2024 is the first year in which European companies are required to publish their indicators for alignment with the European Taxonomy. This sustainability benchmark integrates several real estate activities, from development operations (construction and renovation) to ownership. What are the average alignment percentages for French property companies? What evidence has been provided to meet the Taxonomy contribution criteria?
European environmental Taxonomy and alignment rates: what are we talking about?
The European Taxonomy is the standard for determining the criteria under which an economic activity can be considered sustainable, i.e. contributing to one of these six environmental objectives:
- Mitigation of climate change,
- Adaptation to climate change,
- Transition to a circular economy,
- Pollution prevention,
- Sustainable use and protection of water
- Preservation and restoration of biodiversity and ecosystems.
To determine whether a company’s activity is sustainable, a three-stage process must be implemented. Firstly, the company must determine whether its activity is eligible, i.e. whether the activity is listed in the Taxonomy. The following real estate activities are included (non-exhaustive list):
- Construction of new buildings
- Renovation of existing buildings
- Acquisition and ownership of buildings
Once the company has checked that its activity is included in the Taxonomy, it must then be determined whether the activity is carried out in accordance with the taxonomic sustainability criteria. This second stage is called alignment. Financial flows from activities that comply with the Taxonomy’s technical criteria and minimum social guarantees are aligned. Two types of criteria are listed: contribution to an environmental objective, and ‘Do No Significant Harm’ or DNSH criteria. This second category of criteria is designed to ensure that the activity does not significantly harm the other five environmental objectives. The Taxonomy’s vision is therefore a holistic consideration of all aspects of environmental sustainability. Without the fulfilment of all the criteria, the financial flows (turnover, CAPEX and OPEX) linked to this building cannot be considered as aligned.
The third step is to publish the percentage of activities aligned by related financial flows (turnover, CAPEX and OPEX). Finally, companies must publish these indicators in their periodic reports. 2024 is the second year in which non-financial companies will be required to publish the rates of alignment with climate objectives for their 2023 financial year. For financial companies, this is their first year of publishing indicators of alignment with climate objectives; until now, they were only required to publish eligibility.
What are the alignment rates of French non-financial property companies?
The OID has carried out an analysis of these periodic reports, based on a sample of 18 French real estate companies (financial and non-financial). The companies studied are those that responded to the 2023 Sustainable Real Estate Barometer on the subject of taxonomic alignment. The aim is to provide an overview of the alignment rates and methodologies used by players in the sector. The results are as follows for non-financial companies (property developers and promoters):
- Construction: the average alignment in turnover is 12%.
- Building management: the average alignment in turnover is 21%.
What can we learn from these figures?
For the construction business, alignment in terms of sales is not very high. However, the companies surveyed have adopted a relatively cautious approach, automatically considering as not aligned transactions for which all the criteria have not yet been analysed, pending further analysis.
The alignment rates are fairly high for the building management business in terms of sales. For this activity and this indicator, only alignment with the Climate Change Mitigation objective is possible. The criteria for contributing to this objective are as follows:
- For buildings constructed before 31 December 2020, a class A Energy Performance Certificate must be issued, or the building must be among the top 15% of the national or regional building stock in terms of operational primary energy consumption.
In France, several bodies publish thresholds for the Top 15% in primary energy. For residential buildings, the Ministry of Ecological Transition states that the conventional primary energy consumption of the building must be less than 135 kWh/m2/year. For non-residential buildings, the OID publishes thresholds according to the type of building in its annual energy performance barometer (find the 2023 English edition here). These two criteria are therefore easy to calculate, which may explain the rather high rate of alignment.
- For buildings constructed after 31 December 2020, primary energy demand must be at least 10% below the NZEB (Net Zero Energy Building) threshold. In France, compliance with the RE2020 environmental regulations is sufficient to reach this threshold. It is also therefore easy to attain.
The full study published by the OID (in French) also analyses the results of financial companies (credit institutions), CAPEX alignment rates and compliance with taxonomic criteria (analysis methodologies and assumptions made by players).
The OID continues its ongoing work of deciphering and analysing the European Taxonomy. You can find our Taxonomy Guide here (in English).
