At a glance

 

1. Framework and objectives

2. Target group/scope of application

2.1. Sustainability of an economic activity within the meaning of the EU Taxonomy Regulation

2.2. The six environmental objectives of the EU Taxonomy Regulation

2.3. The Delegated Acts

2.3.1. Technical screening criteria for the buildings sector

2.3.1.1. Environmental objective "climate change mitigation": technical screening criteria

2.3.1.2. Environmental objective "climate change adaptation": technical screening criteria

2.3.2. Environmental objective "climate change mitigation": Do no significant harm criteria

2.3.3. Environmental objective "climate change adaptation": Do no significant harm criteria

2.3.4. Example environmental objective "climate change mitigation": technical screening criteria + DNSH criteria

 

1. Framework and objectives

Regulation (EU) 2020/852 of the European Parliament and of the Council on the establishment of a framework to facilitate sustainable investment and amending Regulation (EU) 2019/2088 was published in the Official Journal of the European Union on 18 June 2020 and entered into force on 12 July 2020. Known as the EU Taxonomy Regulation for short, it is a central component of the EU Action Plan on financing sustainable growth, which was published in 2018 and aims to channel capital flows into sustainable investments, thereby contributing to the main objective of the European Green Deal, namely for the EU to cease being a net producer of greenhouse gas emissions by 2050 and so take into account the objectives of the Paris Agreement to combat climate change.

The EU Taxonomy Regulation classifies economic activities and determines when they qualify as environmentally sustainable. In this way it serves as a guideline for investors with regard to environmental sustainability in the financing of economic activities.

2. Target group/scope of application

The EU Taxonomy Regulation is directed at financial market participants such as investment firms and alternative investment funds, companies with certain disclosure obligations (e.g. according to the CSR Directive) and measures adopted by the EU or member states to establish requirements for financial market participants or issuers with regard to financial products or corporate bonds that are made available as “environmentally sustainable” (e.g. EU Green Bond Standard). 

As the definition of a financial product within the meaning of the Regulation does not cover traditional real estate financing and Pfandbrief business, neither lending operations nor Pfandbrief issues come under the Taxonomy Regulation. However, Pfandbrief banks are affected when they fall, as companies, within the scope of the CSR Directive, as they are required under Article 8 of the Taxonomy Regulation to provide in their non-financial statement information on how and to what extent their economic activities are to be classified as environmentally sustainable within the meaning of the Taxonomy.

Nevertheless, the Taxonomy criteria may be applied voluntarily, e.g. with regard to Green Bonds which aspire towards the Green Bond Standard label (which is expected in June 2021 and will probably require that the (re-)financed assets comply fully with the Taxonomy).

2.1. Sustainability of an economic activity within the meaning of the EU Taxonomy Regulation

 

Source: vdp

2.2. The six environmental objectives of the EU Taxonomy Regulation

The above-mentioned six environmental objectives are defined in the Regulation. Economic activities qualify as sustainable within the meaning of the Taxonomy when they contribute substantially to any of the environmental objectives set out in Article 9 of the Taxonomy Regulation.

 

Source: vdp

2.3. The Delegated Acts

Additionally, the Commission is adopting for each of the six environmental objectives Delegated Acts which specify technical screening criteria for determining whether an economic activity is Taxonomy-compliant, i.e. whether it contributes substantially to one of the six environmental objectives and at the same time does no significant harm to any of the other environmental objectives (Do no significant harm criteria).

On 21 April 2021 the Commission published a Delegated Act for the environmental objectives “climate change mitigation” and “climate change adaptation”.

2.3.1. Technical screening criteria for the buildings sector

With regard to the buildings sector the Delegated Act distinguishes between the following economic activities: 

  • Construction of new buildings
  • Renovation
  • Individual measures
  • Acquisition and ownership of buildings

The European Commission has published a so-called Taxonomy Compass on the EU Taxonomy Regulation on its website. It provides a clear navigation through the substantial contribution and Do no significant harm criteria for the respective economic activities according to the delegated act on the environmental objectives of climate change mitigation and climate change adaptation.

2.3.1.1. Environmental objective "climate change mitigation". technical screening criteria 

The screening criteria for the environmental objective “climate change mitigation” with regard to the buildings sector may be summarised as follows:

Source: vdp

For the construction of new buildings, the Delegated Act stipulates with regard to the environmental objective “climate change mitigation” that buildings must show a primary energy demand that is at least 10 % lower than the national standard for nearly zero-energy buildings (NZEB). In Germany relevant requirements are set forth in the Buildings Energy Act (Gebäudeenergiegesetz, GEG). Where the residential buildings sector in Germany is concerned, so-called KfW 55 houses (i.e. houses which meet the KfW 55 energy efficiency standard) would currently fulfil this criterion. When a building has an area of more than 5,000 m², it additionally undergoes testing for air-tightness and thermal integrity, or robust and traceable quality control processes are to be carried out during the construction process and the life-cycle Global Warming Potential is to be calculated.

The Delegated Act requires that major renovations must realise a reduction of primary energy demand of at least 30 % or comply with the applicable legal requirements for major renovations.

In the case of the acquisition and ownership of buildings built before 31 December 2020, the Delegated Act requires that a building has at least an Energy Performance Certificate (EPC) class A, or that proof is provided that the building belongs to the top 15 % in terms of the primary energy demand of the national or regional building stock. For the purpose of the assessment, a distinction is to be made between residential and non-residential buildings.

For all buildings constructed after 31 December 2020, the criteria for the construction of new buildings apply. In addition, when the building is a large non-residential building (with an effective output for air-conditioning and heating systems of over 290 kW), proof must be provided that it is efficiently operated through energy performance monitoring and assessment. Additionally, the relevant DNSH criteria must be observed (see section 2.3.2).

2.3.1.2. Environmental objective "climate change adaptation": technical screening criteria

With regard to the buildings sector, the screening criteria for the environmental objective “climate change adaptation” may be summarised as follows. Additionally, the relevant DNSH criteria must be observed (see section 2.3.3).

Source: vdp

2.3.2. Environmental objective "climate change mitigation": Do no significant harm criteria

Conformity with the Taxonomy means that an economic activity contributes substantially to one of the six environmental objectives. For this, the above-mentioned technical screening criteria must be observed. At the same time, no significant harm must be done to any of the other six  environmental objectives (Do no significant harm). The Delegated Act also contains relevant criteria in this context. In terms of the environmental objective “climate change mitigation” this means, with regard to the other five environmental objectives, for the buildings sector:

Source: vdp

2.3.3. Environmental objective "climate change adaptation": Do no significant harm criteria

With regard to the environmental objective “climate change adaptation”, the following criteria must be fulfilled to rule out significant harm being done to the other five environmental objectives:

Source: vdp

2.3.4. Example environmental objective "climate change mitigation": technical screening criteria + DNSH criteria

Thus, in order to meet the environmental objective “climate change mitigation” with regard to the “construction of new buildings”, in addition to the technical screening criterion “NZEB minus 10 %” (see above), for the DNSH criteria to be fulfilled with regard to the other five environmental objectives, proof must be provided, for example, of the following (list not exhaustive):

Source: vdp