EU Taxonomy changes the market

The EU Taxonomy regulation, formally Regulation (EU) 2020/852, establishes a system for classifying economic activities based on their environmental sustainability. In essence, it acts as a dictionary defining what can be considered "green" within the European Union. For an activity to align with the Taxonomy, it must make a substantial contribution to at least one of six environmental objectives, cause no significant harm to any of the others (the Do No Significant Harm principle), and adhere to minimum safeguards for human and labor rights.

In practice, large banks operating in the EU are obligated to report their Green Asset Ratio (GAR), which indicates the proportion of their assets that meet the Taxonomy's criteria. Institutions aiming to be perceived as environmentally responsible strive to improve this ratio. Its level affects how banks are viewed by investors and can influence access to financing, including green financing. Concurrently, pressure from institutional investors, particularly pension funds and insurance companies, is growing. The SFDR regulation imposes disclosure obligations on these entities regarding the sustainability of their investments, including, for specific products, information on the portfolio's alignment with the EU Taxonomy.

This creates a mechanism for transferring regulatory requirements to the market: financial institutions, seeking to demonstrate an adequate level of "green" assets, prefer to finance projects that meet the Taxonomy's criteria. This, in turn, directly impacts the conditions for accessing capital for property owners and developers. Real estate, responsible for approximately 40% of energy consumption and about 36% of energy-related greenhouse gas emissions in the EU, plays a crucial role in the Taxonomy.

New buildings must demonstrate a primary energy demand at least 10% lower than the national Nearly Zero-Energy Building (NZEB) standard. For existing properties, there are two options: they must be among the 15% most energy-efficient buildings in the country or have undergone modernization that reduced energy consumption by at least 30%. However, energy efficiency alone is insufficient. Buildings must also meet additional environmental requirements, including resilience to climate change and proper water and waste management. While certifications like BREEAM or LEED can be helpful, they do not guarantee compliance with the Taxonomy.

The market is increasingly dividing real estate into two categories. Buildings meeting the Taxonomy criteria gain easier access to financing, lower margins, higher Loan-to-Value (LTV) ratios, and often higher rents and transaction prices. Corporate tenants are increasingly choosing offices based on ESG parameters, as they themselves are subject to reporting obligations. Buildings that do not meet these requirements, conversely, face challenges.