The European sustainability reporting landscape has been evolving rapidly over the past several years, as the EU continues to push its private sector to meet the climate goals of the Paris Climate Accords. The EU has led the way for the rest of the world in the development of comprehensive ESG reporting rules, leading governing bodies such as the U.S. Securities and Exchange Commission (SEC) to follow suit with sustainability reporting requirements of their own. Under Europe’s sustainability reporting regime, companies across industries are required to disclose on sustainability performance, climate governance practices, risk mitigation strategies, and more.
One of the questions we get most frequently from our customers with EU assets is how to navigate this increasingly complex EU compliance regime while staying focused on north-star sustainability goals. We’ve written this article as a comprehensive guide to help real estate owners navigate the complex web of ESG regulations, certifications, and frameworks being rolled out across the European Union.
As former real estate investors, we at Cambio understand the challenges that come with meeting a diverse set of compliance needs in the world of real estate sustainability. Cambio’s industry-leading sustainability compliance product leverages building performance data to automate sustainability reporting, saving our customers hundreds of hours of team time per year. By streamlining data collection and reporting, we give time back to real estate owners and sustainability teams to focus on achieving their north-star sustainability and cost goals.
Read on to discover the essential regulations and certifications you need to know, the steps to achieve compliance, and how Cambio's software can make the process seamless.
Key Regulations in the EU
The regulatory landscape for real estate in Europe is defined by a web of reporting frameworks and enforceable regulations, all aimed at promoting transparency around sustainability performance and the development of cohesive sustainability strategies. Several of these rules apply to the real estate industry and its downstream counterparties like manufacturing, raw materials, and transportation.
The central EU sustainability reporting regulations relevant for real estate operators are the Corporate Sustainability Reporting Directive (CSRD) and the Sustainable Finance Disclose Regulation (SFDR). Both of these require annual sustainability reporting for companies operating in the EU.
Corporate Sustainability Reporting Directive (CSRD)
The CSRD is the EU’s overarching ESG reporting regulation for companies and organizations operating in Europe. Building on its predecessor, the Non-Financial Reporting Directive (NFRD), the CSRD massively expands the scope of EU corporate sustainability reporting, requiring nearly 50,000 companies to disclose information on ESG topics. Companies must report on their sustainability policies, outcomes, and risks, ensuring that stakeholders have access to consistent and comparable information. Moreover, companies must track and report on material Scope 1, 2, and 3 Emissions and obtain third-party assurances for these measurements.
What the CSRD means for real estate
For real estate owners, the CSRD means providing detailed disclosures on the energy performance, carbon emissions, and overall sustainability of their properties. This involves tracking and reporting on various aspects of building operations, including energy usage, waste management, and water consumption. Compliance with the CSRD can lead to increased scrutiny from investors and regulators but also offers an opportunity to demonstrate leadership in sustainability and attract green investments.
Cambio platform automates the CSRD reporting process, from managing emissions data collection to enabling you to gather input for strategic responses from across your organization.
Sustainable Finance Disclosure Regulation (SFDR)
The SFDR mandates financial market participants and advisers to disclose how they integrate sustainability risks into their investment decisions and advice. This regulation requires real estate owners to provide detailed information on how sustainability risks affect their properties and investment strategies. It also introduces classifications for financial products based on their sustainability characteristics, pushing real estate investors towards more sustainable investments.
What the SFDR means for real estate
A critical component of the SFDR is the Principal Adverse Impacts (PAI) report, which requires companies to disclose the negative effects of their investments on sustainability factors. Cambio automates the generation of the PAI report, ensuring accurate and comprehensive disclosures. Additionally, our Cambio Surveys product drives stakeholder input into the SFDR PAI report across an organization, enhancing the robustness and reliability of the data provided.
EU Taxonomy Regulation
The EU Taxonomy provides a classification system for sustainable economic activities, helping investors identify environmentally sustainable investments. For real estate, this includes criteria for buildings' energy efficiency, renewable energy usage, and greenhouse gas emissions. Compliance with the taxonomy can enhance a building's attractiveness to green investors and provide a competitive edge in the market.
