The EU Taxonomy:
What does it mean for real estate and investments?
The EU Taxonomy is a classification system that helps to determine which economic activities can be considered sustainable. While the taxonomy is not exclusively focused on real estate, it does include guidelines for the construction and real estate sectors. These guidelines play a significant role in investments, financing, and sustainability reporting. How does the EU Taxonomy work, and how do you apply it?
The EU Taxonomy plays a key role within the CSRD. Read on our CSRD page what this means for your organisation.
What is the EU Taxonomy?
The EU Taxonomy assists investors, companies, and financial institutions in distinguishing sustainable investments from non-sustainable ones. This is based on three criteria:
- Substantial contribution to at least one of the six environmental objectives:
- Climate mitigation
- Climate adaptation
- Sustainable use and protection of water and marine resources
- Circular economy
- Pollution prevention and control
- Biodiversity and ecosystem protection
- The Do No Significant Harm (DNSH) principle:
- The activity must not cause significant harm to any of the other environmental objectives.
- Minimum social safeguards:
- Considerations include labour rights, human rights, and anti-corruption measures.
The EU Taxonomy and real estate
Since 1 January 2022, large financial institutions are required to report on the environmental impact of their investments. This has direct implications for the real estate sector, where sustainability is increasingly considered in financing decisions.
The EU Taxonomy determines whether a property can be classified as ‘green’ by considering, among other factors:
- Energy labels: minimum energy label A
- Energy efficiency: the building must be among the top 15% most energy-efficient buildings in a country or region (based on primary energy use)
- Climate adaptation: assessment of climate risks and resilience against extreme weather conditions
- GACS: The building must be efficiently managed through monitoring and control of the building’s systems using a Building Automation and Control System (GACS).
This is particularly important in the issuance of green bonds. Financial institutions and investors must be able to demonstrate that the proceeds from these bonds genuinely contribute to sustainable projects.
CFP supports these processes by analysing investments, such as real estate, and clarifying whether they can be classified as green. With this approach, CFP has already assisted in the issuance of over 10 billion euros in green bonds.
Do you want to work with the EU Taxonomy and find out if your real estate meets the criteria?
With a portfolio check, you’ll gain immediate insight into which buildings qualify for green bonds. Discover how CFP can support you in this process.
The relationship between the EU Taxonomy, CRREM, and PCAF
In addition to the European Taxonomy, there are other methodologies and standards that assist in assessing and reporting sustainable investments in real estate:
- CRREM (Carbon Risk Real Estate Monitor)
- CRREM helps property owners determine if their buildings are at risk of becoming ‘stranded assets’ – properties that no longer meet future CO2 reduction requirements.
- It provides scenarios to see how real estate performs against CO2 reduction targets and aids in strategic sustainability planning.
- PCAF (Partnership for Carbon Accounting Financials)
- PCAF offers a standard for measuring and reporting the CO2 emissions from real estate financing and investments.
- This allows banks and investors to better understand the impact of their real estate portfolio and comply with regulations such as the EU Taxonomy.
For many organisations, applying the EU Taxonomy and associated methodologies can be complex. CFP Green Buildings assists companies and financial institutions in adapting the taxonomy to the Dutch market and supports them in the implementation and application of ESG guidelines. This applies not only to property managers and investors but also to banks that want to promote sustainable financing.
For the banking sector, we offer support in interpreting and applying the EU Taxonomy, for example during the issuance of green bonds. With the CFP Green Buildings Tool, we analyze real estate portfolios and provide insights into the sustainability of underlying assets. Additionally, our methodology reports offer clear guidelines to meet sustainability criteria and ensure transparency towards investors..
The role of the Green Buildings Tool
To analyze real estate in line with the EU Taxonomy, CRREM, and PCAF, a robust data-driven approach is necessary. The Green Buildings Tool (GBT) provides financial institutions and property owners with the ability to:
- Quickly and efficiently assess the energy performance and carbon emissions of their real estate portfolios.
- Determine which buildings meet the criteria of the EU Taxonomy, CRREM, and PCAF.
- Gain concrete insights into sustainability measures and the business case for investments.
These insights not only help organizations comply with regulations but also make strategic sustainability decisions and add value to their real estate portfolios.
How do you deal with the EU Taxonomy?
For investors, property managers, and financiers, it is crucial to understand how their portfolio performs in terms of sustainability. This not only helps in meeting reporting obligations but also offers opportunities to create value through more sustainable investments.
Would you like to know if your real estate portfolio complies with the EU Taxonomy and related standards such as CRREM and PCAF? Contact CFP Green Buildings for advice and support.
News and cases about the EU Taxonomy
Frequently asked questions about the EU Taxonomy
What is the EU Taxonomy?
The EU Taxonomy is a European directive used to assess financing and investments in sustainable or non-sustainable activities. It’s a classification system that helps define when something can be considered ‘sustainable’ or ‘green.’ The EU Taxonomy was established to promote sustainable financing and assists in objectively assessing it.
Additionally, from 2024, large companies and investors such as financial institutions are required to report on the environmental impact of their economic activities according to the EU Taxonomy.
Is the EU Taxonomy mandatory for companies?
Yes, large companies and financial institutions are required from 2024 to report on their sustainable activities according to the EU Taxonomy under the CSRD guidelines, which demand greater transparency regarding the impact of their investments.
How does the EU Taxonomy affect real estate financing?
The EU Taxonomy determines whether real estate is considered sustainable and thus plays a significant role in financing decisions. Banks and investors use the criteria to determine which buildings qualify for green financing, such as green bonds and sustainability loans.
What role does the EU Taxonomy play in the issuance of green bonds?
Financial institutions must demonstrate that the proceeds from green bonds contribute to sustainable investments. The EU Taxonomy provides an objective methodology to determine if real estate projects meet these criteria.
What is the difference between the EU Taxonomy and CRREM?
The EU Taxonomy identifies which economic activities are considered sustainable, whereas CRREM (Carbon Risk Real Estate Monitor) helps property owners assess CO2 risks and future energy performance. Both tools are used in real estate financing and sustainability strategies.
What do the EU Taxonomy and BREEAM have in common?
Chapter 7 of the EU Taxonomy covers construction and real estate. For some activities under this, BREEAM certification is valid evidence to show they are green in line with the EU Taxonomy. This only applies during the period when funds are spent on these activities. The EU Taxonomy focuses on financing.
What are the six environmental objectives of the EU Taxonomy?
- Combating climate change: preventing, reducing, or removing greenhouse gases.
- Adaptation to climate change: adaptations to limit or prevent the adverse effects of climate change.
- Sustainable use and protection of water and marine resources.
- Transition to a circular economy, particularly through reuse and recycling of materials and resources.
- Prevention and control of pollution.
- Protection and restoration of biodiversity and ecosystems.
How do you determine if a building meets the EU Taxonomy?
A building is classified as ‘green’ if it meets specific criteria, such as energy label A, being in the top 15% for energy efficiency in the region, and measures for climate adaptation. CFP Green Buildings assists in analyzing real estate portfolios and assessing them against the EU Taxonomy.
