Since the sustainability aspect is strongly in the focus of financiers, compliance with the guidelines is increasingly becoming an investment criterion.

55% of respondents are currently implementing the reporting requirements of the Disclosure Regulation/EU Taxonomy.*

What challenges does the construction and real estate industry face?The construction and real estate sector must deal with the issue of ESG, as only ESG-compliant projects will be financed in the future. If real estate projects are not ESG-compliant in the future, this will weaken the asset value of a property and can even lead to sanctions that jeopardize the return targets.

There is no question that the asset value of a property and the success of a project will be significantly influenced by ESG performance in the future. ESG is therefore a key investment criterion that must be considered by project participants across the entire value chain.

The ESG transformation still holds some unanswered questions and creates uncertainty. 78% of companies from the construction and real estate industries feel uncertain about the correct practical application of the EU taxonomy (EY Real Estate – ESG Snapshot). As a result, those involved in the project also face the following challenges:

ESG data: Structured collection of relevant building data such as consumption and emission values ​​to show the ESG performance of real estate

The basis for decision-making: A database that takes equal account of ESG criteria and financial indicators also serves as the basis for project decisions

Standards: What is considered sustainable? Industry-wide standards need to be introduced that make the sustainability of project measures measurable and comparable. Initiatives such as GRESB and ECORE are working with their scoring to establish an overarching standard.

78% are unsure about the application of the EU taxonomy.*
100% of those surveyed believe that future demand and supply will be geared towards sustainable products.*

Documentation obligation for proof of ESG-compliant projectsAs mentioned at the beginning, the EU taxonomy defines a disclosure obligation for ESG-relevant data. Accordingly, the real estate sector will have to prepare for the documentation of all ESG data in the future. From the construction of a new property to refurbishment or renovation – all data must be disclosed, i.e. it must be documented how sustainable and energy-efficient a building is being developed or which materials are used (e.g. wood instead of concrete, etc.).

The first step: collect ESG data with AlascoESG will have a direct impact on the success of a project in the future. For this reason, projects today have to be viewed holistically. The new success factor ESG must be linked to well-known financial indicators such as costs and revenues in order to be able to make strategic decisions.

In order for ESG data to be linked to costs and revenues, the ESG criteria of a property must first be recorded. With the Alasco CO2 monitor, you can calculate the ESG performance of your property based on a few data points and determine the position on the decarbonization path. Thus, you get an overview of the energy and emission balances of your assets and are able to derive suitable optimisation measures. Alasco helps you to map the ESG performance of your properties in order to actively minimise ESG risks.

*EY Real Estate – ESG Snapshot