What the EU Taxonomy means for real estate
While compliance with the EU Taxonomy on its own is largely voluntary, the SFDR and CSRD reporting directives each demand that companies disclose the EU Taxonomy alignment of their activities:
- CSRD: Real estate companies must disclose information on how and to what extent their activities are associated with economic activities that qualify as environmentally sustainable under the EU Taxonomy. This involves reporting on the proportion of turnover, capital expenditure (CapEx), and operational expenditure (OpEx) that is aligned with the EU Taxonomy.
- SFDR: Real estate investors must disclose the extent to which investments are in environmentally sustainable economic activities as defined by the EU Taxonomy. This includes pre-contractual disclosures, periodic reporting, and disclosures on websites.
Energy Performance Certificates (EPCs)
Energy Performance Certificates (EPCs) are essential to the real estate sustainability compliance regime in Europe. An EPC provides a standardized measure of a building's energy efficiency, informing potential buyers or tenants about energy performance. The certificate includes details on a building’s energy usage, CO2 emissions, and recommendations for improving energy efficiency.
Real estate owners must obtain EPCs for their properties, with regular updates to reflect improvements in energy efficiency. This not only ensures compliance but also helps in marketing properties as energy-efficient and sustainable.
To obtain an EPC, a certified energy assessor conducts an on-site evaluation of the property, examining various elements such as insulation, heating systems, ventilation, and overall energy usage. The assessor then uses this data to calculate the building's energy performance and generate the certificate. In many European countries, EPCs are mandatory for all buildings being sold, rented, or constructed, and they must be renewed periodically, typically every 10 years.
Cambio tracks Energy Performance Certificates across your portfolio for consolidated data and document management and compliance purposes. We help you keep tabs on your certification status across every building you own, freeing up your time and making sure you stay in compliance.
Sustainability Frameworks and Certifications
As real estate owners navigate the complexities of mandatory EU regulations like the CSRD and SFDR, integrating voluntary sustainability frameworks and certifications can provide additional clarity and strategic advantage. While reporting with frameworks such as GRESB, CRREM, GRI, and TCFD are not mandated by law, they are pivotal in understanding and enhancing sustainability reporting. These tools offer robust guidelines and benchmarking standards that align closely with EU regulatory objectives, helping organizations measure, manage, and disclose their environmental impact more comprehensively.
TCFD (Task Force on Climate-related Financial Disclosures)
The TCFD framework is a global sustainability framework developed by the Task Force on Climate-Related Financial Disclosures. The TCFD framework provides guidelines to companies for disclosing climate-related financial risks and opportunities. It helps real estate owners understand the financial impacts of climate change on their properties and integrate climate considerations into their financial planning. While TCFD is not an EU-specific regulation, it is highly relevant to European real estate owners due to its alignment with the region’s regulatory trends and sustainability goals. The TCFD framework emphasizes four core elements: governance, strategy, risk management, and metrics and targets, for companies to use as the foundation for their sustainability reporting.
In the EU, the CSRD and SFDR are heavily inspired by and share similar objectives with TCFD by promoting transparency and accountability in sustainability reporting. For instance, the CSRD requires companies to disclose their environmental impacts, including climate-related risks and opportunities, in a manner that aligns closely with TCFD principles. Likewise, the SFDR mandates financial market participants to disclose how they integrate sustainability risks into their decision-making processes, echoing the TCFD's emphasis on risk management.
For real estate owners, adopting the TCFD framework can enhance compliance with these EU regulations by providing a robust structure for disclosing climate-related information. This alignment not only meets regulatory expectations but also supports investor demand for consistent and comparable climate data.
CRREM
The Carbon Risk Real Estate Monitor (CRREM) is a decarbonization framework that helps real estate owners manage carbon risk levels within their portfolios. Like the Task Force on Climate-related Financial Disclosures (TCFD), CRREM is not an EU-specific regulation but plays a crucial role in aligning with the region’s sustainability objectives and regulatory environment.
