The EU Taxonomy is now becoming entrenched in the evaluation of financial investments across Europe. The Taxonomy itself is massive and complex. It consists of over 550 pages of committee-drafted language, nuanced and very “legal” in appearance. The EU green taxonomy aims at nothing less than a transformation of the European economy to meet the 2050 climate-neutrality target. Even for those familiar with such massive efforts, it can overwhelm the thinking process.
Here’s how you might manage buildings and structures under the EU Taxonomy. Keep on reading to find out how property technology, proptech, may assist your compliance efforts. But first, let us introduce you to the fundamentals of the new European legislation.
What is the EU Taxonomy and how will it work?
What is this unusual word “taxonomy”? It is taken from the sciences to describe a classification system. The famous Swedish scientist Carl Linnaeus gave us the best-known taxonomy. He was classifying living beings in a consistent order of:
- Kingdom
- Phylum
- Class
- Order
- Family
- Genus
- Species
Such classification enabled great scientific progress due to its common and logical naming arrangement. Using this common system, scientists around the world explored and explained the natural world.
The history of the word explains itself further. It is from Greek taxis, meaning arrangement or division, and nomos, meaning law or rule. It implies a thoughtful and logical description of an observable phenomenon.
The EU green taxonomy is inspired by the spirit of the word
The EU Taxonomy seeks to bring a similar structure to the identification and classification of economic activity and how it impacts the environment. By establishing a common language and reference points, it aims to enable the steering of capital to green activities. The aim is for stakeholders to allocate resources towards projects and entities which are protecting and improving the world.
The six environmental objectives of the EU Taxonomy
At the highest level of the EU Taxonomy are its six objectives:
- Climate change mitigation
- Climate change adaptation
- Sustainable use and protection of water and marine resources
- Transition to a circular economy
- Pollution prevention and control
- Protection and restoration of biodiversity and ecosystems
The EU taxonomy intends to classify economic activities by assessing if they help or hurt any of these six objectives. It will do this by identifying “Sustainable Economic Activities”. Such activities must meet the following two criteria:
- Contribute to at least one of six environmental objectives listed in the Taxonomy
- Do no significant harm to any of the other objectives, while respecting basic human rights and labour standards.
How the regulation will work in practice
The EU Taxonomy is a relatively new regulation. It is not nearly as established as other European regulations, such as the EN Standards. Yet we can expect several trends based on the EN Standards experience.
Several types of disclosures will be required for many entities under the Taxonomy. Each will require the company to convey data as to the proportions of their investments compliant with the Taxononmy’s objectives.
The EU green taxonomy will affect the real estate sector
Building owners have substantial reporting requirements, in every phase of building age. For example:
- New Building Construction
Primary Energy Demand of new construction is at least 10% lower than nearly zero energy building requirements in national measures
For buildings > 5000 m2 – life cycle global warming potential calculated, and level of performance is tested post-construction, both disclosed to investors and clients - Renovation of existing buildings
Reduction of primary energy demand of at least 30% - Acquisition and ownership of buildings
Buildings built before 12/2020: at least EPC class A, or within top 15% of national building stock expressed in primary energy demand
These are but a few examples. The Taxonomy will grow and reach farther back into a company’s supply chain.
Each disclosure step will require data, hard facts, measured correctly. They will need to be presented in understandable form, comparing company data to national and EU standards. Mere claims of “being green” will be not enough. Indeed, a stated goal of the Taxonomy is to eliminate “greenwashing”. The phrase means to create a false impression of environmental sensitivity not backed by verifiable data.
How the EU Taxonomy will be useful?
“What gets measured gets done.” This old saying holds true in this application. Companies wanting to understand if they are indeed reducing their energy usage in all buildings, for example, will appreciate the standardization the EU Taxonomy provides.
Rather than invent their own standards, the Taxonomy hands the same set of standards to:
- Companies
- Energy suppliers
- Building designers
- Maintenance staff
- Management
- Investors
The EU green taxonomy provides a common language, across national borders and across professional disciplines. These common standards will support environmental sustainability and improvement.
Importantly, if the EU Taxonomy applies to your company, it likely also applies to your competitors. Through required disclosures you must each make, you will have the opportunity to compare your efforts with others in your space.
It provides a non-financial way of demonstrating competitive advantage. It particularly provides the potential of gaining a more favorable investment rating than your competitors. Such a rating can be lowering your overall cost of capital.
Of course, your competitor has the same opportunity. This is what the EU is hoping to achieve, using market forces to help achieve its environmental priorities.
Where is the EU green taxonomy valid?
The EU Taxonomy will apply to any entity that either offers financial products on the European market. It will also include those falling under the Non-Financial Reporting Disclosure (NFRD).
Each category will have specific requirements for disclosure. The financial product entities will need to disclose how well their respective investments are complying. Entities falling under NFRD will disclose their financial metrics aligned with the EU Taxonomy, along with other reporting requirements.
In short, this applies to large entities who have significant financial impact and thus environmental influence.
Proptech, RealEstateCore, and the EU Taxonomy regulation
It becomes obvious by the breadth and depth of the EU Taxonomy that the efficient collection, storage, analysis and reporting of building data will be vital to meet the environmental standards. It is in the high interest of company leaders, building managers, building equipment vendors and IT professionals to agree on software platforms. The sooner they make this decision the better. These platforms must help with several tasks:
- Automate collection and reporting
- Remove manual data intervention
- Provide transparent processes
We offer such a Proptech system that leverages the RealEstateCore ontology. We would be happy to discuss it further with you. Learn more now at proptechos.com.
References:
S&P Global: A Short Guide to the EU’s Taxonomy Regulation
Global Building Alliance: The EU Taxonomy-What Does It Mean For Buildings?
Ramboll: The EU Taxonomy Regulation: 5 reasons to start aligning today
If you want to find out more, you can download our guide or book a demonstration of ProptechOS here.
