Transitioning to greener practices in the real estate sector

Transitioning to greener practices in the real estate sector

Mon 06 Nov 2023

In 2022, the European Union implemented the green taxonomy for the second year, requiring companies to disclose indicators related to climate objectives. The green taxonomy aims to guide capital investment towards environmentally sustainable activities, making companies assess their alignment with the EU’s sustainable transition and enabling financial institutions to prioritise funding for projects contributing the most to this transition.

There are many issues at stake, and they differ from one business sector to another. We examined 11 listed property companies from France, Sweden, and Germany with market capitalisations ranging from 2.4 to 14.7 billion euros.

Eligibility and alignment ratios presented by property companies on the three key performance indicators

The results in terms of eligibility ratios are relatively homogeneous, with three issuers (Fastighets AB Balder, Castellum, and Fabege) considering that 100% of their sales were eligible. Additionally, one issuer (Covivio) has published a voluntary eligibility ratio to take account of management hotels and flex offices, which are not currently eligible under the two annexes relating to climate objectives. This approach enables Covivio to present a voluntary ratio of 93%, i.e., +14 points compared with the regulatory ratio (79%). Further, three issuers (Icade, Covivio, and Altarea) opted for the exemption for eligible operating expenses by using a significance level of 5% for 2 of them and 10% for the third.

The alignment ratios among companies in the study show notable variations. Sales alignment ratios range from 3% to 64%, while Capex alignment ratios range from 0% to 75%. Fastighets AB Balder has the lowest ratios, primarily due to challenges in the ‘7.7 Acquisition and ownership of buildings’ activity, where substantial contribution criteria are related to energy class A or the top 15% of national building stock, and the company lacked the necessary documentation and faced complexities due to its operations in multiple countries.

On the other hand, Covivio has a high Capex alignment rate of 75%, surpassing its sales alignment rate of 22%, which is attributed to a specific analysis of Capex related to activity 7.7 concerning adaptation criteria, which are less stringent than mitigation criteria. This dual analysis approach results in a more favourable Capex alignment ratio for Covivio.

Findings and methodological comments

Two issuers have published voluntary ratios in order to include in the calculation of the ratios either non-eligible assets at this stage (hotels under management or flex-office) for Covivio, or assets that are not recognised in the IFRS methodology for URW.

Highlighting sector-specific features

There are several key points related to sustainability criteria in the property sector.

Firstly, there are the substantial contribution criteria, which are based on the transposition of the European Directive NZEB (Nearly Zero-Energy Buildings) into national law, such as RT 2012-10% and RE2020 in France. The criteria can vary from one country to another, which can be challenging for companies operating in multiple regions.

Regarding players adapting to climate change, those in the sector are analysing significant physical climate risks using various tools and scenarios. For instance, they are using tools like Bat-ADAPT on the Resilience for Real Estate (R4RE) platform, the MSCI Climate Value At-Risk study, and specialised consultancies to assess climate risks. Different climate scenarios, such as SSP2-4.5 and SSP5-8.5, are being used to evaluate climate change risks, focusing on factors like heat waves, drought, flooding, marine submersion, and soil conditions.

Finally, companies are implementing measures to ensure compliance with Do No Significant Harm (DNSH) criteria. This includes clean worksite charters, certifications, quality management systems, and adherence to European or national regulations. Some companies, like Fabege, are waiting for further clarification before providing specific details on their DNSH processes. Minimum Guarantees: All the companies have conducted analyses based on four criteria related to sustainable finance: human rights, anti-corruption measures, business ethics, and tax policies.


The real estate sector has an average turnover alignment rate of 28%, which is among the highest alignment rates in various sectors, with the maximum being 64%. While some industry participants mentioned a lack of clear guidance, we observed a relatively consistent approach taken in relation to the different taxonomy criteria. The level of scrutiny for each criterion, especially DNSH, will require further examination in the future. However, the initial year of implementation has yielded encouraging outcomes. The forthcoming 2023 publications, featuring comparative data, will enable tracking these trends.