ESG factors

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Holistic strategies for sustainable development through the integration of ESG factors

ESG is on everyone’s lips – and not without reason.
ESG factors, i.e. environmental, social and corporate governance, are playing an increasingly important role in the move towards sustainability.
In the real estate industry, ESG factors are already being incorporated into many planning processes and various certification systems in order to implement sustainable construction projects.
The aim is to create places that offer tenants and users comfort and increase productivity.
At the same time, properties are becoming attractive investment opportunities, as sustainable finance products are also becoming increasingly popular.
Private investors and major investors are placing increasing importance on ensuring that their investments meet certain non-financial standards.
The focus on ESG factors is a basic building block for a holistic sustainability strategy and also makes it possible to compare the sustainability performance of different products, projects and companies.
With a view to the future, it is therefore advisable to incorporate ESG criteria into planning processes at an early stage and thus create a responsible approach to the environment and resources.

We offer:

• Support with the implementation of sustainability goals in your construction project
• Personal advice on ESG and ESG-based certifications
• Information on and support with the DGNB’s ESG verification and taxonomy check
• Information on other certification systems for sustainable building, such as DGNB, LEED, BREEAM and many more.

What does ESG mean?

ESG factors are generally used to classify the sustainability of companies, construction projects, real estate and economic activities in general.
The criteria are divided into environmental, social and governance factors:

E – Environment	S – Social	G – Governance
e.g. energy efficiency issues, The dangers of climate change, Measures to counteract environmental hazards and pollution, CO2 emissions, Circular economy, responsible use of resources.	e.g. occupational safety, Health protection, Diversity, social commitment, Well-being.	e.g. sustainable corporate governance, Corporate values, Management and control processes, Risk management, Transparency.

ESG ratings

ESG ratings are offered by various agencies and organizations.
In ESG ratings, for example, real estate or entire investment funds are checked for compliance with the defined sustainability criteria.
The rating is intended to show the extent to which certain environmental, social and corporate governance guidelines are taken into account and make the performance of individual participants comparable.
ESG ratings are therefore also very important in the financial sector, as investors’ interest in investing their money in a sustainable and future-proof manner continues to grow.
In the long term, those who do not focus on ESG criteria will have to expect investments to continue to decline, as ratings and disclosure requirements will make it increasingly easy for investors to distinguish between companies that act sustainably and those that do not. The following assessment and certification systems are relevant in the construction sector:

• greenproperty is a seal of quality for sustainable real estate and assesses compliance with ESG criteria in five different dimensions.
• GRESB: The GRESB assessment measures and evaluates the sustainability performance of entire real estate portfolios, thus creating ESG benchmarks for players in the real estate industry.
• Level(s) is the new European reporting framework for sustainable buildings.

ESG regulation in the EU

When talking about ESG criteria, sooner or later you will also come across the EU Taxonomy and Disclosure Regulation, which in turn are part of the EU Action Plan on Sustainable Finance.
This was developed in order to clearly identify sustainable investments and assets, increase the attractiveness of sustainable projects and activities for investors and hold the European financial sector accountable – because investments worth billions are needed to achieve the EU’s sustainability goals.
In order to achieve this, private capital flows must be directed towards sustainable investments on a significant scale.

Taxonomy: classification system for sustainable investments

In March 2018, the Sustainable Finance Action Plan was therefore adopted, which aims to channel private capital into more sustainable investments and thus generate sustainable economic growth.
Among other things, the action plan includes the establishment of an EU-wide classification system for economic activities with a positive impact on the climate and environment in order to create a common language for all players in the financial system . The development of generally accepted standards for measuring performance and impact on carbon footprint, health, safety and human capital will support investors in making informed decisions.
Clear definitions prevent investments from flowing into supposedly sustainable investments that are not actually committed to climate protection.
The following objectives have been defined for the environment in Article 9 of the EU Taxonomy Regulation:

• Climate protection,
• Adaptation to climate change,
• sustainable use and protection of water and marine resources,
• Transition to a circular economy,
• Prevention and reduction of environmental pollution and
• Protection and restoration of biodiversity and ecosystems.

A taxonomy for the areas of social and governance is expected in the coming years.
To be considered sustainable, an economic activity must achieve a clearly positive effect in at least one of the defined goals without impairing the realization of the other goals (Do No Significant Harm/DNSH).
In addition to these environmental objectives, social aspects and criteria for good corporate governance also determine whether an economic activity is assessed as sustainable – i.e. precisely the criteria that are also relevant for an ESG rating.
The final delegated act with the first specific technical evaluation criteria for sustainability as defined by the EU Taxonomy Regulation was published in April 2021 and is expected to be applicable from the beginning of 2022 once the legislative process has been completed.

ESG and taxonomy in the construction and real estate sector

In the construction and real estate sector, the taxonomy applies to new construction, existing buildings, building renovation, individual measures and professional services, as well as the acquisition and ownership of real estate.
With regard to the construction products used, the taxonomy requires, for example

• the use of low-emission materials with precisely defined emission limits and the exclusion of hazardous and harmful substances (materials in interior fittings),
• the dismantlability, separability and recyclability of the building products used,
• water-saving fittings,
• Transparency about the CO2 balance of all construction activities and materials used.

Particularly when buying and selling properties, compliance with ESG criteria and corresponding proof of taxonomy conformity creates greater transparency and minimizes risk.
Taxonomy-compliant projects should also receive better financing conditions in future.
A taxonomy check for construction projects, existing buildings and entire portfolios with corresponding ESG verification is offered, for example, by the DGNB in cooperation with the CPEA.
We are happy to support you with a taxonomy check for building products via our Building Material Scout platform.

Disclosure obligation: acting transparently and sustainably

The EUSustainable Finance Disclosure Regulation (SFDR), which is also part of the EU’s ESG regulatory measures, obliges financial market players in the European Union to report sustainability information (Corporate Sustainability Reporting/CSR).
The Non-Financial Reporting Directive (NFRD ) defines exactly what information must be shared.
This disclosure obligation is intended to ensure that the above-mentioned criteria are also implemented.
The players affected include companies, benchmark providers and real estate fund managers.
For example, fund managers must disclose the extent to which the properties in their portfolio meet sustainability criteria, take environmental risks into account and generally incorporate ESG factors.
This is intended to strengthen transparent reporting with regard to environmental, social and governance policy.
More information on the taxonomy and disclosure regulation can be found in the European Commission’s communication on the EU taxonomy and sustainability reporting and at the Federal Ministry for Economic Affairs.
If you have any further questions on sustainable strategies, we will be happy to advise you.
We support you in integrating ESG aspects into your project planning and develop solutions to implement economic, ecological and social sustainability criteria holistically.

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Phone +49 711 62049-340 Email info@hoinka.com