New EU rules for ESG investments: What property owners need to know now

What happened? – EU taxonomy adaptations and their potential impacts

The EU Commission’s proposals provide for several simplifications that may become particularly important for the real estate sector:

• Relaxation of DNSH criteria: Previously, properties had to meet the highest efficiency standards to be considered sustainable. In the future, it may be possible to demonstrate appropriate energy efficiency, such as energy efficiency class D, with a gradual reduction in CO₂ emissions .
• More flexibility for existing buildings: Listed or older buildings could, under certain conditions, gain access to sustainable financing if energy-efficient refurbishments improve their CO₂ footprint .
• New opportunities for investors: Real estate developers and portfolio managers could adapt their ESG strategies and benefit from sustainable financing models.

If these proposals are implemented, they could significantly change the assessment criteria for sustainable real estate.

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The relevance for assessments and restructuring strategies in the real estate sector

The newly sought-after flexibility of the regulatory framework may make it possible for owners and investors to meet the regulatory requirements for sustainable refurbishments even with individual measures and in stages.
This makes the use of modular refurbishment solutions more relevant. Purpose Green introduced a holistic approach in 2023 that encompasses various modular services, thus enabling flexible refurbishment solutions.

• Modular, successive refurbishment packages: Our refurbishment concepts rely on step-by-step measures that consider both short-term efficiency gains and long-term sustainability goals. We analyze a property's current energy performance and identify appropriate measures to reduce final energy consumption and, consequently, CO₂ emissions. This modular approach allows owners and investors to flexibly adapt measures to their financial and regulatory frameworks.
• Linking to funding: In addition to the increased importance of sustainable financing, the strategic use of funding is also essential. Depending on the refurbishment package, individual measures can be funded with up to 30 percent through programs from BAFA and KfW Bank. Our expertise lies in identifying relevant funding programs at the EU, federal, and state levels that can be specifically used for sustainable refurbishments. By combining technical assessment and financial advice, we enable the efficient use of these funds and maximize the economic benefits for property owners .
• ROI forecasts and economic evaluation: The adjustments to the EU taxonomy could make investments in sustainable real estate more economically attractive. The relaxed DNSH criteria could allow refurbishment projects to be classified as sustainable if they demonstrate a gradual reduction in CO₂ emissions. This not only opens up new sources of financing for real estate investors but also increases the market attractiveness of their portfolios. Energy-efficient residential properties are increasingly gaining value. In the third quarter of 2023, the price advantage for multi-family buildings with high energy efficiency (A/A+) compared to buildings with low efficiency (G and H) averaged 30 percent. Our calculation models help quantify the expected ROI of such measures and provide a sound basis for decision-making for strategic investments.

If the planned changes are implemented, this would further reinforce the importance of targeted restructuring strategies.

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Attractiveness for investors and owners

• REITs and impact investors could benefit: Clear ESG categorizations and transparent sustainability labels would facilitate investment decisions .
• Increased property values: Sustainable refurbishments could provide borrowers with more optimal financing and refinancing conditions .
• Regulatory certainty: Companies could be prepared early for upcoming reporting obligations and benefit from simplified compliance with the requirements.

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Conclusion: Making real estate future-proof

The potential adjustments to the EU taxonomy could make sustainable real estate development even more economically attractive. The planned changes could increase investment willingness, particularly through the relaxation of DNSH criteria , the improved classification of partially modernized buildings , and simplified access to "green" financing . Companies should prepare for these potential changes early on in order to future-proof their portfolios and optimally utilize new financing options.

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Illustration: Purpose Green / Midjourney