EU Taxonomy is Transforming the Property Sector

Here are some ongoing changes Ethos has seen in the market since the first set of green regulations were implemented:

On the regulatory front, a number of the green rating systems, such as Green Business Certification Inc. (LEED), Building Research Establishment (BREEAM) and Irish Green Building Council (HPI) have reviewed how their respective tools align with the EU Taxonomy objectives. 

Currently the rating systems mentioned above do not fully align with the objectives, however there are several cross over credits within each rating system. Both the GBCI and BRE have noted that this is a changing space and future versions of their rating system where possible will align.

The IGBC are currently developing version 3 of the HPI rating system, and they are aiming to more closely align the requirements of this new version with EU Taxonomy objectives.

In practice, we are seeing the EU Taxonomy gathering momentum and impacting a host of sectors. Some recent scenarios we have seen are:

1. Sales agreements are now incorporating compliance obligations and specifying the evidence and certifications required for transaction completion. This in turn is compelling developers and building owners to build EU Taxonomy requirements into the project. Evidence needs to be gathered during the build phase and at completion to demonstrate that the building is fully compliant.

2. Generally, it is falling to the developer/vendor to manage compliance and provide evidence to the purchaser. In some cases, we are now seeing the purchaser/investor appointing a due diligence consultant of their own who is monitoring compliance across the entire build phase and on handover. This leaves potential for more interaction between vendor and purchaser during the build phase.

3. Owners of existing buildings and portfolios are more concerned about the possibility of their property values and lease-ability to become negatively impacted in older buildings that do not fully comply without investment. Risk assessments and gap analysis are now feeding into a process to develop an overall sustainability strategy for each asset and portfolio. We predict this will drive projects to upgrade or exit certain buildings.

4. EU Taxonomy and green requirements are now present for bank loans to developers and investors. This includes mainstream Irish banks that are seeking to manage the evolving risk profile due to new EU requirements. This is not just about getting the best interest rate, but the banks are also attempting to minimise their potential exposure to a property whose value may be negatively affected over time as sustainability requirements increase. There is a risk that some properties may become unbankable, or stranded assets.

5. The deadlines for public (government & quasi-government owned) buildings to meet the new standards are sooner than others. And there is a lot of activity at every level of government to address new and existing building sustainability.

As the market adapts to new EU taxonomy regulations, and the general impacts of ESG and sustainability are ongoing, Ethos continues to monitor for developments and provide the most up to date information for our clients.

If you have any queries or need assistance on any aspect of sustainability, ESG or EU Taxonomy in the development and operation of your buildings, please get in touch with Michael Boyle or PJ Ryan at sustainability@ethoseng.ie.