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EU compels investors to take action to increase sustainability

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New European Union legislation compels real estate investors to provide full transparency when it comes to the sustainability of their funds. Moreover, the bar is set higher than under the previously applicable Dutch regulations. Colliers spoke to fifteen investors in housing, retail outlets and offices about the significance and impact of the new legislation. Together, they own 58 billion euros worth of Dutch real estate, accounting for 39% of the total property of real estate funds.

The European Commission has focused its legislation on the financial market. Firstly, the Sustainable Finance Disclosure Regulation (SFDR) requires pension funds, investment institutions, banks and other financial market participants to report on the sustainability performance of their funds to indirect investors, on their website and in prospectuses. Secondly, there is the EU Taxonomy, a green classification system which sets out criteria that real estate activities such as new construction, purchases and renovations have to meet in order to be called sustainable. 

Sustainable use 
"Indirect investors have an important role to play in making real estate more sustainable. They often want to take steps forward, but are not sure where to begin," says Arjan van Eijk, Head of Sustainability at Colliers. "They can no longer see the forest for the trees, for example, when deciding how to use their money sustainably. In addition, they often have their doubts about the actual sustainability of a fund, due to a lack of transparency."

According to Van Eijk, because indirect investors will be given full access to information on a fund’s sustainability performance, parties with high standards can count on more interest and thus more capital. "That way, there is an additional reward for having a sustainable real estate portfolio. A key step in speeding up the transition."

Increasing urgency 
The interviewed real estate investors agreed unanimously that the SFDR and EU Taxonomy are going to have a big impact. Because the legislation focuses on the flows of capital underlying the funds, it affects the investment strategies directly, thereby making the urgency to increase sustainability many times greater. Because of the EU Taxonomy, calling a building sustainable if it does not have an energy label of A or above, for example, is no longer allowed.  

Being a frontrunner has its rewards
Although two thirds of the real estate investors still have questions about the exact implementation of the SFDR and the EU Taxonomy, it is clear to them all that it compels them to act. They have noted that the higher sustainability levels from the SFDR are becoming standard and that you are held accountable if you choose the lowest level. "That encourages the laggers to take action," explains Van Eijk. "There will be more visibility and greater rewards for frontrunners."

As a result of the EU Taxonomy, many real estate investors only want to purchase buildings which are Taxonomy-aligned. This has significant consequences for the real estate demand. The interest in new construction and renovated buildings which meet the criteria will increase. Buildings which do not meet the criteria can bank on less interest from the parties which are subject to the European legislation. For other parties, such as developers and value-add investors, however, making existing buildings more sustainable according to the European criteria and subsequently putting them on the market is actually becoming more appealing. 

Smart move

Van Eijk thinks the new legislation was an especially smart move on the part of the European Commission.  "The forced transparency creates a financial incentive to set more ambitious sustainability targets. Market parties have an extra incentive to also increase the sustainability of buildings which do not yet meet the criteria. Increasing sustainability will become more worthwhile. Knowing what criteria a building must satisfy and what that means for the construction, management and maintenance of that building is vital to be able to make optimum use of this reward."

EU compels investors to take action to increase sustainability

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Arjan van Eijk

Head of Sustainability

Rotterdam

With over 10 years of industry experience across different sectors, Arjan leads the ongoing development and implementation of the Colliers sustainability strategy in the Netherlands, which focusses on improving ESG performance and managing associated risk for a range of occupier and investor clients. He is passionate about driving sustainability in all aspects of the business to preferably exceed stakeholder expectations. Arjan is also part of the ESG Subject Matter Experts Group for the Colliers property management teams across EMEA providing strategic advice on technology deployment, net zero strategies, EU carbon compliance, workplace wellbeing, and the impact that these trends have on service delivery.

Arjan is a regular presenter on sustainability topics and represents Colliers on various industry groups.

Contact Arjan if you'd like to discuss:

  • Development and implementation of ESG & Net Zero strategies
  • SFDR, CSRD and EU-Taxonomy consultancy
  • ESG data management & reporting
  • Community engagement and health & wellbeing
  • Renewable energy in commercial property
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Madeline Buijs

Head of Research & Economy

Amsterdam

Madeline has been Chief Economist and Head of Research at Colliers since January 2022. Madeline heads the research team that researches the various asset types and trends in the real estate sector.  Important topics are the social relevance of the real estate market, sustainability and the use of data. Developments in the housing market have her special attention.

Before that, Madeline worked as a senior sector economist for the construction and real estate sector at ABN AMRO, where she formulated ABN AMRO's vision for the economic developments in these two sectors over the past 9 years. She did this by writing publications, giving presentations and media appearances. Before ABN AMRO, Madeline worked as an economist and project leader at the Netherlands Authority for Consumers and Markets (ACM).

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