A quick introduction to the EU Taxonomy on buildings as green investments

One of the most essential tools under the European Union's (EU) major "Fit for 55" strategy when it comes to green investment is the so-called EU Taxonomy. In short, the Fit for 55 strategy is the EU's goal of reducing CO2 emissions by 2030 throughout the Union by at least 55% compared to 1990 levels and to be CO2 neutral by 2050.

What is the significance for you as a property owner or investor?

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For the construction and commercial real estate industry, it is especially the rules about when the acquisition or possession of properties can be assessed as “green” that are decisive. This indexing can have a big impact on the value of properties, on the level of rental income, on borrowing and insurance costs and on how attractive your buildings are when they are to be resold. It can therefore be absolutely crucial for you as a property owner or investor to quickly get on board and ride the wave to secure the future of your real estate investments. That is why we have made a very brief overview of what the EU Taxonomy actually means to the real estate industry.

It can therefore be absolutely crucial for you as a property owner or investor to quickly get on board and ride the wave to secure the future of your real estate investments.

What does EU legislation mean for Denmark?

EU laws are divided into 2 categories; the first is regulations, the second is directives. Both categories have the same legal effect, ie legal significance, for Denmark. The only difference is that a regulation has direct legal effect, and it therefore enters into force and must be enforced by the Danish authorities at the same time as it enters into force at EU level. A directive must be implemented, and it can therefore only be enforced when the directive has been incorporated into Danish law. implementing acts laying down more detailed regulation in this area. It is the delegated acts of the Taxonomy that we describe in this note.

What is in the EU Taxonomy?

Under the delegated acts, it is defined at what level a building must perform in terms of energy in order to be assessed as a green investment.

For buildings built before 31 December 2020 (this limit is set to differentiate between the existing housing stock and new construction), it applies that if you as a property owner want to be home safe, your building must be Energy Class A-marked in order to be called a green investment. However, not many buildings meet the requirements for Energy Label A. Therefore, the European Commission has formulated an alternative green investment classification. In order to achieve the same conditions as properties with Energy Mark A, one's building must be among the top 15% of the energy-labeled Danish building stock.

It will probably be possible to make a segmentation at regional level, ie. that it will be possible to make these calculations in relation to the region in which the building is located. For example, a dwelling in Copenhagen could be measured against the energy-labeled housing stock in the Capital Region. The Danish Energy Agency has also divided the energy label into 5 categories: Detached houses; Townhouses, chain and semi-detached houses; Condominiums; Trade and office; Farmhouse for agricultural property. There will therefore be differentiation within these categories so that the properties are measured against other similar properties.

In order to be able to achieve the same conditions as properties with Energy Mark A, one's building must be among the top 15% of the energy-labeled Danish building stock.

What if my properties do not live up to the green requirements?

If your buildings do not have Energy Mark A or are outside the top 15% best energy performing, then they can not achieve the benefits of being described as a green investment. Fortunately for many property owners, there are many opportunities to obtain favorable loans for the renovation and upgrading of one's housing stock so that it reaches a level where it can be described as green. Under their NextGenerationEU strategy, the EU has made a major investment called Renovation Wave, which will support a massive renovation of the existing building stock. Among other things, the pools European Flagship ‘Renovate’, European Local Energy Assistance and Resilience and Recovery Fund have been set up, where you as a property owner have the opportunity to apply for support for renovation projects. The Danish team has also chosen to make a number of renovation pools available under the National Strategi for Bæredygtigt Byggeri, including: Bygningspuljen. In addition, investments that make your buildings up to either Energy Mark A or become part of the top 15% can be financed through green loans, the so-called green bonds (for an explanation of these see for example Realkredit Danmarks explanation).

For more information or if you want to discuss the topic; finally drop me an email or give me a call.

- Sebastian Stølen-Bosse, Business Developer at Legacy, ssb@wearelegacy.dk