In 2023 large EU listed companies started to report against Taxonomy’s two climate objectives, climate change mitigation and climate change adaption.
Last year there was €250 Billion in Taxonomy aligned investments recorded. German companies recorded €114 Billion of Taxonomy compliant investments, followed by France at €63 Billion, then Spain with €60 Billion and Italy at €48 Billion.
The number of countries and investments are set to grow exponentially from here on.
Compliance with EU Taxonomy will play a major role in the viability of projects as it will be a requirement by more funds and banks.
What then does this mean for real estate investment and further on to the construction sector?
Mitigation
The main mitigation measures are that there is a requirement for the Primary Energy Demand (PED) to be 10% better than the existing threshold. In Ireland, that means 10% better than NZEB.
The building should be built to a recognised environmental standard. The most acceptable are LEED and the German standard, DGNB, which is aligned with all EU Taxonomy requirements.
For buildings over 5,000m2, a Life Cycle Assessment (LCA) to calculate the carbon content of the building for each stage of the building’s life cycle should be carried out. This should be in accordance with EU Level(s).
In order to maximise the value of this exercise, it should be undertaken in conjunction with costs from the early stages of the design in order to optimise cost & carbon reductions. Demonstrating significant reductions from the ‘Business as Usual’ baseline scenario will give developments an advantage when seeking investment.
There is now a whole ecosystem and joined up process for the calculation of embodied carbon in buildings. One Click LCA is gold standard for calculation of LCAs in accordance with EN 15978, the European Standard for carrying out LCAs.
The International Cost Management Standard (ICMS3) also reflects the guidance of EU Level(s) to carry out LCAs and Life Cycle Costing (LCC). This has been mandated for use in all Irish public sector projects since the 1st January 2024 by the Office of Government Procurement.
Buildings should also be constructed incorporating circular design principles in accordance with ISO 20887:2020. They should be designed for disassembly and adaptability.
70% of construction and demolition waste should be recycled or backfilled.
Adaption
In terms of climate change adaption, Climate Risk Vulnerability Assessments (CRVA) should be carried out to assess the building’s location from climate risk from floods, fires and overheating.
A number of reinsurance companies provide risk assessment tools for this purpose. Two in particular are Munich Re and Swiss Re.
According to the Munich Re website, there were 45 natural hazard insurance events in excess of $1 Billion in 2023.
This risk profile will only increase as climate change accelerates, making risk assessment a key metric for investment criteria.
Conclusion
EU Taxonomy is here. In order for developers to maximise the value of their assets in the long term and make them more attractive to investors, compliance with it is a must.
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