CRREM provides science-based decarbonization pathways for the real estate sector, helping property owners understand and mitigate their buildings' carbon emissions in line with global climate targets. The framework offers detailed methodologies for evaluating carbon risks, identifying energy efficiency measures, and setting targets for reducing greenhouse gas emissions. The Cambio platform tracks CRREM pathways at the building level, providing you insight into stranding timelines and carbon risk for each building in your portfolio.
While CRREM compliance is not mandated by the EU, CRREM complements enforceable directives such as the CSRD and SFDR by providing precise and actionable data on carbon performance and reduction strategies that help owners get in compliance with these rules. Leveraging the CRREM framework helps owners ensure that their properties are on a clear path to decarbonization, aligning with EU regulations and investor expectations. This also enhances asset marketability for future investors.
GRI (Global Reporting Initiative)
GRI standards offer comprehensive guidelines for sustainability reporting, covering environmental, social, and governance aspects. Real estate owners can use GRI standards to report on their sustainability performance in a structured and comparable manner. This helps stakeholders assess a company's sustainability efforts and identify areas for improvement.
ISSB (International Sustainability Standards Board)
The ISSB aims to develop a global baseline for sustainability disclosures. Its standards will likely align with existing frameworks like TCFD and GRI, providing consistency in sustainability reporting. Real estate owners adopting ISSB standards can ensure their disclosures meet global expectations and regulatory requirements.
Takeaways: The Value Proposition of Compliance
The regulatory landscape for real estate in the EU is moving towards more stringent and comprehensive sustainability requirements. The focus is on enhancing transparency, standardizing reporting, and promoting sustainable investments. Real estate owners must stay ahead of these trends by proactively improving their properties' energy performance, reducing carbon emissions, and integrating sustainability into their business strategies.
Achieving compliance with sustainability regulations offers several benefits for real estate owners. Sustainable properties attract more tenants and buyers, particularly those focused on ESG criteria. Improved energy efficiency and reduced operating costs contribute to better financial performance. Addressing climate-related risks protects properties from potential regulatory and market shifts, while demonstrating a commitment to sustainability enhances your company's reputation and stakeholder trust.
Steps for Building Owners to Achieve Compliance
- Understand the Regulations: Familiarize yourself with relevant EU regulations and frameworks, including CSRD, SFDR, EU Taxonomy, EPCs, and global standards like TCFD, GRI, and ISSB.
- Leverage Technology to Assess Current Performance: Conduct a thorough assessment of your properties' energy performance, carbon footprint, and overall sustainability. Use sustainability compliance software to streamline data collection, automate reporting, and ensure ongoing compliance with regulations.
- Implement Improvements: Implement high-impact retrofits to improve energy efficiency, integrate renewable energy sources, and reduce carbon emissions. Track the outcome of these retrofits using software like Cambio.
- Obtain Certifications: Pursue certifications like GRESB to benchmark your sustainability performance and demonstrate commitment to ESG principles.
- Enhance Reporting: Utilize standardized reporting frameworks to disclose your sustainability efforts transparently and comprehensively.
Cambio: A Partner for Your Sustainability Compliance Journey
Cambio is the only real estate sustainability platform built by real estate investors, for real estate investors. We built Cambio with one mission in mind: to decarbonize commercial real estate. Along the way, we committed to prevent the inefficiency, red-tape and resulting inaction we experienced as real estate investors, including the manual processes involved in navigating regulatory compliance.
Our compliance platform is compatible with GRESB, SFDR, CSRD, CRREM, and beyond, helping real estate owners navigate the complex landscape of ESG reporting around the world. Our software leverages building performance and system-level data to automate the quantitative side of sustainability reporting, ensuring full coverage across Europe. By choosing Cambio, you can streamline your compliance efforts, improve your properties' sustainability, and achieve your cost and sustainability goals efficiently.
Ready to get started? The world’s best real estate institutions, investment banks, and corporations use Cambio for their sustainability reporting, carbon analytics, and decarbonization strategy. Check out our other materials on the Cambio website and sign up for a demo today.
